Strategic Management in Tourism to My Father Strategic Management in Tourism

Strategic Management in Tourism To my father Strategic Management in Tourism

Edited by Luiz Moutinho Department of Management Studies University of Glasgow Glasgow UK

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Library of Congress Catalogin-in-Publication Data Strategic management in tourism/edited by Luiz Moutinho. p.cm. Includes bibliographical references. ISBN 0-85199-282-x (alk. paper) 1. Tourism–Management. I. Moutinho, Luiz.

G155.A1 S68 2000 338.4'791–dc21 99-059381

ISBN 0 85199 282 X

Typeset by York House Typographic Ltd, London Printed and bound in the UK by Biddles Ltd, Guildford and King’s Lynn

Contents

Contributors vii Preface ix

Part One: The Tourism Environment 1 1. Trends in Tourism 3 L. Moutinho 2. The Marketing Environment for Travel and Tourism 17 K. Peattie and L. Moutinho

Part Two: Tourism Marketing Management 39 3. Consumer Behaviour 41 L. Moutinho 4. Tourism Marketing Research 79 L. Moutinho 5. Segmentation, Targeting, Positioning and Strategic Marketing 121 L. Moutinho

Part Three: Functional Management in Tourism 167 6. Human Resource Issues in Travel and Tourism 169 D. Nickson 7. Financial Management in Tourism 187 J. Bridge and L. Moutinho 8. Operations Management 211 G. Southern 9. Strategic Quality Management 239 H. Maylor

Part Four: Strategic Planning in Tourism 257 10. Strategic Planning 259 L. Moutinho 11. The Marketing Planning Index: A Tool for Measuring Strategic Marketing 283 Effectiveness in the Hospitality Sector P.A. Phillips and L. Moutinho vi Contents

12. Demand Modelling and Forecasting 293 S.F. Witt and L. Moutinho 13. International Tourism Management 315 F. Go and L. Moutinho

Index 337

Contributors

John Bridge, Cardiff Business School, University of Cardiff, Aberconway Building, Colum Drive, Cardiff CF1 3EU, UK

Frank Go, Rotterdam School of Management, Erasmus University Rotterdam, PO Box 1738, 3000 DR Rotterdam, The Netherlands

Harvey Maylor, School of Management, University of Bath, Claverton Down, Bath BA2 7AY, UK

Luiz Moutinho, Foundation Chair of Marketing, University of Glasgow Business School, Department of Management Studies, 53–59 Southpark Avenue, Glasgow G12 8LF, UK

Dennis Nickson, Scottish Hotel School, University of Strathclyde, Curran Building, 94 Cathedral Street, Glasgow G4 0LG, UK

Ken Peattie, Cardiff Business School, University of Cardiff, Aberconway Building, Colum Drive, Cardiff CF1 3EU, UK

Paul A. Phillips, Surrey European Management School, University of Surrey, Guildford GU2 5XH, UK

Geoff Southern, University of Glasgow Business School, 53 Southpark Avenue, Glasgow G12 8LF, UK

Stephen F. Witt, Chair of Tourism Forecasting, School of Management Studies for the Service Sector, University of Surrey, Guildford, Surrey GU2 5XH, UK. Also at School of Applied Economics, Victoria University, Melbourne, Australia

Preface

New consumer trends, political changes, new technology, the fragmentation of markets, globalization, vertical, horizontal and diagonal integration, environmental concerns, economic integration and many other key developments are all adding to the complexity of corporate management in tourism. Today and in the future, the tasks of strategic management extend well beyond finding or creating new markets. Tourism managers must adjust to all sorts of changes to assure a sustained inflow of resources and a continuing outward flow of services. Under today’s pressures, tourism executives charged with strategic management must be alert to an increasing diversity of impacts that result from the strategy, policy and management design they select. This textbook confronts this highly dynamic environment in two ways: (i) it lays out models and approaches for tourism executives – and students – to use in tying their company or organization into the opportunities and challenges created; and (ii) it uses many of these active forces in the text and cases to illustrate the application of the models, techniques and tools to realistic and demanding situations found in the area of strategic management in tourism. These two distinctive features of the book make it relevant to a turbulent world. More specifically, in order to deal with the baffling array of influences and market opportunities, tourism managers need effective approaches or models to help them sort, interrelate and evaluate. Such decision-making models should suggest what to watch and how to put the pieces together into a meaningful analysis. At the same time, the models and techniques must be sufficiently simple, and easily related to concrete events, so that practising tourism managers can apply them to the situations they face. By becoming familiar with the concepts and techniques, students will have powerful tools to analyse new business and tourism developments and to interpret threats and opportunities for tourism companies. The book is structured in four major parts: (1) The Tourism Environment; (2) Tourism Marketing Management; (3) Functional Management in Tourism; and (4) Strategic Planning in Tourism. Part One introduces two chapters, one on future trends and globalization in tourism, and the other on the management of the environment. Part Two includes chapters on consumer behaviour, marketing research, segmentation, targeting, positioning and managing the marketing mix as well as site location analysis in tourism. Part Three deals with functional management implications in tourism arising from policies in human resource management and total quality management. Finally, Part Four focuses on strategic planning in tourism, particularly strategic planning systems, performance and effectiveness measurement, demand modelling and forecasting as well as international tourism management. x Preface

I wish to acknowledge the help of my chapter co-authors, who contributed ideas, perspectives and specialist knowledge which have greatly enhanced the content of the book. The actual drawing together of the manuscript and making it intelligible to the publisher was ably performed by Sylvia Kerrigan. Finally, I would like to thank my editor, Tim Hardwick, for his patience, support and conﬁdence. For all this assistance I am most grateful.

Luiz Moutinho Glasgow, UK, 1999

Part One The Tourism Environment

1 Trends in Tourism

L. Moutinho

Despite regional uncertainties, the world Regional and Public Sector Policies economic and social climate is generally predicted to produce a strong increase in The characteristics of attractions at a desti- tourism over the next 20 years. New markets nation can be listed by referring to physical, will emerge due to changing economic con- social, historical and aesthetic attributes, ditions, modified consumer behaviour and among others, but the evaluation of the new technologies. The composition of the attractiveness will have to rely on some tourist population will alter, with increasing measure of visitor perception. The individ- proportions of senior citizens, for example. ual attractions will play different roles for There will be greater emphasis on different visitors; some single attractions are individual/self-determined holidays, and perceived as dominant to certain groups, on educational and active recreational pur- while others will look at a region from a suits. On one hand, increasing environ- more holistic point of view and combina- mental awareness will affect planning poli- tions of different types of attractions will, cies and tourist demand. On the other hand, consequently, play the major role. nature, which is the critical resource of tour- The tourism industry is dominated by ism, will become more scarce and fragile. private firms and small businesses across a An ecological, long-term approach to tour- broad spectrum of sectors, including trans- ism planning is postulated. port, accommodation and attractions. This chapter covers recent and probable However, the public sector has a key role to future trends in tourism. The aim is not to play in the successful development of tour- present a definitive picture of developments ism in a particular locality. Public sector over this period. It is far more important for intervention is necessary to ensure that the this scenario to help the planners concerned associated benefits of tourism are maxi- with tourism to come to terms with future mized and any potential problems are changes than merely to describe future con- minimized for the benefit of the economy, ditions. Thus we must examine any society and environment, as well as for the distinguishable and important trends with a long-term interest of the tourism industry view to answering the question: ‘What deci- itself. Whether the government opts merely sions have to be taken now or in the coming for the creation of a climate conducive to the years to make adjustment to these trends growth of a successful tourism industry, or possible, in good time?’ decides to become more actively involved, perhaps even assuming an entrepreneurial role, intervention by the government should © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 3 4 L. Moutinho

not merely be a manifestation of political erally one of greatly decelerated growth and rhetoric, but rather an organized, sustained stagnating disposable per capita incomes. and flexible approach to tourism planning The desire to travel, in these countries, is with the aim of optimizing its social and approaching saturation levels and sensitiv- economic returns. ity to price levels is increasing. The limits to Two characteristics of the tourism sector, tourist expansion are already detectable. the constant dependence of the tourist on The forecasts mentioned above for growth in those rendering the services and the cur- tourism, particularly that by Herman Kahn, rency foreign tourists bring in, have led are not likely to be maintained, at least as far governments to become very rapidly as the traditional industrialized nations are involved in this field, involvement which concerned. In countries like Switzerland, has above all produced special regulations Sweden and Norway the net travel inten- assuring a close control of the sector’s activ- sities, which are over 75%, are not likely to ities. The government can limit itself to increase significantly. In several large coun- strictly technical or administrative interven- tries, however, where the variance of travel tion or, conversely, enlarge it to include all intensities between urban and rural areas is aspects of the economy. larger, e.g. France, Germany, UK (net travel intensities between 57 and 60%), there is still some growth potential. Economic Aspects Yet, even if long-haul flights for Euro- peans will expand less than forecasted, the According to most futurologists, the eco- trend which will make the Asia-Pacific nomic future will be characterized by region the boom area for tourism for the next greater amounts of freely disposable century will not be jeopardized, due to the income, an increasing proportion of city enormous ‘internal’ potential of that area. dwellers and a further fall in working hours Despite recent problems, in south-eastern for employees. Even if it is assumed that the and eastern Asia more economic growth is rate of these changes will slow down, expected over the next 20 years than any- experts some 20 years ago anticipated con- where else in the world. This ‘unfolding fan’ siderable rates of growth for tourism of opportunity will spur transnational travel between 1980 and 2000: and hotel companies to expand to nearly every major gateway city in the Asia-Pacific ● The World Tourism Organisation region. (WTO) anticipated an annual growth rate of arrivals in cross-border tourism to be between 4.5 and 5.5%. Demand and Supply ● Half the experts in a Delphi poll anticipated growth rates in the region of Even though the volume of travel in the 3–3.5%, in other words a doubling of industrialized countries has grown consid- the number of tourist arrivals within 20 erably, the tourist market worldwide has years, approximately (Krippendorf, changed from a seller’s market to a buyer’s 1979). market. On a global scale, competition from ● Herman Kahn forecasted that in the year new developing destinations and facilities 2000 tourism would be the largest will increase further. Significant structural industry and the most important export changes currently in progress give a rough sector in the world. He calculated that idea of how the situation might appear in by then expenditure on tourism may 15–20 years time. well have risen fivefold, corresponding On the supply side, there has been a dis- to an annual growth rate of about 8% proportionate increase in the types of (Kahn, 1979; WTO, 1999). lodging provided by the ‘parahotel’ business Yet, today, in the traditional industrial in relation to the traditional hotel business. countries the economic perspective is gen- In addition, a major proportion of traditional Trends in Tourism 5

hotels have had to develop new product fluctuation in the tourist trade have nothing strategies to match the growing demand for a inevitable about them, and the emergence of more active holiday. Holiday clubs, parks seasonal patterns, the degree of their inten- and villages, and hotels offering active lei- sity and their historical durability are all sure pursuits, are experiencing higher than variables which can both merit and repay average increases in demand. It is likely that research, especially at the local level. Efforts the market share of the traditional hotel to reduce the seasonal fluctuations in tourist types will continue to shrink. flows will make further progress. In line There will be an increase in the will- with the growth rates for supply and ingness to spend holidays in cheaper demand, this will have an impact on occu- accommodation, with a lower volume of ser- pancy, profitability and the ability of tourist vices consumed. A price-elastic tourist facilities to adapt to changing needs. Better demand need not necessarily imply an end and more varied products will probably be to all travel – after all, travel as such has available for off-season periods. become close to being a ‘basic need’ – but it is more likely to result in demand for cheaper holidays. Thus, the market share of Socio-demographic Changes low-price accommodation will probably rise. If, as expected, the price elasticity of The following segments of the tourist market tourist demand increases, we can look for- are likely to gain in relative importance and ward to further significant shifts in market therefore grow at above average rates: senior shares among various countries. citizens and active middle-aged persons Increasing customer sophistication will between 50 and 65 (also called ‘young’ sen- have an impact on all product development ior citizens); singles (particularly those throughout the industry. There will be an under 35); ‘YUPs’ (young urban profession- increased requirement for high standards of als); guest workers; youngsters (the number product design, efficiency and safety. This of young people travelling is increasing will be achieved through strong branding rapidly but supply is not well geared to and tailoring the product more closely to the them); young families; and double income needs of specific market segments. Tourist families (particularly ‘Dinks’: double product innovation is more likely to be income, no kids). Psychographic and life- about unpackaging rather than packaging, style segmentation will identify more providing more individual attention within specific clusters of travellers. The mature a number of price bands. Even so, package market of Europeans between 55 and 65 has holidays are not going to disappear. Indeed, now reached about 100 million. they may increase in number as developing countries come into the market. It is the relative importance of package tours that will decline. The price-based market share Sociocultural Aspects battle between the major operators has – in reality or in perception – lowered the qual- Research carried out in several countries, in ity of the holidays on offer. particular a large-scale study by the Stanford Research Institute (California, USA), indicates that there is a clearly defined trend Seasonal Variation away from an ‘outward-directed’ lifestyle towards ‘inward-directed’ and ‘integrated’ By ‘seasonality’ we mean the tendency of values. Several recent studies indicate that tourist flows to become concentrated into ‘post-materialistic values’ (growing non- relatively short periods of the year. The sea- materialistic needs, environmental care, sonality of tourism is at the same time one of diminishing concerns about career, prestige its most widely recognized and least well- and status, etc.) will gain in importance. researched features. Patterns of seasonal Materialistic lifestyles will not vanish, but a 6 L. Moutinho

polarization between exponents of material nity to shape their holidays as they wish. and non-material values is likely to take Activities, experiences, participation and place. learning will all be key elements in the There is a strong trend leading away from future. Adventure holidays, sports and standardization towards an ever greater health trips, sabbaticals and learning holi- diversity in lifestyles, inciting new approa- days will all become more popular. The ches to life and recreation. The limits of demand for ‘soft’ forms of transport and mass tourism are recognizable not only from tourism, including ‘back-to-nature’ activ- the quantitative, but also from the qualita- ities will show a marked increase. An tive point of view. The following trends are increasing number of tourists will look for a apparent and probably of a long-term holistic type of recreation, in search of an nature: ‘overall balance’ of body, soul and mind. More and more travellers will define their ● further increasing differentiation and concept of a ‘rich holiday’ in terms of the pluralization of demand; depth rather than in terms of the diversity of ● the emergence of new specialized mar- their travel experiences. kets and market segments; Not only will the worldwide travel mar- ● a decrease of physically and culturally ket itself be characterized by an ever greater passive forms of vacation in favour of range of possible types of travel and destina- more active pastimes; tions, but substitutional competition will ● a shift towards maximizing individual also continue to increase. The range of alter- liberty in recombining elements to native uses to which free time can be put is custom-made holiday packages (mod- constantly expanding, a trend which is ular product design). likely to continue over the next 20 years. The growing need for non-standardized ser- Apart from travel, these options can be char- vices and individualized tourist behaviour acterized as follows. is directly linked to: Leisure within the home or in the vicinity. Leisure-oriented design of living space, ● the quest for self-determination (eman- children’s playgrounds near to dwellings, cipation) and ‘do-it-yourself’; public leisure facilities in residential areas, ● the advanced level of travel experience centres or leisure parks, green belt areas in the population, which goes hand in around cities will all be central to current hand with more selective, critical and education and further training. To a certain quality-oriented approaches to individ- extent, and an ever increasing one, life is ual holiday planning as well as growing becoming a permanent learning process sophistication of demand and rational- owing to the rapid rate of change in pro- ity of choice; fessional structures and technologies. The ● an increasing desire to relate to nature, spectrum of educational facilities and to gain first-hand experience and to opportunities is being continually enriched, engage in active pastimes (e.g. ‘hobby even though the educational and profes- holidays’, trekking holidays, farm tour- sional routes are being further formalized, ism); under the direction of public institutions. ● higher levels of environmental con- Nevertheless, there is a clear trend towards sciousness and sensitivity to the quality the pluralization and liberalization of edu- of life in general; and cation and training in general, thanks to ● the increasing effort to learn, which private initiatives. This applies to all levels, often manifests itself in serious attempts from primary school to university, but espe- to get to know foreign cultures. cially to training in specific technologies, The suppliers of tourist services will skills or professional profiles. increasingly offer service packages which Schools of the future will not be institu- directly address specific customer problems tions for imparting knowledge so much as and provide travellers with more opportu- integrated centres for education, culture and Trends in Tourism 7

leisure. Leisure time will be used much promoting a conservationist approach at more for productive purposes, in which con- many levels. Even today, we can see an text the following variants are relevant. increasing environmental awareness in public opinion. This manifests itself in a 1. Paid work to increase disposable growing tendency to reject those foreign income. tourist spots which have already exceeded 2. Home-based production, which means their tolerance levels, not only in the opin- not only a greater degree of tasks ‘dele- ion of the experts but also from the point of gated’ by industry to the consumer view of the consumers. (such as collecting, assembling, repair- The inhabitants of tourist areas, some of ing and maintaining products) but also whom have exchanged their initial euphoria increased production of an agricultural at the influx of tourists for blatant resistance, or handicraft type. This type of produc- will increasingly adopt realistic strategies to tion is often carried out on a community retain their independence and protect their basis. environment. For example, the dilemma fac- 3. Sociocultural involvement: this cate- ing mountain regions concerning the gory includes all types of social, balance between destruction of the land- political and cultural involvement. The scape by tourist monoculture, and social cooperation networks which desolation on account of depopulation, will even today are expanding rapidly and be handled better than it is today: by means which in 20 years are likely to supply a of multi-faceted development, that is reva- significant proportion of social services, lorization of mountain farming, including are a prominent example. unconventional methods such as game In view of the expansion of the ‘informal’ farming, vegetable cultures, and blending economy and a certain shift, for technolog- with other branches of the economy. The ical reasons, of professional activities to the planning authorities and political institu- traditional domicile, the boundaries tions, thanks largely to the pressure of between leisure time, work and living are public opinion, will contribute to develop- becoming increasingly hazy. Also, the indi- ment in the interests of humans and the vidual will have more opportunities to environment, by defining appropriate plan- arrange his or her working hours and leisure ning guidelines and ensuring that they are time as required. Flexitime, job-splitting, followed. job-sharing, individual arrangements Destruction of natural resources vital to regarding holidays and pensions, etc., will tourism will not be stopped immediately. As become more commonplace. a consequence, decline of some traditional There is a growing recognition of the destination areas (due to gradual spoilage or, value of cultural diversity (possibly a reac- in some cases, due to environmental cata- tion to globalization). Parallel with this strophes) and rise of ‘substitutes’ in recognition is a desire to maintain and foster unspoiled surroundings will probably con- the special and unique characteristics of eth- tinue (unfortunately) to a certain extent. nic groups and host societies as a Furthermore, artificial leisure environments fundamental principle of tourism develop- will be created as a partial (and weak) comment and promotion. pensation for the degraded natural milieu. Such developments will continue until society has implemented tourism strategies Ecological Aspects which reconcile man and nature. On the other hand, growing environmen- Concern for the environment will in the tal sensitivity is likely to stimulate future be far more widespread among the substantial efforts to protect, conserve and population than it is today. The growing upgrade the natural as well as the socio- appreciation that humankind and the natu- cultural milieu. In response to the question ral environment share a common fate is raised by a WTO exponent, Schwaninger 8 L. Moutinho

(1989) maintained that the demand for ‘soft Technological Aspects forms of tourism’ would be a volume market by 2010. Hopefully, on the supply side, a Technological developments will have change towards a long-term planning men- major effects, particularly in those areas tality, which should substitute for where originally isolated technologies can short-sighted profit maximization, will take be combined. In the leisure sector, this place. Even the best hotels and restaurants applies primarily to the converging technol- in tourist resorts can only thrive if they are ogies of telecommunications, data part of an intact and sustainable environ- processing and office machines (Stipanuk, ment. An ecologically viable strategy is the 1993; Sheldon, 1997). prime requisite for success. An increasing proportion of professional As far as the provision of accommodation work will not be site-dependent. This leads facilities is concerned, a dramatic re- not only to new forms of social organization arrangement of priorities, due to growing and interaction but also to a certain shift of environmental awareness, has already professional activity to the home of the work- begun. If in the past the emphasis was on the ing individual. Thus, the boundaries between erection of new buildings, the future should work, living and leisure time become less see a comprehensive programme of renova- rigidly defined (see Cheong, 1995). tion. The transformation of historic The new technologies give rise to new buildings or other old buildings into train- sales and distribution systems. New eco- ing and leisure establishments, and the nomic groupings engaged in the battle for shaping of the environment to accommodate the holiday visitor (banks, clothing and leisure activities, both in the home and its sports shops, supermarkets, restaurants, lot- close proximity, will continue to gain con- tery kiosks and petrol stations) are at present siderably in importance. complicating the established network of International travel has grown by more sales channels. In the years to come, how- than 500% in the past 25 years, according to ever, electronic distribution, for example, the World Travel and Tourism Council will lead to dramatic structural change, (1995). As a consequence, in the past decade including substitution of existing sales alone, there has been a 25% increase in the channels. The Imholz travel agency, which a number of hotels built across the globe. But few years ago almost completely replaced there is also evidence of a growing concern the traditional booking of holidays in branch among both leisure and business travellers offices by telephone bookings, is a precursor about the damage being done to the environ- of this development. On-line bookings over ment by tourism. And, increasingly, the Internet are now becoming increasingly travellers are taking these concerns into common. Another example is the airlines account when they book holidays or busi- business, where further computerization ness trips. When the world’s biggest hotel will stimulate innovation, and dictate struc- chain, Holiday Inn, surveyed its guests, 78% tural changes among airlines and travel of them said they were very concerned about agents. The quest for more efficient distribu- the environment and 28% said they took tion will also lead to new alliances within environmental policies into consideration and between firms of these sectors (see Van when choosing their hotel. The Travel Asso- Hoot et al., 1996). ciation of America estimates from its own Yet, computerized services will also research that 13 million people in the USA breed new opportunities for those travel now consider themselves ‘ecotourists’. agents who succeed in counselling their cus- What is more, these people are prepared to tomers better. The new technologies will pay an 8.5% premium to stay in an envir- enable further specialization. New types of onmentally friendly hotel (Holloway et al., travel agencies will emerge, which will have 1992). the character of consulting rather than of booking agencies, using information systems to design individualized travel Trends in Tourism 9

packages out of available offers. In the sec- one hand there are socio-political motives tors which form the subject of tourism (air which, as part of the effort to humanize transport, education, hotels, restaurants) working conditions, are aimed at reducing and a few others (e.g. road transport), how- the statutory number of working hours and ever, there should be a positive effect on at promoting the involvement of companies employment, spurred on by developments and public authorities in the field of leisure in the field of microelectronics. It has been policies. On the other hand, economic estimated that by 2002 commercial air trans- motives are aimed at sharing out an evi- portation will produce nearly 3.5 trillion dently shrinking volume of human work so revenue passengers kilometres, roughly 2.3 that full employment is guaranteed. Partic- times the current level. ularly in tourism, there is a trend towards an Teleconferencing may reduce business increasing amount of planning and also pro- travel by 25% over the next 15 years, while tectionist intervention at national and increased automation through robotics will international levels. Positive efforts to cur- result in more leisure which should trigger tail the ecologically damaging effects of increased recreational spending. Technol- human leisure activities are being taken ogy may also lead to increasing integration more and more seriously, and are meeting between the different sectors of the industry. with some success. It was suggested some 15 years ago that Political and planning decisions in our technology would encourage the growth of society take longer the less they are based mega-corporations covering all aspects of purely on the representation principle. For the present industry as part of a new ‘tran- some years now, there have been increasing spitality’ industry (Palmer, 1984). Although demands for participation by the people considerable vertical and horizontal integra- concerned, for example inhabitants of tour- tion does now exist, it is likely that further ist regions. In future, these demands will be consolidation of companies in all sectors better met than has so far been the case. Not will continue with increasing economic only is the view gaining ground that incor- concentration in a small number of large poration of those concerned in the planning companies. Furthermore, some of these processes leads to better results, but there companies will combine across sectors cre- are better and better means available which ating new ‘diagonal marketing systems’. contribute to the efficient handling of such These large corporations are likely to secure complex decision-making processes. greater shares of the markets in which they operate, and there is no evidence that limits to economies of scale have yet been reached Prospects for Planners (see Peacock, 1995 and Inkpen, 1998). In the years to come, electronic distribu- The most important challenges faced by tion will lead to dramatic structural those responsible for planning in the tourist changes. For example, as an added conveni- sector, and those affected by it, are summa- ence, there is already a new way of shopping rized as follows. for vacations at the shopping centre. Some computerized systems allow shopping cen- Integral planning tre customers to walk up to a kiosk, give the It is necessary to replace the old dominating employee operating the computer the cri- and uni-dimensional planning concepts teria for their dream holiday, then sit and with integral, systematic planning which watch their options on a TV screen. would be more adequate to cope with the complexity of real systems. If a leisure facility or a holiday location is planned from Political Aspects the basis of a single viewpoint (be it exclusively economic, technological, ecological, The influence of public institutions on the social or aesthetic) the outcome can only be leisure sector will continue to grow. On the unsatisfactory. Integral planning calls for 10 L. Moutinho

the incorporation of all these aspects and short-term sacrifices are necessary in order components of knowledge in the process of to maintain long-term viability, for instance, analysis and design. Thus it is not only when ecological strategies are at stake. Also interdisciplinary but also transdisciplinary in this respect, the basis for effective imple- in character. In order to realize socially and mentation of strategy is set by involving the ecologically viable strategies – which will be constituents of the system in its design high priority issues in many destinations – (Schwaninger, 1989). such planning should not be limited to consulting reports. All constituents (‘stakeholders’) that embody relevant Summary of Trends and Forecasts knowledge (and ‘stakes’) should contribute to the planning process. In a tourist resort, ● The travel and tourism industry is the not only representatives of tourist institu- world’s largest industry, employing tions and hotels should be included, but over 101 million people worldwide also exponents of sectors such as trade, agri- with gross sales exceeding US$2 tril- culture and forestry and, ultimately, all lion. It represents 5.5% of the world’s citizens. GNP. ● Debt for nature swaps are ‘in’ as devel- Long-term thinking oping nations such as Bolivia and Madagascar are trading their interna- The attractiveness of short-term advantages tional debt for land to be held as is often in conflict with the need to obtain national parks and protected areas. long-term facilities, in other words to care ● Diseases such as AIDS are having a neg- for and build up the resources which will ative effect on tourism. form the basis for the future. The knowledge ● The ‘developed world bust’ and ‘devel- gained over the past few years on the long- oping world boom’ in population both term nature of fundamental cause-and-effect have negative effects on tourism relationships inherent in tourism business (despite their respective differences in systems requires us to think strategically. structure). Thinking in terms of large-scale and long- ● The tourism industry around the world term relationships gives us the opportunity is broadening its focus to develop uni- to concentrate on overall targets, such as the fied positions on fiscal policies, maintenance of a healthy natural environ- taxation, capital formation and other ment, without being led astray by short-term important issues. fluctuations. In many destinations, the ● Capital market investment by Ameri- design of ecological policies and strategies cans has slowed considerably in the will be of primary importance to maintain hospitality industry while it has picked long-term viability. up in Europe. ● Tourism will continue to be a major Consistent action growing economic factor in the world With regard to leisure and tourism a number with real growth rates of up to 5% per of plans and concepts have been elaborated, annum. which contain a considerable amount of ● With computerized reservation systems integral planning and long-term thinking. expanding rapidly, smaller systems will ‘Strategic plans’ or ‘policies’ are essential fade from the marketplace. foundations for coherent action in the ● If the travel and tourism industry con- future. Putting them into practice requires tinues to expand in the next decade at commitment of decision-makers at all lev- the same rate it has in the 1990s, another els. A legal framework of tourist policy will 50 million jobs could be created. be helpful, but the understanding of those ● ‘Poverty shock’ will turn the world’s concerned is the essential prerequisite for megacities into zones of instability with commitment. This holds particularly when a negative effect on tourism. Trends in Tourism 11

● The future tourism business environ- between (and interdependence of) tele- ment will be characterized by a smaller communications, transportation and number of global operators and a larger tourism is receiving increasing atten- number of local operators. tion. The movement of information, goods and people is being examined with respect to both complementarity Global Tourism Issues for and substitutability. the 21st Century ● The role of tourism in developing countries poses serious questions. While ● Environmental concern has reached an many developing economies desper- all-time high and will continue to grow. ately need the financial receipts from This will bring increasing pressure on tourism, the social and environmental all tourism initiatives to demonstrate costs imposed by inappropriate forms of that they contribute to environmentally tourism development simply cannot be friendly and sustainable development. ignored (see Oppermann and Chon, ● Broad-based political movements, in 1997). which the populations of many coun- ● The issues of environment and develop- tries are attempting to establish more ing countries are manifestations of participatory forms of government, are broader concern relating to ethics, and impacting on tourism. As a conse- responsibility in tourism policy forma- quence, the residents of travel tion and management. Tourism is now destinations will increasingly demand so significant that it must seriously that tourism first and foremost serves examine the values on which it is based their interests by providing benefits that in order to ensure that they continue to outweigh its costs. reflect those of the society it serves and ● World economic order is changing. affects. Relentless pressure for almost all coun- ● Concerns related to health, security and tries to adapt their economies to market legal liability are very much at the fore- forces is bringing about a major restruc- front of the minds of both tourists and turing of wealth and income patterns, industry suppliers. International con- which will be reflected in global travel flicts and wars, growing crime and patterns. terrorism levels, and the spread of ● The ‘globalization’ of political and eco- deadly communicable diseases will be nomic structures has initiated very real factors in the development of movement towards the ‘borderless’ tourism. world. In this new world the transna- ● Concerns related to the availability of an tional corporation is a powerful force. appropriate workforce in the growing Superior access of financing, technol- global tourism industry will intensify. A ogy and information provide this broad range of social and economic poli- stateless entity with strategic and opera- cies – particularly those impacting on tional strengths which give it clear population planning, education, immi- competitive advantages (see Go and gration, labour relations and the use of Pine, 1995). technology – will greatly influence the ● World demographics will continue to availability of the industry in each evolve very predictably with wealthy country to meet its human resource nations experiencing ageing and stabi- needs. lizing populations and this will be countered by a strong growth in the pop- The trend towards customized tours at pack- ulations of developing countries. The age prices is a significant one for the travel impact of this on global travel patterns industry (see Laws, 1997). Furthermore, it is will need to be carefully monitored. expected that we will see a greater integra- ● Technology, in particular the linkage tion of computer systems and satellite forms 12 L. Moutinho

of worldwide information collection and ﬁnding, attracting and retaining a diverse distribution for tourism planning by govern- workforce. It will be essential to implement ment agencies. motivational and reward systems including Congestion is a word currently associated management development programmes that with all forms of transport. Airports and air bring diversity into the thought/decision routes are crowded, roads are at a standstill process. Service offerings must have univer- and trains are ﬁlled beyond capacity. For air sal appeal and product development must transport, the next 10 years may have to be a stress adaptability to succeed in a global holding period. An anticipated growth rate marketplace. From a consumer perspective, of 4–6% per year can only just be supported boundaries and territories are becoming by better management and improvements of obsolete, replaced by the universal appeal the existing infrastructure and increases in for the latest, newest and best value in both aircraft size. products and services. Winners will recog- nise globalization as the macro force for success. Losers will be those who do not Ten Trends for the 21st Century understand it or do not change and adapt.

The trends which have led us into the mil- 2. Technological acceleration lennium have profound implications for all This acceleration is driven by both technol- sectors of society. The corporate, govern- ogy itself and the market’s insatiable desire mental and educational sectors must for ‘new everything’. Consumers will flock address and respond to these macro trends to those who deliver new conveniences, for, no matter what our individual interests, time savers and stress reducers. Businesses these factors will influence human behav- will divide into two categories: ‘survivors’ iour. Successful entities will examine each and ‘victims’. Survivors will be those who trend and develop plans of action to change adapt, move with, and invest in new tech- their modus operandi to meet the new nologies. Victims will suffer technological demands, thought processes and needs of a annihilation from more responsive and new global marketplace. The pace of change advanced competition, especially in the itself will require an ongoing assessment to delivery of services. Likewise, individuals remain in tune with the ever-changing mar- will need to invest in keeping themselves ketplace. Our political, educational and competitive and up-to-date or risk being re- business communities will be challenged to engineered into obsolescence. think differently and respond tactically or face a market that is moving at a rate of 3. Peacetime war change which will leave them behind. These Those in the service sector who understand challenges will be greatest in the service the power of this macro trend and address it sector where ‘change’ will be a constant. directly will win customer loyalty. Offering Experts foresee ten macro trends having sub- a safer service experience, whether travel stantial impact on the consumer (Nykiel, related or in the work environment, will 1996). Each trend requires careful assess- help attract and retain customers. ment with respect to the impact and selection of related responses. These trends 4. Debt wreck are outlined below. Even without another round of higher interest rates, debt is spiralling out of control at 1. Globalization both governmental and individual level. The world is meshing at an accelerating The re-engineering of middle and upper pace on all fronts. Multinational positioning management continues to shrink incomes and adaptation to cultural diversity are now while reducing tax revenues from this essential to achieve market share and meet group. The lower and lower middle income customer needs. The implications extend to or ‘flattened’ workforce, whose emergent Trends in Tourism 13

purchasing power slowly moved the econ- provide consumer convenience and a value- omy, have almost run out of ‘credit’ and related marketing advantage. more importantly, the ability to pay it all back. Those first few credit cards, care pay- 7. Centurism and expectation ments and adjustable mortgages (somewhat The turn of the century has often been a fuelled by the easy consumer lender syn- period marked by the desire to hold on to the drome of financial institutions) are all past followed by an insatiable desire to jump adding up to trouble. Given a slight spark of on board with the new. This latter behav- inflation and/or higher interest rates, we are ioural pattern is usually fuelled by a period likely to see a no-growth recessionary sce- or series of globally important events that nario. Simply stated, it is time to retain your cause a psychology of great expectation, best customers and take market share from such as discoveries, cures or innovations. your competitors. Protect your base at home The pendulum swings rapidly, first to the and think globally to attract new markets. tradition of the past and then to the ‘newness’ of the future. Successful enterprises 5. Re-engineered behaviour will not only ride the momentum both ways, The early 1990s in the West and the late but know when to time the directional 1990s in Asia brought recession and a more change. cautious consumer. The insecurity caused by job elimination remains ingrained and is 8. Near-to-home syndrome being reinforced daily by media headlines. Currently we are experiencing a strong Everyone is more cautious in their spending, desire and necessity to remain relatively including corporations, individuals and close to home and work. Both job insecurity even government. Economic uncertainty and two breadwinner households are sup- and work environment insecurity are now porting this trend and are likely to do so in part of the daily thought process preceding the future. Near-to-home syndrome keeps purchase decisions. To propel sales it will many from long-distance (time) travel. The be necessary to overcome these stressful focus becomes extended weekends when thoughts through creative marketing, pro- both breadwinners can achieve mutual motions and financial techniques. Make it day(s) off. The desire to escape remains, possible for consumers to say ‘it’s OK’ to both for couples as well as single workers. themselves, and you may still achieve sales Helping to fulfil this desire with products or success. services convenient to purchase, consume or experience will result in market success. 6. Fuelling growth Recent years have witnessed a record num- 9. Personal/self focus ber of major acquisitions and mergers as Humans are typically retrospective at the well as ‘break-ups’ of corporations. At the end of each year, decade and especially cen- same time the entrepreneurial spirit was tury. This inward focus is now manifesting alive and well with more new business start- itself as a response to stress. Some will seek ups. In the future we can look for more to relieve their plight through relaxation, agreements, coalitions, networks, joint ven- others through refreshing their psyche. The tures, strategic market acquisitions and implication is for an increased desire for the ‘contracting out’ to fuel growth. Many such ‘personal’ which translates into taking care affiliations and activities will be driven by of oneself. Likely behavioural manifesta- the desire to strengthen global reach, build tions include a renewed desire to purchase brand(s)/company competitiveness, find personal items such as clothes, meals out new distribution channels and, frankly, to and other new interests. Much of this self- show growth. The winners will pursue these focus will come from the under 50-year-old strategies not only for reasons related to eco- segment, seeking more from life than the nomics of size, but more importantly, to stress of work. 14 L. Moutinho

10. Exploration almost anything. For example, in Cal- We can expect the over 50-year-old segment ifornia a Victorian-style high-tech of the population to increase exploring the house has been constructed that trans- globe by seeking new destinations, to under- ports visitors back into a romantic take new leisure pursuits and to want to version of the previous century. The experience ‘newness’ in general. The coun- house includes: a three-dimensional terbalance to this overwhelming desire will film theatre that employs vibrating be a real concern for long-term health costs chairs to simulate motion, a scent- and taking care of remaining parental projection device that is coordinated responsibilities (care of children and par- with images on the screen and a state-of- ents). the-art sound system. Future technological developments may include the following: The Future ● Robots will eventually occupy a large part in planning many tourism-related The conventional ways of looking at con- facilities and services, such as restau- sumer behaviour (see chapter 3), especially rants, landscaping, park design and in tourism, are becoming outdated very entertainment. quickly. For example, it is no longer possi- ● Videocycles – a combination of a stable to predict the purchasing habits of tionary exercise bike and a TV/VCR – consumers of almost any product or service will be used extensively by bikers at simply by labelling a group as ‘upscale’. A home to tour scenic routes in forested world of paradoxes in tourism and leisure and urban environments, complete with behaviour is emerging where existing oppo- exciting background music. sites operate simultaneously. Greater ● Night-vision glasses will allow individ- sameness and greater diversity, plus greater uals to participate in outdoor recreation security seeking and greater risk-taking activities in the dark. Electronic and occur side by side. For example, there are other devices will be worn by outdoor sky-diving accountants all over the place enthusiasts to improve hearing, touch, and campers who drive air-conditioned sense of smell, strength and coordina- vans to ‘rough it’ in the woods. The same tion. individuals may shop at both a discount ● Solar-powered bubbles (sunpods) will store and a famous department store and go permit bathers to relax outdoors at home to McDonald’s for lunch and a four-star res- for an all-over tan even in below- taurant for dinner. Leisure lifestyle mosaics freezing temperatures. are often elusive, inconsistent and contra- ● People will be able to create their own dictory. images and scenes on their computers Possible future developments in terms of or TV screens; the viewer will be able to the built environment are: simulate just about anything. For exam- ● Massive multi-storey, floating hotels ple, if a person wanted to enjoy a raft will be moored offshore and contain trip down the Grand Canyon of the Col- restaurants, shopping arcades, gymnas- orado River it will be possible to call up iums and glass-enclosed elevators that the image on a wall size TV and with a carry tourists directly to the sea floor. raft at home the viewer will experience ● Underwater hotels will attract the more the sensation of the trip. adventurous leisure travellers who can ● Image libraries will be available for peer at the undersea life through their home viewing that will contain all the bedroom windows. world’s best art. Inexpensive flat panel- ● The theme parks of the future will be display devices will be available, individual-experience centres where throughout the house, with a resolution technology will let people role play . . . so good that viewing a projection will be Trends in Tourism 15

like looking at the original oil painting. A major new product looms in the 21st cen- ● Digital TV, which is already becoming tury in the form of space travel (Hawkins, established, will allow the viewer to 1989). This may be a long way off, although become a participant in the actual pro- pressure to make possible a limited number duction. For example, if a person put a of high-cost flights will build up as soon as wager on the wrong football team, he or techniques are devised to make capsules she can take a picture of the player, more inhabitable. A passenger module superimpose him scoring the winning could be developed for the space shuttle that play, and at least get the thrill of having will carry passengers to an orbiting space the match turn out the ‘right’ way. hotel or act as a hotel module itself. Some of ● Sensavision TV will allow the viewer to the above may be in the realms of science feel temperature, humidity, smell, and fiction, but others, predicted 10 years ago, to walk around in the scene because the are already becoming a reality. whole room will be part of the TV set. ● Virtual reality gives us artificial worlds to explore, outside normal space and Conclusion time. Essentially, the whole process of tourism There are many possible future develop- strategic planning boils down to planning ments in the area of transportation: on uncertainty. Uncertainty is the complement of knowledge: the gap between what is ● Major technological advances will known and what needs to be known to make lower international travel costs. correct decisions. Dealing sensibly with ● Scheduled commercial flight times will uncertainty is not a byway on the road to continue to take less time. Magnetic responsible tourism management decisions, trains – trains that literally fly between it is central to it. To cope with future tourism cities on cushions of electromagnetism planning, management and research, tour- – will be making short trips (for exam- ism professionals need to be Renaissance ple, Los Angeles to Las Vegas) faster men and women. The need to imagine, per- than airlines can manage today. ceive and gauge the future are paramount ● Multiple transportation cars that con- professional attributes of the tourism pro- vert to an aeroplane will be fuel efficient fessionals of tomorrow. The future tourism and economically accessible to the phenomena will be managed by today’s pro- tourist. fessionals who look to the future and shape ● Vertical take-off and landing vehicles it into a strategic vision. The information that cruise at 360 km h-1 above daily presented in this chapter has been aimed at traffic will be used for everyday perso- helping to create that vision and was nal and commercial use. designed to show that ‘we must not expect ● Skycycles – one person light aircraft the expected!’ with wingspans of a DC-9 jet – will be used to fly 40 km or more at 25 km h-1 via pedal power. ● Ultralight two-person aircraft will be References popular for touring and soaring. Super- subs will be developed as a kind of Cheong, R. (1995) The virtual threat to travel and undersea tour bus with oversized win- tourism. Tourism Management 16(6), 417–422 dows and an interior like a passenger Go, F. and Pine, R. (1995) Globalization Strategy plane. in the Hotel Industry. International Thom- ● Jet-powered backpacks for individual son Business Press, London. flight propulsion will be sold at prices Hawkins, D.E. (1989) Impact of world events on within reach of the middle-income fam- tourism. In: Witt, S.F. and Moutinho, L. (eds) ily budget. Tourism Marketing and Management Hand- 16 L. Moutinho

book. Prentice Hall, Hemel Hempstead, pp. Peacock, M. (1995) Information Technology in the 219–222. Hospitality Industry: Managing People, Holloway, J.C. and Plant, R.V. Marketing for Tour- Change and Computers. Cassell, London. ism, 2nd edn. Pitman Publishing, London. Schwaninger, M. (1989) Trends in leisure and Inkpen, G. (1998) Information Technology for tourism for 2000–2010 – scenario with con- Travel and Tourism, 2nd edn. Longman, sequences for planners. In: Witt, S.F. and Harlow, UK. Moutinho, L. (eds) Tourism, Marketing and Kahn, H. (1979) The Future of the World 1980 – Management Handbook. Prentice-Hall, 2000. Molden, Vienna, Austria, p. 297. Hemel Hempstead, UK. Krippendorf, J. (1979) Tourism in the year 2010 – Sheldon, P.J. (1997) Tourism Information Tech- a Delphi Poll on Future Trends in Tourism in nology. CAB International, Wallingford, Switzerland – Interpretations and Conclu- UK. sions, 2nd edn. Forschungsinstitut fur Stipanuk, D.M. (1993) Tourism and technology: Fremdenverkehr, Berne, Switzerland, pp. 6, interactions and implications. Tourism Man- 55, 92. agement (August), 267–278. Laws, E. (1997) Managing Packaged Tourism. Van Hoot, H.B., Verbeeten, M.J. and Combrink, International Thomson Business Press, Lon- T.E. (1996) Information technology Revisited don. – International lodging industry technology Nykiel, R.A. (1996) Top trends to the millennium. needs and perceptions: a comparative study. Journal of Hospitality and Leisure Marketing Cornell Hotel and Restaurant Administra- 4(2), 77–80. tion Quarterly (December), 86–91. Oppermann, M. and Kye-Sung Chon (1997) Tour- WTO (World Trade Organisation) (1999) World ism in Developing Countries. International Trade Organisation Estimates. Thomson Business Press, London. www.ecotourism.org Palmer, J. (1984) The transpitality industry. Inter- World Travel and Tourism Council (1995) Travel national Journal of Hospitality Management and Tourism: A New Economic Perspective. 3 (1), 19–23. Pergamon, Oxford.

2 The Marketing Environment for Travel and Tourism

K. Peattie and L. Moutinho

The relationship between the providers of tourism industry and its marketing environ- tourism and travel services and the market- ment means that the depth of understanding ing environment in which they operate is needed concerning the influence of the envi- unique. For most other businesses, the ronment goes far beyond that which suffices boundary between the company and the for many other industries. The external ‘world outside’ is distinct. For manufactur- environment of any industry contains a host ers there is one world within the factory of interdependent factors which need to be gates, and another beyond them. For most somehow separated out and categorized to service providers there is a distinct place at make analysis of them possible. One of the which the service encounter takes place, simplest but most enduring frameworks for and can be managed. Changes in the world this analysis is the PEST framework which outside will affect such companies, together prompts companies to consider Political, with their customers and their competitors; Economic, Social and Technical factors but usually, with a little planning and some which may affect their company. This is juggling of the marketing mix when neces- rather a broad brush form of analysis which, sary, the effect of external change can be although adequate for industries less vul- diluted enough to allow most businesses to nerable to environmentally related continue ‘as usual’ within their own four disruption, is scarcely adequate for tourism walls. In tourism, the service encounter with providers. A more comprehensive approach a customer can occur within a journey is SCEPTICAL analysis which considers which stretches from one side of the globe to environmental influences in terms of: the other and back again. The whole planet Social factors is the ‘factory floor’ of the tourism industry. Cultural factors While for other industries, factors such as Economic factors the physical environment or culture of a Physical factors region may influence the nature of demand, Technical factors they are a vital component of the product International factors itself for the tourism industry. For tourism Communications and infrastructure factors and travel providers there is no place to hide Administrative and institutional factors from the turbulent and unpredictable world Legal and political factors. in which we live (Gee et al., 1994). The special relationship between the Each of these categories may be the source of © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 17 18 K. Peattie and L. Moutinho

changes which present tourism operators younger. Very soon over 80% of those with significant opportunities and threats. between 15 and 24 years of age will live in As with any form of environmental analysis, developing countries; by contrast, in West- the difficult part is not in seeing what is ern Europe, one in three adults will be over happening in the world beyond the indus- 55. This ‘developing countries boom– try’s doors. The real challenge lies in developed countries bust’ demographic disentangling the elements of threat from scenario has a wide range of societal, eco- the elements of opportunity within the nomic and environmental implications, and changes in the wider world; in distinguish- also significant implications for tourism ing the temporary ‘blips’ from the significant (Kurent 1991). In particular for tourism environmental shifts and, above all, in marketers: deciding what to do in the face of a changing and uncertain environment. 1. Global demographic changes must be reflected in planning and decision- making with respect to the design, development, delivery and utilization The Social Environment of tourism facilities and services. 2. There is a need to encourage and support research to evaluate the needs of Tourism is essentially a social phenomenon the growing population of older people and, although like all industries it is influ- worldwide. Mass market tourism has enced by the society in which it exists, grown up with the assumption that the tourism is unusual in that it involves a large majority of its potential customers are scale, if temporary, transfer of individuals relatively young, active and healthy. between different societies. This can create Demographic change will inevitably social change of both a temporary and a shift the age profile of the customer longer-term nature. Anyone who has visited base, and may require substantial mod- Paris regularly will know that the city char- ifications to facility design, tour acter changes radically in August, when vast packaging and event organization. It sections of the Parisian population go on may also require new initiatives to link vacation and are replaced by a mass influx of tourism services to other services such tourists. In other industries, customers and as health care requirements. their needs shape the nature of companies’ marketing strategies and the product offer- The level and nature of demand for tourism ings. In tourism, customers and their needs and travel are currently being affected by a can actually shape the society which they number of demographic influences, dis- visit, as any resident of the Costa del Sol, cussed below, most of which seem set to Klosters or Kathmandu can testify. continue or intensify in the foreseeable future. Demographic change Currently some 78 million people are added Population movements to the global population each year. There are Migration between countries and regions is now around 6 billion people sharing the an increasing feature of modern life, encour- planet, and many population experts pre- aged by relatively cheap travel dict that this will increase to at least 8–10 opportunities and the lowering of interna- billion (some time between 2020 and 2050) tional barriers to relocation. Although many before global growth stabilizes. The startling tourist journeys are made to visit a place, reality is that over 90% of this growth will be they are also often made to visit people, and in developing countries. As the populations the gradual redistribution of people across of North America, Europe and Japan grow the globe opens up new opportunities for relatively smaller and older, the rest of the travel marketing aimed at reunion and the world is increasing rapidly and is getting rediscovery of one’s ‘roots’. The Marketing Environment for Travel and Tourism 19

Women travellers ful consumer group, whose beliefs and The rapid rise in the number of women in behaviours are very different from the gen- the workforce is having a major impact on eration that went before. They are a the tourism industry. Today, 25–40% of the generation that has grown up with travel as a market in the United States are female busi- right and expectation, rather than as a privi- ness travellers and soon it will be close to lege or a luxury. During the 1990s they were 50%. The continuing social and economic in a period characterized by household for- emancipation of women is a relatively mation and biological catch-up in global phenomenon (although its extent and childbearing. This created a boom in family- speed varies widely among different coun- orientated travel and tourism services of the tries) and it is leading to a greater number of type exempliﬁed by the Centre Parcs chain women travelling for pleasure internation- of holiday villages. The family market aimed ally, both singly and in groups. In Japan a at purchasers in the 35–55 age range is there- combination of increasing career opportun- fore a growing market, but a complex one ities for women and more liberal cultural since the baby boomers tend to approach attitudes have made it much more accept- holidays less as ‘getting away from it all’ and able for women to travel, to the point where instead see them as opportunities for learn- among the younger 18–44 age group, female ing, cultural and environmental contact, tourists now outnumber their male counter- health and ﬁtness activities and spending parts two to one. These women will ‘quality time’ with their families. Moving increasingly expect alterations in tourism into the new millennium, the baby boomers products to meet their needs. are reaching the peak of their earning power. In America, the median income of people aged 45 to 54 was US$54,148 in 1998, Grey tourist power according to the US Census Bureau, giving them the highest income bracket of any age The ageing populations in developed coun- group. Their spending power is a key factor tries will increasingly have the time and the in the growth of sales for products such as resources to travel, creating a growing mar- luxury holidays and second holiday ket for ‘grey’ or ‘mature’ travellers. Many of homes. these consumers have a dependable pension income, no large mortgage commitments and considerable amounts of leisure time. New households Travel expenditure is an important element Another key demographic change is the of the modern grey consumer lifestyle, and increasing shift away from the ‘conven- as a market they are relatively discerning, tional’ household based around the nuclear and interested in value for money. Although family unit. Single adult households now the mature end of the market offers con- account for almost one quarter of UK house- siderable marketing opportunities, these holds. Households in which original family opportunities have often been missed by units have been split and sometimes recom- tourism marketers attracted by the allure of a bined are also becoming increasingly younger and more ‘glamorous’ marketing common. Marketers in tourism, and a vari- focus. Consequently many of the early grey ety of other industries, may risk alienating tourism and travel initiatives had their roots and marginalizing potential consumers if in organizations concerned with older peo- they attempt to impose an idealized or rigid ple’s welfare, as opposed to from inside the concept of ‘the family’ into their marketing industry. See also Smith (1995). strategy for targeting the family market. Since ‘non-traditional’ households are growing more rapidly than their traditional Baby boomers on the move counterparts, they offer considerable oppor- Baby boomers, roughly those born between tunities for targeting tailored market 1946 and 1964, make up a large and power- offerings. 20 K. Peattie and L. Moutinho

The democratization of tourism increasing number of two income house- One of the most important demographically holds is generating more discretionary related changes is the ‘democratization’ of income and creating new opportunities for tourism. On a global scale, the socioeco- more travel. At the same time, the two nomic categories applied to individual income household has less leisure time nations become relatively meaningless available, making 2, 3 and 4-day trips rather since there are effectively two social groups: than 2, 3 and 4-week excursions more the enfranchised members of the consumer attractive. society and the disenfranchised poor (Durn- ing, 1992). For the poor of the world, travel People with disabilities is usually undertaken for survival, and tour- With a growing emphasis on self-help and ism is not an option. Among consumers, the independence, the disabled increasingly opportunities for tourism have spread expect to travel as public transportation widely. The global economy is evolving in becomes more accommodating to their such a way that each of the industrialized needs. The tourism industry will increas- nations has a solid, prosperous ‘middle- ingly make special provisions for them, in class’ core population. That in turn is being terms of hotels, travel and sightseeing exper- joined by signiﬁcant middle-class popula- iences. In the USA alone there are roughly tions in virtually every other country of the 37 million disabled persons. The recent pas- world. This middle-class is relatively well- sage of The American Disabilities Act which educated and prosperous, and increasingly mandates special telephone devices for the has discretionary money for recreation and hearing impaired and accommodation for leisure. In countries such as India or Indo- wheelchairs on all public buses is part of a nesia, this middle-class ‘crust’ is quite thin, larger global trend towards empowerment but its absolute numbers are large enough to for the disabled. Access to tourism experi- offer plenty of potential tourism business. ences will grow as an indication of this So, although many in the world are exclu- empowerment for the disabled and an age- ded from opportunities for travel and ing population in general. In the USA names tourism, a process of ‘democratization’ of such as ‘Flying Wheels Travel’, ‘Whole Per- tourism is underway as it reaches many new son Tours’ and ‘Club Medic’, are an consumers. Key groups for whom new tour- indication of this trend. In future there will ism opportunities are emerging include the be more companies such as the one offering following. kidney dialysis patients a cruise around the world, accompanied by a clinic with a The young nephrologist and nurses. Such specialist Younger people increasingly look upon services are naturally more expensive, but tourism as a natural part of either their own are likely to become more affordable as formal and informal education, or as an demand increases (Kurent, 1991). interval between stages in their education. As one futurist put it, as the essentials of life Global urbanization become increasingly expensive – food, Global urbanization is another signiﬁcant clothing, shelter – the amenities of life are demographic shift starting in the 20th cen- increasingly cheap. A young person with a tury, and one that has a variety of effects for backpack and US $100 can go almost any- tourism providers. In 1950 there were where in the world; with a credit card and around 600 million city dwellers. UN pop- sympathetic parents there are virtually no ulation fund estimates suggest that by 2030 limits. more than 60% of the population will live in urban areas. Formerly rural countries such Dinkies and Twarfs as India, parts of Latin America and Africa ‘Dual-income-no-kids’ and ‘Two-workers- are rapidly urbanizing, throwing off-balance also-raising-families’ households. The their farm economies and wreaking havoc The Marketing Environment for Travel and Tourism 21

on physical and social support systems. The fears about food contamination can heighten millennium begins with around half of all perceived risks associated with a destina- humanity residing in urban areas; UN fig- tion and further dampen tourism. For the ures suggest that they are increasingly living industry, guest assurance of safety will in ‘megacities’ of over 10 million people. become more important, as the industry The number of such cities has grown from continues to develop policies relating to two in 1960 to 17 today and is projected to food handling, fraternization and other con- reach 26 by 2015, 22 in less-developed ditions in the workplace for AIDS sufferers. regions and 18 in Asia. The longer-term consequences of the This rapid urban influx of millions in unchecked spread of AIDS could be more search of work does not provide ideal condi- profound for the industry. Host nations tions for tourism services and resources. which presently have a relatively low inci- Resulting increases in congestion, pollu- dence of AIDS may become increasingly tion, poverty, unemployment and crime can reluctant to admit travellers who are seen as all have a significant impact on the demand likely to spread the disease among the local for tourism. Relatively affluent tourists tra- population. This concern has led to pro- ditionally have not been taught to notice or posals to make AIDS testing a prerequisite understand the economic realities of pov- for admission to certain countries. While erty around them (as witnessed by the this proposal is probably rather extreme and contents of conventional travel guides and unrealistic, it does highlight the growing literature). Will tourists themselves demand impact that health-related dimensions are a better understanding of the life that lies so having on tourism. Further discrimination close to their luxury hotels and beaches? against certain nationalities with high inci- Will they wish to be educated as well as dences of AIDS could also result. entertained? Perhaps instead they will simply try to stay away from the megacities with their ‘belts of human misery’ that make well- The Cultural Environment to-do visitors feel unsafe and uncomfortable. The cultural environment enjoys a curious The outflow of people from rural areas relationship with tourism and travel. The typically contributes to the stagnation of culture of a region can be part of its attrac- local rural economies which has the effect of tion to tourists, and there is a marked trend increasing the pressures for tourism devel- towards consumers showing greater interest opment to compensate. Many rural areas are in the culture and food of a region as seeking to integrate tourism with more tradi- opposed to the more traditional attractions tional rural activities such as farming. of landscape and climate. Tourism products Certain government policies are now pro- can also become part of the culture of a viding economic incentives for citizens to country. The Victorian ‘Grand Tour’, the move back to the countryside. Tourism will honeymoon, pilgrimages to shrines such as aid this redistribution by offering more Mecca and Lourdes, and even the traditional travel experiences in rural and out-of-the- British seaside holiday are all cultural sym- way places as yet untapped for their tourism bols as well as tourism products. potential. Tourism is also remarkable in its capacity to bring different cultures together in a way Health and AIDS that has the potential to lower (or sometimes Despite its containment in the industrial- unfortunately reinforce) cultural barriers ized world, the continued spread of AIDS and prejudices. For tourism marketers, the threatens the development of tourism in increasing variety of countries which now regions such as Kenya and The Gambia contribute to the global flow of tourists which contain substantial AIDS popula- requires an ability to respond to the needs of tions. Consumer fears about dangers from people from a wide variety of cultural back- local blood supplies and even unfounded grounds. Some major hotel and airline 22 K. Peattie and L. Moutinho

companies are now investing in cultural and economic prosperity. These together training to familiarize their employees with raise expectations and promote conscious- the language, etiquette, body language and ness of the good things in life. The middle social systems of other cultures. The rela- class is also shifting from traditional indus- tionship between tourism and the cultural trial occupations which call for great environment within which it operates can physical strength and muscular activities be an uncomfortable one. Although tourism towards an increasingly sedentary and offers economic benefits to the local popula- under-exercised lifestyle. This in turn leads tion of a destination, there can be significant to a tendency to romanticize the very kind of trade-offs in terms of residents’ quality of activities that are in decline, such as hunt- life and the erosion of traditional culture ing, fishing, outdoor crafts and skills. That and lifestyles. Tensions between permanent romanticizing draws many people back into residents and the incoming tourist popula- the natural environment to enjoy those tion can become intense, particularly when experiences, such as the grandfather who small resorts become engulfed during a rela- takes his grandson and granddaughter out to tively short season. The concept of experience fishing in the wild, sharing with ‘community planning’ in tourism develop- them an activity that was much more central ment has arisen to try to manage the to the grandfather’s own youth. trade-offs involved and to help to close the cultural gap that can exist between visitors Cultural events and residents. Specific cultural events or cultural expression in the form of entertainment can also Key cultural values bring considerable opportunities for tour- In addition to the potential clash of cultures ism. Sports events, music or film festivals, and interests that can occur between visitors pageants or traditional ceremonies can all and residents, the cultural environment pre- act as a generator of tourism business for a sents a challenge to tourism marketers in destination. Wily tourism organizations trying to assess how cultural trends are appreciating this fact have sought to estab- likely to influence the nature of the demand lish new festivals and other cultural events for their products. A number of cultural with the aim of attracting tourists and trends such as an emerging belief in indi- extending the tourism season (Getz 1991), vidualism, distrust in large companies, which again demonstrates the curious inter- interest in the environment or concern about twining of the cultural environment and the the erosion of traditional ‘family values’ all tourism industry. In entertainment, when a have the potential to present opportunities destination is featured within a major and threats to tourism destinations and mar- movie, tourist business can be boosted in a keters. Consumer demand is shifting way that is beyond the leverage available via towards more individually tailored holi- conventional tourism marketing. In Austra- days, towards more active involvement with lia there was much sadness at the passing of destinations and their physical environ- the ‘Crocodile Dundee Effect’ which had ment and towards holidays geared around acted to bring so much American tourist the needs of families. business into Australia during the 1980s. In The dominant global trend in terms of Oxford, the global popularity of the Inspec- values could be termed ‘the adoption of tor Morse TV series has swelled visitor middle-class values’. Just as income levels numbers into an already crowded town in a and lifestyles which fit the label ‘middle way that has made coping with visitors a class’ are becoming increasingly wide- higher priority for marketers than attracting spread, so middle-class values are more of them. In using the culture of a desti- expanding globally, with the American mid- nation to promote tourist business, caution dle class acting as a role model for the rest of must be exercised, particularly in the face of the world. It is increasingly educated and a global swing towards renewed interest in informed, enjoying decades of relative peace distinctive national and regional cultures in The Marketing Environment for Travel and Tourism 23

many areas (possibly as a reaction to the that the tourism industry becomes proactive increasing globalization of products mar- in collaborating with international, national kets). The commercialization of the cultural and local health organizations to ensure that life of an area can act to disenfranchise or food and water for travellers are safe and alienate residents who have a prior and that medical supplies and services are effec- stronger claim on the artefacts and expres- tive and disease free. While tourists should sions of their culture than that of visitors not necessarily expect a level of medical and the tourism marketers that serve their services which is superior to that enjoyed by needs. local populations, they should be made aware prior to travel of the quality of medi- In search of future culture cal services that can be expected should Cultural change can profoundly affect the they decide to travel in a given region. Just as prospects for any industry, and a ‘futurism’ fears about becoming sick in a strange place industry has emerged to try to anticipate can deter the tourist concerned with ‘staying what people will find desirable, important, alive’, so can the perceived risks relating to acceptable and fashionable in the coming crime and accidents for potential tourism years. Among the ten major cultural shifts destinations. New York’s attraction as a predicted by the improbably named futurist tourism destination has increased dramat- Faith Popcorn, are ‘cocooning’: a tendency ically with the success of the ‘zero tolerance’ for people to become more stay-at-home and policing strategy, while Tokyo’s unusually risk averse, and ‘fantasy adventure’: a trend low crime rate has acted as an attraction for towards people wanting escapist themes tourists. Health, security and safety are woven into their lives and the products they important issues in tourism marketing consume (Popcorn, 1992). While the former today, but will be even more important in represents a serious threat to the industry, the future. For tourism marketers the chal- the latter presents significant opportunities lenge is to work with other organizations to for new products and forms of differentia- help to reduce problems such as crime tion. This could involve a growth market for against tourists and their possessions and ‘themed’ hotel bedrooms, for ‘murder mys- injuries due to negligence by the visitor or as tery’ weekend breaks or simply increasing a result of dangerous facilities, without business for the Disney theme parks. imposing unnecessary fears and restrictions Another trend identified by Popcorn is upon visitors intent on leaving their troubles that of ‘staying alive’ a desire among people behind them. to adapt their lifestyles to live longer and healthier lives, which can in turn provide tourism opportunities. The most significant The Economic Environment trend in worldwide health care is the movement from health treatment to health Economists refer to travel and tourism as promotion and prevention. The most impor- luxury goods, for which demand increases tant health promotion and wellness more rapidly than average for the overall strategies include proper nutrition, exercise, economy during a boom or drops more stress reduction and the avoidance of risk severely during recession. Disposable factors such as excessive weight, smoking income levels is the economic factor seen as and alcohol abuse. As wellness strategies the most important, but other economic fac- become more entrenched in affluent societ- tors are also important. Tourism ies, travel experiences will increasingly be expenditure has been shown to be affected linked with stress alleviation and positive by levels of employment in service indus- lifestyle behaviours. Already a new market tries, and research conducted in the UK by for health tourism is evolving, an echo of the Business Strategies Ltd showed that there trips made to spa towns in an earlier era. was also a link between tourism expenditure With increasing concern about health and house prices. Shifts within the global and security among tourists, it is essential economy will strongly influence the level of 24 K. Peattie and L. Moutinho

tourism and travel demand, particularly try representatives view the milking of within the triad of major world markets, the tourism as a ‘cash cow’ as a myopic and USA, Japan and Europe, home to the major- ultimately unrewarding policy employed by ity of the world’s tourists. Tourism demand host governments, and lobby groups are is going to be strongly related to the ability of being established with the aim of trying to the Japanese economy to recover from reces- reduce the tax burden on the industry (such sion; the ability of America’s ‘Goldilocks as WTTC’s Tax Policy Centre). There have Economy’ to maintain corporate earnings been some victories: in 1994 the 5% tax on growth and avoid recession; and to the suc- hotel rooms in New York was repealed cess of Europe’s single currency. Although when the local tourist organizations showed these outcomes cannot be influenced by that the US$73 million collected in taxes tourism marketers, long-range planning for was more than offset by an estimated tourism development cannot take continu- US $94.4 million in lost tourism revenue. ing growth in demand from the USA and However, at a national level the power of the Japan for granted. On the supply side, recent exchequer within a government usually out- economic difficulties in emerging markets weighs that of the minister for tourism by a may well increase local political pressure on considerable margin which tends to act destinations to develop their tourism market against the reduction of the tourism tax in search of foreign exchange earnings. burden. Economic shifts affect the pattern of demand as well as its overall level. During recessions consumers who previously trav- The Physical Environment elled internationally may decide to spend their holidays closer to home. Short ‘bargain Environmental problems including global breaks’ may be substituted for the more tra- climate change, ozone depletion, deforesta- ditional overseas trip of two or more weeks. tion, the extinction of species, soil erosion, For those travelling internationally, the desertification, acid rain, toxic wastes, water choice of destination may be greatly influ- and noise pollution have moved to the top of enced by the prevailing international the international agenda in recent years. exchange rate situation. These problems are all international in The production economics of the indus- scope, and they also touch on all aspects of try itself are highly dependent on the state of tourism. There can be few industries where the global economy. Although, like other the interdependence between the physical service industries, travel and tourism are environment and economic activity is so labour intensive, they are also energy inten- clearly visible. sive, which makes them vulnerable to Although the relationship between tour- fluctuations in oil prices. The recent trend in ism and the environment has been a focus of oil prices has been downward, to the benefit concern since the mid-1960s (Romeril, of travel operators. In the face of environ- 1989), it is only in the past decade that the mental degradation related to fossil fuel environment has taken centre stage and the consumption, and growing European pres- issue of the environmental sustainability of sure for some form of carbon tax, there may tourism has been seriously debated. A key be little alternative to rising fuel costs in the challenge for the 21st century is to discover longer term. how the development of sustainable tourism can contribute to the move towards a sus- Tourism and taxation tainable global economy, incorporating the An important economic issue which con- need to combine sound economic develop- tinues to occupy the minds of those in the ment with the protection of natural tourism industry is taxation, since tourism resources; the need to analyse the trade-offs contributes around 11% of all indirect taxes between native cultural integrity and the paid worldwide according to the World benefits of employment; and the need to Travel and Tourism Council (WTTC). Indus- understand the impact of rapid climatic The Marketing Environment for Travel and Tourism 25

changes on prime vacation areas, such as of ‘exploiting’ local environmental resour- coastlines. ces. In the majority of popular destinations, tensions have emerged on issues like land Ecotourism use for tourism developments or the impact on residents’ quality of life. More specific Although upheavals in the business envi- issues can emerge in relation to local environment are generally seen as potential ronmental conditions, such as competition threats, a particular trend can also create for scarce water between tourism and other significant new marketing opportunities. needs in arid countries. In the new millen- For example, increasing global concern nium, concerns about sustaining the about the physical environment is providing physical environment will force the indus- an opportunity in the form of a new market try to work in closer harmony with local for ‘ecotourism’. Destinations such as the environments and communities. On the one Maldives, Kenya and Belize, which have hand, a new generation of environmentally taken advantage of this trend and their natu- aware and educated travellers are actively ral resources to target the ecotourism seeking an ‘unspoilt’ environment as a holi- market, saw a doubling of their tourist trade day destination; on the other, local during the 1980s (Cater, 1993; Weaver, governments are trying to respond to the 1998). There is some debate about what pursuit of sustainability under Local exactly constitutes ecotourism, but at pres- Agenda 21. For destinations and the indus- ent it could be described generally as ‘a low try it will be necessary in future to develop impact offshoot of the adventure travel policies which pursue a more balanced rela- industry’, which represents the best inten- tionship between tourism and the tions of an educated and affluent environment (Middleton and Hawkins, middle-class to travel without despoiling 1998). the environment. However, this can be diffi- The policy issues that will arise from cult to achieve in practice since the very trying to seek a better balance are numerous presence of tourists, regardless of their mis- (for example see Pigram, 1990) and will sion to only watch wild animals, can include the following: threaten the ecology of such areas as the Antarctic. 1. A need to recognize that the natural The concepts of ecotourism and sustain- environment is the core tourism prod- able tourism are often spoken of as though uct. As a consequence, the industry they were synonymous, but this is a miscon- must be proactive in collaborating with ception. The sustainability of tourism environmental and other organizations relates to its impact on the environment, in bringing about the preservation and whereas ecotourism involves the physical restoration of ‘quality environments’ in environment acting as the central focus of local and national settings that are both the product offering, in a way that appeals to natural and man-made. consumers’ environmental interests and 2. Environmental concerns must be incor- concerns. Although ecotourism ventures porated at all levels of tourism planning might be expected to take a lead in striving and development. Achievement of this towards sustainable tourism, this is a jour- goal would involve: ney that the entire industry must make. ● multi-regional coordination of tourism development; Policy implications ● community impact assessments The concepts of strategic management stress prior to development; the importance of achieving and maintaining ● public/private partnerships in tour- an appropriate ‘fit’ between an organization ism planning and development; and its environment. The tourism industry ● taxation policy which favours is one that has been, until recently, devel- environmentally sensitive tourism oped very explicitly following the concept development; 26 K. Peattie and L. Moutinho

● research and development to better channelled towards researching the understand and support appropri- problems rather than developing solu- ate tourism development; tions. ● efforts on the part of individual and In summary, it is acknowledged that as private companies to develop tour- global, national and local political restructur- ism in an environmentally ing continue, policymakers must recognize responsible manner; that the economic, social, cultural and envi- ● broader support from the cultural/ ronmental significance of tourism is growing. environmental communities for Accordingly, they must see that tourism is tourism facility and product devel- incorporated into the planning and decision- opment. making process in the public and private 3. There will need to be more and better sector at all levels (Pearce, 1992). environmental impact assessments for New knowledge, especially ecological both existing and proposed tourism knowledge, will shape tourism. More developments. sophisticated monitoring of actual environ- 4. Tourism planning and development mental and biological conditions and better will need to involve wider consultation understanding of naturally occurring cycles and community involvement to achieve of drought and flooding, animal and plant a better balance of economic, social and populations, and fire and regrowth within environmental needs. ecosystems may lead to more dynamic man- 5. Better linkages need to be forged at all agement of tourism. Two current crude levels between tourism policy, natural examples of this are the postings of warn- resource policy and policies relating to ings or closing of areas during high fire risk social and cultural development. times, or during outbreaks of diseases such 6. Those tourism facilities (most notably as plague or a rabies epidemic. In some areas parks and reserves) that are facing environmental managers may emphasize increasing visitor pressure must letting natural cycles take their course, and develop the appropriate infrastructure regulate the amount and nature of tourism to manage the visitors and minimize according to the current conditions. For the their impact. Only in this way can they holiday-maker, this may mean less reliable avoid deterioration while generating vacation planning, and a greater need for the necessary revenues and employ- alternative plans. ment. The future of the physical environment 7. Comprehensive methods and research and of the environmental agenda will pose a approaches must be developed to estab- number of challenges for the tourism mar- lish and monitor the environmental keter: carrying capacity of various types of destinations. ● Climate change. Climatic conditions 8. Economic communities, regions and globally appear to be becoming less sta- countries must recognize and introduce ble, with increased incidence of tourism as a vital component of coordi- temperature extremes, drought periods nated land use and regional planning. and storm activity in a wide variety of 9. There must be international pro- countries. Although this poses potential grammes to encourage better long-term problems for destinations management and protection of the used to marketing themselves on the national parks within developing benevolence and reliability of their cli- countries. mate, at least the increasing accuracy of 10. Environmental preservation and weather prediction technology will improvement needs to become a key allow destinations to become more focus for research and development weather sensitive, and provide oppor- expenditure among governments. At tunities for visitor itineraries to be present research money is being planned around the weather. The Marketing Environment for Travel and Tourism 27

● Energy policy. Tourism activities will be the financial services sector, is an exception acknowledged as being inextricably to this rule, and the delivery and manage- linked to any area’s energy consump- ment of tourism and travel services in the tion. In the next decade a part of good future will be heavily influenced by devel- tourism policy will be good energy pol- opments in the technical environment, and icy, namely a commitment to greatly by the evolution of information technology increased energy efficiency, a system- in particular. Tourism is also unusual for a atic exploration of long-term supply service industry in the degree to which it options like photovoltaics and solar involves ‘hard’ technologies in order to pro- hydrogen power and an encouragement vide the travel and hospitality elements of of lean transitional technologies (Kur- the service. Whether riding through the ent, 1991). Channel Tunnel, being thrilled on Space ● Health and safety. Changes to the phys- Mountain, or relaxing in an air-conditioned ical environment can lead to dangers to hotel room watching satellite TV, the typical tourists which change consumer per- tourist requires a good deal of technology to ceptions of particular destinations or provide the ‘intangible’ benefits of travel. forms of holiday. Blue-green algae or The rate of technological innovation plagues of jellyfish in the Mediterranean seems, at times, almost overwhelming, and might deter lovers of the conventional tourism is not exempt from its effects. In beach holiday; in Australia the developed countries in particular technol- increased levels of ultraviolet radiation ogy is seen as a tool to greatly enhance caused by ozone depletion make lying performance and effectiveness. Computer on the beach considerably more hazard- reservations systems, video technology, and ous than before; and high levels of air air transport and traffic technology have pollution might deter tourists from try- been particularly significant in improving ing to walk around cities like Los the ability of the travel industry to make new Angeles, Tokyo or Mexico City. travel experiences available to a mass audi- ● Rural development. Tourism is one of ence and to do so at prices which are the few growth industries in many rural affordable for much of the population. areas, and although tourism is generally seen as one of the more acceptable forms Information technology of development for rural land, there can With the transition towards the ‘Information be conflicts between tourism interests Society’, information technology (IT) prom- and those seeking to preserve rural tra- ises to have an ever more profound ditions and land use patterns. influence on tourism (Sheldon, 1997; O’Connor, 1999) . IT is playing an increas- It is worth noting that although it is the ingly important part in the planning and negative impacts of tourism and tourists on management of tourism operations, in sup- destination environment which typically porting service delivery and is increasingly capture the headlines, tourism development visible in all aspects of the marketing mix. can also bring environmental improvements Tourism is still characterized by a vast num- (Haulot, 1985) including conservation ini- ber of small businesses on the supply side, tiatives, funding for environmental but now the power of the typical PC can improvements and the reclamation of dere- place considerable information processing lict sites (Weston, 1997). power in the hands of the smallest provider. The emergence of computerized reservation systems (CRS) was perhaps the most The Technical Environment revolutionary change to affect the travel industry during the 1980s. These systems For most service industries, the impact of originated as internally oriented systems new technology has been less profound than designed to automate clerical functions, and for the manufacturing sector. Tourism, like became powerful consumer-oriented mar- 28 K. Peattie and L. Moutinho

keting tools. The obvious impacts of such stronger differentiation between the busi- systems are in the reduction in time and ness and leisure traveller than exists today. paperwork required to purchase tourism services and in the choice that ‘one-stop’ Smart customers systems such as American Airlines Information technology, particularly the APOLLO and United Airlines SABRE offer. Internet, is helping to allow customers to The impact of CRS has gone beyond shaping bypass the ‘travel trade’ and arrange custom- the strategies and service delivery of indi- ized packages by direct contact with vidual players, to change the very structure suppliers. of the industry in several ways. The roots of the World Wide Web are in the academic, scientific and military com- Loss of control munities, and yet the impact it has come to The providers of hospitality services are have on the tourism industry is immense. beginning to fear the loss of control of their Travel booking sites such as Sabre’s Trav- capacity to mega-reservation/distribution elocity, Microsoft’s Expedia, Preview organizations. For example, it is said that Travel, and Internet Travel Network allow the largest corporations in the world, users to check air fares, arrange car rentals, through their corporate travel managers, book hotels, and even purchase complete have significant influence over as much as vacation packages online. A survey by the 40–50% of a particular hotel company’s Travel Industry Association of America rooms capacity and with sophisticated CRS, reported that 33.8 million American travel- the decisions about where to stay and how lers used online resources for planning trips much to pay are increasingly being handled in 1998, up from 11.7 million in 1997. by the technology of the purchaser rather than that of the provider. New alliances Communications technology will encourage Supplier rationalization the formation of strategic alliances among Just as electronic point of sale systems have all segments of the travel industry. It will be tipped the balance of power away from man- increasingly important for airlines, hotels, ufacturers and towards producers in the surface transport providers, restaurants and grocery market, so CRS systems have communication firms to stay linked via res- increased the power of purchasers by mak- ervation systems, in order to provide the ing them better informed and better able to quality of service demanded by the increas- switch between or consolidate suppliers. ingly sophisticated and demanding For example, the corporate travel manager of traveller. As the technology continues to one global electronics firm recently made improve to facilitate these alliances it can be the decision to reduce the number of travel expected that those firms which have inves- agents that the firm uses in the USA from ted in the development of this technology 430 down to two or three. Worldwide the will emerge as the players in the most suc- company used over 1700 agents, and aims to cessful alliances and thus are likely to reduce the number down to a manageable become the most profitable. This type of few. This suggests that travel policy will be investment has not been characteristic of the more controlled and facilitated by technol- hospitality industry (see also Poon, 1993). ogy and that providers will be more subject to the demand of these large travel pur- New risks chasers. If in fact large firms do control as The increasing information intensity and much as 50% of any hotel company’s room computerization of the travel and tourism nights then it is likely that these hotel firms industry brings with it new vulnerabilities, will react to the demands of the travel pur- as concern about the ‘Millennium Bug’ on chaser to the exclusion of the travel needs of travel-related information systems has the non-corporate traveller. This suggests a shown. The Marketing Environment for Travel and Tourism 29

Information technology and so because it is unable to take into account the marketing mix the buying power emerging among the large Although it is CRS that has dominated the corporate and distributor purchasers. industry’s thinking in relation to technol- Nevertheless, this type of technological ogy, the application of technology is application to decision-making will con- revolutionizing elements of tourism servi- tinue to develop because competitive ces and service delivery mechanisms far pressures will require it. The availability of removed from the booking process. All ele- information over the Internet is also allow- ments of the marketing mix are being ing travellers to become better informed affected (see Kotler et al., 1996). about prices, and more able to act as ‘price- takers’. Sites such as www.bestfare.com offer highly discounted consolidator fares Product from bulk resellers. Some airlines will even In the information age, information is email prospective customers details of last- increasingly becoming a part of the content minute bargain fares to the destinations they of products generally. In the case of tourism, specify. information in many formats (brochures, videos, timetables, guide books, itineraries) Place is increasingly being bundled with the travel Many tourism organizations are using a experience, and is being used as a basis to greater variety of marketing channels than distinguish one set of travel services from ever before. In today’s competitive environ- another. These information by-products ment is not enough to rely on central will probably become independent prod- reservation systems and internal sales force ucts sold to other travel companies (Kurent, efforts. The importance of distribution net- 1991). Tailor-made audio-video packages works in tourism marketing is increasing will accompany tourists as they explore the with the increasingly global and compet- natural environment and explain in detail itive nature of the market, the ‘perishability’ what can be seen, while increasingly sophis- of the product and the computerization of ticated electronic translation systems will market exchanges. Consumer access to help tourists to vault language barriers. The travel databases via the Internet and other ‘smart’ hotel room with complete commu- public access networks allows them to nications capability (including information research and book their own travel, which and booking services built into the in-room presents a clear and immediate threat to TV), airline seats with built in TV monitors travel intermediaries. For intermediaries and computer facilities and high speed within travel markets, the increasing infor- transportation systems, are all continuing to mation intensity of the industry means that develop and evolve as a result of techno- they must master and embrace all aspects of logical advances. information technology and seek new ways to add value and provide additional service Price components. The pricing of rooms is fast becoming the function of a mathematical model which is Promotion designed to maximize revenue in the face of In the near future, computers can be expec- varying demand. The technology that has ted to have ultra-high resolution screens, emerged recently to improve decision- 3-D graphics, high-level interactivity and making has been the application of yield artiﬁcial intelligence. These new technolo- management thinking to the pricing of hotel gies will be a tremendous boon to the travel rooms. While this decision support technol- agent. Destination sites can be experienced ogy is designed to maximize revenues through video simulations and a range of against variable demand schedules it has not hypermedia databases can be used to indi- yet reached its full potential. This is partly vidually tailor a trip to the needs of the 30 K. Peattie and L. Moutinho

consumer. This technology could eventu- they include the potential for technology to ally eliminate some of the functions of the begin to operate as a substitute for tourism travel agent as the personal computer takes by allowing people to ‘travel’ and experi- over. CD-ROM technology is already capa- ence virtual holiday destinations using their ble of creating electronic catalogues to PC. As PC and television technology evolve replace the traditional marketing mainstay and become increasingly intertwined then of the industry, the brochure. Such elec- people can ‘transport themselves’ using tronic brochures could use sound and video interactive digital TV, ‘sensavision’ or com- clips to demonstrate the attractions of a puter simulations. In practice the advent of resort or hotel, while also answering queries this technology may not create the expected on price structures or travel options at the substitutions. Just as the advent of television touch of a button. In the USA, the National and video have acted to stimulate rather Conference of Mayors has created a database than satiate people’s desire to ‘see’ other of city attractions linked into CompuServe places, virtual reality tourism is likely to and to the SABRE and APOLLO CRS. stimulate people’s desire to visit places in actual reality. It is therefore more likely to be Travel technology used as a marketing tool within the travel The transportation and hospitality elements industry rather than as a serious substitute. of tourism require the application of hard Teleconferencing has made some impact as technology which varies from the ancient a substitute for travel relating to routine and traditional to the state-of-the-art. Tech- business contacts and for connecting dis- nological advances in transportation will parate parties that cannot be physically continue to affect the hospitality industry, brought together. However, because the pre- and will continue to make worldwide travel vailing business culture stresses the easier and hopefully more comfortable for importance of interpersonal relationships the traveller. For example, the technology is and of socialization with strategically already available to transport 1000 passen- important business contacts, it is unlikely to gers in a supersonic aeroplane from New result in substantial substitution within York to Tokyo in under 2 h (unfortunately, business travel. no airports are under construction to service this type of aircraft and its volume). High Managing technology speed trains travelling in excess of The information revolution already has had 480 km hϪ1 are likely to become the pre- a great effect on the tourism industry. How- ferred alternative to air travel in the face of ever, automated ticket vendors, satellite increasing airport congestion, delays and ticket printers, and on-line services such as inconvenience. Such ‘world shrinking’ PRODIGY are only the beginning. Comput- technology will reduce the psychological ers will continue to develop in terms of distance of ‘long haul’ destinations and may processing power, communications facili- dramatically alter the pattern of tourist ties, user friendliness, computability and ﬂows. Automobiles will still be the princi- cost effectiveness. Even familiar technolo- pal means for most domestic travel, but they gies such as the telephone will re-evolve to will become highly computerized and fuel- become ‘end-to-end digital’, capable of car- efﬁcient. Cruise ships will continue to offer rying text, data, graphics, pictures and even more amenities to the traveller. Air full-motion video as well as voice. Speaker- taxis are also forecast to become a popular independent speech recognition systems means of transporting visitors from airports will recognize 5000 to 15,000 words of con- to their destinations, bypassing the urban tinuous speech to allow easy, multi-lingual chaos in between. access to the wonderful world of new technology. Technology as a substitute As new technologies continue to evolve, The predicted impacts of the personal com- concern must be given to whether or not the puter on society seem to have no limits, and infrastructure supporting them (or the user The Marketing Environment for Travel and Tourism 31

purchasing them), is keeping up with these less damaging travel) must be harnessed if advances. At present evidence seems to sug- tourism is to develop on a sustainable basis. gest that technological progress is Conversely, the potentially harmful impacts outstripping the ability of the purchaser/ of technology must be understood and man- user to adapt, or of the infrastructure to aged so that their introduction can balance cope. Much of the future structure of the economic efficiency and negative social hospitality industry will depend upon how impacts. technology will merge with the skills and demand of the user and the infrastructure to support this demand. The industry should be most concerned with bringing these for- The International Environment ces together at the right time. However, this is more easily said than done since forecast- All industries that span international ing which technologies will become boundaries are concerned with interna- successfully commercialized, when, and tional relations. As the most international of with what effects, is very difficult. Shafer all industries, the relationship between dif- (1987) noted that, despite the quickening ferent countries around the entire globe is of pace of technological change within the great concern to those in travel and tourism. industry, ‘other technological phenomena International tensions between govern- are occurring outside the scope of the tour- ments can deter tourists from venturing to ism profession that eventually may have particular destinations and can create bar- even more profound impacts on tourism in riers to travel, in the form of visa the 21st century’. restrictions, for example. Watching for There are those who look to oppose the developments in international relations is application of new technology into labour second nature for those within the tourism intensive service industries such as tourism industry, and recent years have witnessed on the basis that jobs will be destroyed. some extraordinary changes within Eastern While some argue that the increased use of Europe, the former Soviet Union and the capital/technology will require highly skil- Middle East. led labour, others argue that computer For many years tourism opportunities technology may, in fact, increase demand across Europe as a whole were restricted by for a ‘de-skilled’ labour force. Similarly, the Cold War, but its thawing has stimulated there are concerns that inappropriate tech- many new market opportunities. There is nologies introduced into developing already a pent-up demand for tourism to countries only serves to worsen the well- many parts of Eastern Europe and the former being of workers. Sophisticated technology Soviet Union and that demand is likely to often requires the importation of trained continue over the next several years. But, operators, thus displacing untrained local what is just as important is the tremendous workers. Furthermore, it is suspected that potential for two-way tourism, East and the increasing role of technology is having a West, although this may remain unrealized negative influence on the balance of power until economic and political stability in the world in that it favours those with improve. In the EU and the USA there are economic and technological strength, thus many people with roots in Eastern Europe, further worsening the global imbalance. who may find it appealing to engage in tour- Despite fears about the future consequen- ism which rediscovers the lands of their ces, technology is a reality that needs to be ancestors. These are exciting opportunities managed. The real question becomes one of and the tourism industry needs to grasp the what technology should, rather than could, importance of such changes. contribute to tourism development and how The last decade has witnessed many this can best be achieved. The positive changes in international relations which aspects of technology (such as the develop- have tended to promote tourism, as coun- ment of cleaner fuels for environmentally tries have come together either driven by 32 K. Peattie and L. Moutinho

political will (as in the formation of the quickly, punctually and comfortably Single European Market) or by economic requires considerable support in terms of forces (as in the evolution of the Pacific Rim infrastructure. Infrastructure to serve all market). International cooperation is an major forms of transport continues to increasingly important aspect of tourism expand with the network of cities and towns development. Sometimes this comes in the served by air travel, and high speed road and form of reciprocal marketing alliances rail links. Infrastructure development gen- between countries, in other cases it is part of erally tends to lag behind the expansion of the pattern of international aid and develop- tourism and travel, which can lead to bottle- ment support, exemplified by the EU’s necks and overloads. With respect to air support for tourism development in Africa, travel, congestion in the skies and on the the Caribbean and the Pacific. Where con- ground already exists and is increasing. flict replaces cooperation, tourism operators While the popularity of air travel has sky- can be the first to suffer. The 1990s wit- rocketed, the growth of the world’s airports nessed a remarkable number of twists and has, by comparison, proceeded very slowly. turns in the relations between countries. There need to be effective tourism policies The return of Hong Kong to China in 1997; now to reduce this congestion if air travel is the disintegration of the former Yugoslav to signify a bright future for tourism. nations and their European neighbours; conflict in the Gulf states; and the effect on Accommodation relations between France and the Pacific Once people have arrived at their destina- nations of the renewed French nuclear test- tion, they need to be accommodated, and ing are all issues of international diplomacy there are few factors that can deter future which affected tourism. For countries tourists as easily as stories of unavailable, embroiled in conflicts and tensions there is half-finished or inadequate accommodation. the danger of rapidly losing business, which For many destination areas the availability will be gratefully accepted by other coun- of hotel rooms has been a crucial factor in tries. constraining tourism growth. The growth of tourism in India during the 1990s was hampered by an initial shortage of suitable The Communications and accommodation. In 1993 the country only Infrastructural Environment had 798 officially listed hotels with 47,400 rooms with which to accommodate an estimated 1.8 million incoming tourists. Tourism providers are typically very dependent on an existing infrastructure to handle travel, hospitality and communica- Facilities/attractions tion. Although tourism is viewed as an ‘Attractions’ and other specific facilities also intangible service business, the investment play a key role in determining travel and in infrastructure needed to support many tourism purchasing decisions, and many tourism products would dwarf the capital regions are recognizing the importance of expenditure of all but the most global man- such infrastructural developments in the ufacturers. local economy. In England some 400 new attractions were established between 1990 and 1995. Judd (1995) describes how a fierce Transport war for tourist business among American Although travel and tourism are services, cities sparked the construction of 250 con- the importance of physical distribution ference centres, sports arenas, community within the industry makes it much more centres and performing arts venues at a cost akin to those involving physical products. of over US$10 billion between 1976 and The requirement to move people around the 1986. See also US Travel Data Center world, and within their destination areas, (1995). The Marketing Environment for Travel and Tourism 33

The Administrative and Institutional of planning, research and promotion for Environment specific destinations are typically handled by NTOs at a national level, and For any form of business the environment often by similar smaller-scale agencies will contain a wide range of institutions at a local and regional level. ● which can influence the operation and Consumer groups. Travel is a major item development of their business. For tourism of expenditure for many households, the number of institutions with an interest and it also offers almost unprecedented in, and potential influence on, the industry opportunities for the creation of con- is vast, and includes: sumer dissatisfaction. A holiday-maker is by definition, a long way from home, ● Trade unions. Within the tourism and is therefore deprived of all the com- industry, trade unions have not had a forts and support networks that ‘home’ great deal of influence in relation to hos- entails. This tends to make problems pitality where wage rates, skill levels with a holiday product become very and union bargaining power are typi- serious for the consumer involved, cally low; but they have exerted since they cannot easily be escaped and considerable influence on the transport can render a major investment some- services which tourism depends on. thing to be endured instead of enjoyed. Strikes among airline or airport staff at For this reason, groups such as the Con- peak holiday times have been a com- sumers’ Association have taken an mon occurrence over the last 20 years, increasing interest in tourism and travel with certain actions such as the Aus- products, and there are now numerous tralian airline pilots’ strike having a published guides and television pro- profound effect. grammes which provide consumers ● Academic institutions. As an academic with information to assist their purchas- discipline, tourism is relatively young, ing decisions. but already the work of academics is ● Special interest groups. The size of the influencing the decision-making pro- tourism and travel industry means that cesses within tourism covering issues of it attracts the attention of an enormous planning, service delivery and market- number of special interest groups. Other ing. types of group will try to influence the ● Local government. Although national tourism industry on an issue-by-issue governments take considerable interest basis, and will include groups relating in tourism as a contributor to the econ- to the environment, rights for specific omy, the onus for the promotion, sections of the population, cultural her- control and management of tourism itage and local businesses. development is frequently devolved to ● Law enforcement agencies. The poten- local government level. Local govern- tial for tourists to become targets for ment administrators have the criminal activities, combined with a particularly difficult task of trying to desire among tourist operators and attract tourists into their region in pur- agencies to prevent crime levels acting suit of the economic benefits that they as a deterrent to tourists, has tended to bring, while protecting the quality of life bring tourism operators and law of the local population that elected them enforcement agencies closer together. In (Hall and Jenkins, 1996). Florida, concern about the impact of ● National Tourism Organizations crime on tourism business led to the (NTOs). Although there are some very formation of the Central Florida Hotel/ large players within the airline, tour Motel Security Association to promote operator or hotel chain sectors of the cooperation between the industry and industry, tourism is a complex and frag- the law enforcement agencies. mented industry. For this reason issues ● Organized religion. Although the influ- 34 K. Peattie and L. Moutinho

ence of organized religion has lessened will ensure tourism development which in the majority of developed countries, is economically viable yet socially it continues to be an important socio- responsible; and cultural influence and one that is ● the need to encourage responsible and growing in many developing countries responsive research and development and within societies based on Muslim to support these partnerships. principles. Policies and pronounce- ments that encourage pilgrimage or Changes to subsidies and regulations which designate places as sacred can stimulate tourism, but religion can also The trend towards market economies and react against the influence of tourism in shrinking government budgets is creating an area where it is perceived to be strong pressures for privatization and dereg- threatening. ulation of tourism facilities and services. While the decade of the 1970s saw governments become increasingly involved in many areas of social and economic develop- The Legal and Political Environment ment, the realities of the 1990s are forcing a drastic retrenchment of government activ- The political shift to market-driven econo- ity. The reality is that governments in many mies is bringing about a global economic countries have simply found they are unable restructuring in which market forces rather to support the many programmes and ini- than ideology are used to guide decisions tiatives that were put in place in earlier and develop policy. Recently, entire polit- years (Inskeep, 1994). ical systems have undergone dramatic Tourism is only one economic sector fac- changes in response to the pressure from ing reductions in government subsidies, in their populations to provide the goods and levels of regulation and a transfer of manage- services which they desire rather than those ment responsibility into the private sector. which are determined by the state. As the One of the first indications of this was the political tide ebbs and flows in different process of liberalization and deregulation of parts of the world, the tourism industry can airline and commercial transportation, first do little but respond to the changes as best it in the United States, and increasingly on a can. Often it is political instability that worldwide basis. The key effects are: attracts the headlines, and in the tragedy that has been enacted in what was once ● Government subsidies to support tour- Yugoslavia, the decimation of a booming ism development are declining. tourism trade was only one entry in a long Increasingly fees are being imposed for list of casualties. Other happier stories have the use of tourism facilities and services brought opportunities and a growth in tour- that were previously ‘free’. ism to areas such as South Africa, Berlin and ● Government investment in tourism Northern Ireland. facility development is also declining Although history warns that we must with increasing pressures for privatiza- anticipate swings and counter-swings over tion of all forms of tourism time, it is probable that the next decade will development. This trend is causing a see a continuation of the increasing role of marked change in the structure of market forces in determining the shape of investment portfolios in tourism-related world economic activity in general, and projects. tourism in particular. While policy-makers ● The trend to government decentraliza- in tourism cannot do much to affect this tion of its structures and programmes is trend, there are two areas for policy action, pushing responsibility for tourism plan- namely: ning and development to the regional and local level. ● the need to encourage efforts to establish public/private partnerships which Policy-makers in tourism can no longer The Marketing Environment for Travel and Tourism 35

count on government support for tourism The march of democracy development as a form of social develop- Events in South Africa, Eastern Europe and ment or as a mechanism for the Asia during the 1990s have shown that, redistribution of income and employment. whatever the faults of existing democratic Tourism facilities and supporting services systems, democracy is an environmental will increasingly have to be competitive in force for change which often proves irresisti- the marketplace and economically viable to ble. As dissatisfaction with current survive in the 21st century. governing systems and process in undemo- cratic countries increases, so a new Government attitudes to tourism framework for tourism will be required. As a Despite recent progress, recognition by gov- population becomes more educated and ernments of the tourism industry and its more informed, pressure typically grows for importance to social and economic develop- a form of government which is more directly ment and well-being of regions is still far responsive to the population’s wishes, and from satisfactory. During the 1980s, tourism there is potential for a backlash against eco- made substantial progress in gaining this nomic developments and wealth recognition. Despite this, tourism is still distribution policies which have been put in viewed in many quarters as a marginal place without representation by those being industry, largely due to the fact that its affected. impacts are poorly documented and poorly In areas where this trend becomes estab- understood. lished, it will have significant impacts on As such, there is a need for further effort tourism policy. There will be a need for: to develop industry support for an integrated tourism lobby. In a related vein, there ● tourism planning and development to is a need to focus the attention of public more accurately reflect the wishes of international organizations on issues of sig- local populations; nificance to the tourism industry. Only in ● a fuller accounting of tourism costs and this way will governments acknowledge benefits; tourism as a foreign policy issue as well as a ● an expanded concept of tourism policy domestic one. This in turn should in which tourism development is more strengthen efforts to stimulate governments thoroughly integrated with the overall and internal lending institutions to increase economic and social policy of a country the flow of resources to projects in various or region; sectors of tourism. Similarly, greater recog- ● a longer-term approach to tourism plan- nition would stimulate governments to ning and development. consider tourism needs in the course of pub- In some regions the existing political philos- lic infrastructure development. It would ophy and process will make a country also encourage the direct allocation of a por- virtually closed to tourists as has been the tion of tourism taxes and fees to be used for case with Afganistan, and also, until tourism promotion, destination develop- recently, Myanmar (Burma). However, else- ment and infrastructure development. where countries like Albania are now In the future, the tourism industry will opening up for tourists, and tourism com- probably become more involved in collabo- mentators were surprised to see that Cuba rative relationships with governments to has become one of the fastest growing tourist lessen the problems that plague overpopu- destinations. lated urban areas. By encouraging innovations in urbanization that strengthen the infrastructure of megacities – such as the Political instability recycling of waste, new and cheaper hous- Political instability and conflict between ing materials and alternative energy sources and within countries will always have a – the industry will in turn preserve its own devastating effect on the tourist trade. Those tourist markets. in the tourism and travel industry must 36 K. Peattie and L. Moutinho

always be in touch with the political risks might seem to concern how tourism man- that exist across the world, but in recent agers can cope with the increasing rate of years this has become more difficult than environmental change, it is worth remem- ever. As governments continue to reinvent bering that tourism is also a major and themselves all over Eastern Europe, the for- increasing agent of change for the environ- mer Soviet Union and other parts of the ment (Mathieson, 1996). world, the tourism industry will face great An industry faced with turbulent envir- challenges. On the one hand, democratiza- onments cannot cope simply by relying on tion brings tremendous opportunities for the accumulated experience of those within growth. On the other, increasing gaps it, or on conventional formal strategic plan- between the rich and the poor and the vola- ning processes to develop strategies which tility of post-Cold War political alliances can cope. In the future, strategies based on may put tourism policy-makers in the busi- prediction and predetermined planning will ness of serious risk analysis. Strategic have to give way to strategies which empha- planners will need to become more adept at size preparation, detection of ‘mapping’ zones of instability based on pop- environmental change, flexibility and ulation and poverty projections, and at responsiveness. The ability of managers to assessing other indicators of vulnerability understand the cross-impacts of external that influence the levels of risk associated change will also be important. Analysing the with tourism investments. environment by using SCEPTICAL analysis, The size and international scope of the or any similar framework, brings with it the tourism industry has unfortunately made it, danger that specific external changes will be and the tourists within it, potential targets classified under only one heading so that for politically motivated acts of terrorism. their relevance to other issues is underesti- Recent episodes of fundamentalist violence mated. For example the increased concern directed against tourists in Egypt and Kash- about the physical environment which has mir have caused these destinations to be emerged over the last 10 years is a socio- re-evaluated by governments, tourism pro- cultural change, but one that relates back to viders and consumers alike. Acts of changes in the physical environment. Envi- terrorism, riots and political aggression are ronmental concern is leading to a variety of felt immediately with declining arrivals and other types of change in politics, in con- lower hotel occupancy. These realities have sumer behaviour, and to the adoption of led to a heightened need to protect tourists laws which are significant to many com- from terrorists and other forms of political panies and which have the potential to instability. Recognizing that the tourism affect international relations (Germany’s industry can only thrive in a peaceful world, domestic environmental legislation for it is essential that it takes a proactive role in example has been criticized as an ‘invisible’ collaborating with other organizations in trade barrier in other countries). Addition- promoting international understanding and ally, a range of institutions from local goodwill at all levels. government to industry trade associations are becoming involved in the effort to improve the physical environment, and Conclusions: Managing in an money is being invested to create new Uncertain Environment ‘clean’ technologies. Any attempt to understand the implications of environmental Changes in the external business environ- concern by considering it solely under a ment in the new millennium look certain to heading marked ‘social issues’ or ‘political be largely what management academics issues’ is doomed to failure. describe as ‘discontinuous change’, charac- A key problem for those within the tour- terized by surprises and departures from ism and travel industry is that there is little past developments and trends. Although they can do to prevent wars, ecosystem deg- tourism’s relationship with its environment radation, economic recession or a host of The Marketing Environment for Travel and Tourism 37

other potential external threats. This is not Inskeep, E. (1994) National and Regional Tourism to say that all threats cannot be dealt with Planning – Methodologies and Case Studies. proactively. The sheer size of the industry International Thomson Business Press, Lon- gives it enormous potential power which don. Judd, D.R. (1995) Promoting tourism in US cities. could be wielded to further lobbying cam- Tourism Management 16(3), 175–187. paigns, investment programmes and Kotler, P., Bowen, J. and Makens, J. (1996) Market- education initiatives. For the moment the ing for Hospitality and Tourism. Prentice fragmented nature of the industry, and its Hall, Englewood Cliffs, New Jersey. own preoccupation with cut-throat, price- Kurent, H.P. (1991) Tourism in the 1990s: threats based competition has prevented it from and opportunities. In: Hawkins, D.E., Brent looking further outward and proactively Ritchie, J.R., Go, F. and Frechtling, D. (eds) inﬂuencing events compared with other World Travel and Tourism Review – Indica- major industries such as oil and agriculture. tors, Trends and Forecasts, vol. 1. CAB Gradually governments are waking up to the International, Wallingford, UK, 78–82. Mathieson, A. (1996) Tourism: Economic, Phys- importance of tourism, not just as a foreign ical and Social Impacts. Longman, Harlow, exchange cash cow, but as a strategic invest- UK. ment for the future, and this gives the Middleton, V.T.C. and Hawkins, R. (1998) Sus- industry increasing opportunities to inﬂu- tainable Tourism. Butterworth-Heinemann, ence that future. In the meantime, however, Oxford. Hawkins (1993) is likely to be correct in O’Connor, P. (1999) Electronic Information Dis- asserting that ‘Crisis marketing is now an tribution in Hospitality and Tourism. CABI essential ingredient for travel marketing Publishing, Wallingford, UK. professionals. Contingency planning, fore- Pearce, D. (1992) Tourist Organisation. John casting, and creative responses to rapidly Wiley & Sons, New York. Pigram, J. (1990) Sustainable tourism – policy changing world conditions are now essen- considerations. Journal of Tourism Studies tial ingredients of success in the tourism 1(2), 2–9. industry.’ Poon, A. (1993) Tourism, Technology and Com- petitive Strategies. CAB International, Wallingford, UK. References Popcorn, F. (1992) The Popcorn Report: Revolu- tionary Trend Predictions for Marketing in Cater, E.A. (1993) Eco-tourism in the third world: the 1990s. Century Business, New York. problems for sustainable tourism develop- Romeril, M. (1989) Tourism and the environment ment. Tourism Management 14(2), 85–90. – accord or discord? Tourism Management Durning, A.T. (1992) How Much Is Enough? Earth- 10(3), 204–208. scan, London. Shafer, E.L. (1987) Technology, tourism and the Gee, C.Y., Makens, J.C. and Choy, D.J.L. (1994) 21st century. Tourism Management 8(2), The Travel Industry, 2 edn. Van Nostrand 179–182. Rheinhold, New York. Sheldon, P.J. (1997) Tourism Information Tech- Getz, D. (1991) Festivals, Special Events and nology. CAB International, Wallingford, Tourism. Van Nostrand Rheinhold, New UK. York. Smith, S.L.J. (1995) Tourism Analysis. Longman, Hall, C.M. and Jenkins, J.M. (1996) Tourism and Harlow, UK. Public Policy. International Thomson Busi- US Travel Data Center (1995) 1995 Outlook for ness Press, London. Travel and Tourism, December. US Travel Haulot, A. (1985) The environmental and social Data Center, Alexandria, Virginia. value of tourism. International Journal of Weaver, D.B. (1998) Ecotourism in the Developing Environmental Studies 28(4), 219–225. World. CAB International, Wallingford, UK. Hawkins, D.E. (1993) Prospects and challenges for Weston, J. (1997) Planning and Environmental tourism in the millennium. Tourism Man- Impact Assessment in Practice. Longman, agement 14(5), 392–396. Harlow, UK.

Part Two Tourism Marketing Management

3 Consumer Behaviour

L. Moutinho

Introduction Considering factors of a broader nature, the tourism marketing context requires an Consumer behaviour refers to the process of appraisal of the effect of economic and acquiring and organizing information in the social changes, generating factors that will direction of a purchase decision and of increase certain types of leisure activities using and evaluating products and services. and decrease others. The rise in the cost of This process encompasses the stages of energy, the trend to smaller family units and searching for, purchasing, using, evaluation to live in smaller spaces, the improvement and disposing of products and services. The of forms of communication and the access of tourist buying decision presents some more people to higher education, are exam- unique aspects: it is an investment with no ples of general and diverse factors that have tangible rate of return, and the purchase is to be taken into account for an assessment of often prepared and planned through savings the trend in tourism, in relation to regional, made over a considerable period of time. national or foreign markets. That is, the vacation tourist will invest with Travel decisions, therefore, are very much no expectation of material and economic affected by forces outside the individual, return on his or her purchase of an intan- including the influences of other people. The gible satisfaction. forces that other people exert are called social As travellers become more sophisticated influences. As Fig. 3.1 shows, these social in their vacationing behaviour, research influences can be grouped into four major must continue to become more sophisti- areas: (i) role and family influences; (ii) refer- cated to explain this behaviour. There are ence groups; (iii) social classes; and (iv) many factors that inﬂuence an individual’s culture and subculture. behaviour. To take adequate actions in the The analysis of consumer behaviour area of tourism marketing, one must under- requires the consideration of various pro- stand how people perceive such things as cesses internal and external to the destination areas, air travel, travel distances individual (see Engel et al., 1995). Hence, to and travel advertising; how they learn to understand the purchasing behaviour one consume and to travel; how they make travel needs to examine the complex interaction of decisions; and how personality affects those many elements, present at different stages, decisions. One must also analyse what moti- from arousal to decision, as well as from vations inﬂuence the individuals’ travel purchase to post-purchase experiences. Fig- decisions; how attitudes are formed; and ure 3.2 shows the interaction of elements how various groups affect travel behaviour. that are involved in consumer behaviour. © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 41 42 L. Moutinho

Fig. 3.1. Major inﬂuences on individual travel behaviour.

Fig. 3.2. Interaction of elements in the psychological ﬁeld of the consumer that inﬂuence behaviour.

In the consideration of all these proces- decision-making process. The final section ses, this chapter will first deal with will present an illustration of tourist behav- determinants of a broader nature, the cul- iour modelling. tural and reference group influences. Next, concepts concerning the individual and his or her relationship with the environment Cultural Influences and will be presented with a focus on: person- Reference Groups ality factors and self-concept; motivation; perception and cognition; and attitude and Cultural influences intention. Then other important determi- Culture is the complex abstract and material nants of tourist decision-making: perceived elements created by a society. It refers to risk and the family decision process, will be values, ideas, attitudes and meaningful sym- discussed. This previous set of concepts will bols, as well as artefacts elaborated in a permit an integrated analysis of the society. Those elements are transmitted Consumer Behaviour 43

from one generation to another and serve to (i.e. ‘I believe that . . .’). Values may have the shape human behaviour, implying explicit characteristics of beliefs but they are not or implicit patterns of and for behaviour. directed towards a specific object: they serve The concept of culture is broad and it is not as standards for appropriate behaviour; and easy to analyse the culture determination of they are widely accepted by the members of behaviours. Its influences is natural and sub- a social group. Stemming from the fact that tle, and often the individuals are neither there are values specific to a social group, conscious nor aware of it. The multiple cul- some standards of behaviour are established tural factors taken together will characterize and members are expected to conform to a given society, such as its language, reli- them. These are norms and they consist of gion, technology, etc. In the context of concepts or generalizations which guide consumer behaviour, one can regard culture behaviour. as the total of learned beliefs, values and customs, including the material elements, Reference groups which serve to regulate the consumption People turn to particular groups for their patterns of members of a particular society. standards of judgement. Any person or A form of investigation of this broad fac- group – real or imaginary – that serves as a tor is cross-cultural analysis, consisting of a point of reference for an individual is said to systematic comparison of similarities and stand as a reference group. It exerts a key differences in the material and behavioural influence on the individual’s beliefs, atti- aspects of cultures. These analyses may be tudes and choices. statistical, when describing the structure of The family is a very important reference the culture, or functional, when dealing group in a particular culture. Different with factors determining behaviours and values and expectations are built in the indi- activities in different cultures. vidual through the family. Other examples Within a society, an important broad fac- of reference groups are religious and ethnic tor influencing consumer behaviour is social groups, the trade union and the neighbour- class. This constitutes a relatively perma- hood. Reference groups may interact and nent division of categories in a society, a overlap. They can be classified in terms of division that brings about some restrictions different criteria. Those groups with which of behaviour between individuals in differ- the individual has interpersonal contact are ent classes; individuals in a given social called affiliative groups. Taking the criterion class share similar values, lifestyles, and of degree of interpersonal contact, two cate- behaviour standards. However it must be gories can be identified: primary groups, emphasized that there are many ways of with which the person has a regular contact; establishing such a classification. Research- and secondary groups, with which the per- ers may use different categorizations, son interacts inconsistently or on few resulting in three, four, five, six social clas- occasions. Also depending on their degree ses, and so forth. Social classes tend to be of defined structure and organization, hierarchical but they may be dynamic. It is groups may be classified as formal (such as a very likely that members of a social class trade union) or informal (such as a neigh- will follow the standards of behaviour of bourhood). that class; nevertheless, individuals may Groups that influence general values and vary in the degree of congruence as to their the development of a basic code of behav- class insertion. iour are qualified as normative, while those The behaviour patterns of an individual that serve as points of reference or influence are related to the beliefs and values that specific attitudes and behaviour are desig- were incorporated. Beliefs constitute a per- nated as comparative. son’s particular knowledge and assessment of something (another person, a store, a Opinion leadership product, a place, etc.), and are often The final social influence to be considered is expressed as mental or verbal statements opinion leadership. An opinion leader is a 44 L. Moutinho

person who influences the actions or atti- account since they will mean diverse vaca- tudes of others. Individuals may be opinion tioning behaviours. leaders, opinion seekers or opinion recipi- ents. Considering the person’s tendency to Tourist self-image lead or seek for opinion, four categories of Within the consumer’s conceptual structure interpersonal communication result; there are concepts that the individual believes characterize him or her. They con- 1. The socially integrated: a person whose stitute the consumer’s self-image. There is score is high in opinion leadership as not only one kind of self-image. Usually self- well as in opinion seeking. image is described as what the individual 2. The socially independent: a person believes himself or herself to be but there is whose score is high on opinion leader- also the ideal-self, referring to what he or she ship and low on opinion seeking. would like to be. Purchase intentions relat- 3. The socially dependent: a person whose ing to some products tend to be correlated score is low on opinion leadership and with self-image, while those relating to other high on opinion seeking. products are correlated with the ideal self- 4. The socially isolated: a person whose image. The activated self-image consists of score is low on opinion leadership as the expectations a person holds about him- well as on opinion seeking. self or herself and his or her behaviour in Interpersonal communication relative to relation to an object or product. A similar opinions may be initiated either by the interpretation also assumes the existence of leader or by the receiver. Also, in relation to three categories: the present self, that is, the the four categories described above, it must individual’s self-image at a given time; the be remembered that the characterization of past self; and the future self. Another sug- an individual is not absolute and may vary gestion of these categorizations emphasizes according to different social contexts. a kind of ‘others’ self-image’ which is how an individual thinks others see him or her. The concept of self-image is important to Personality and Self-concept marketers mainly for marketing segmentation and positioning of products; in these Personality can be defined as the configura- tasks the self-image of individuals belonging tion of a person’s characteristics and ways of to a target group must be taken into account. behaving, which determines his or her The tourist may prefer destinations and ser- adjustment to the environment in a unique vices that match his or her self-image – the way. Personality is a concept that empha- ‘looking glass’ concept. sizes the effect of an individual’s past The attitudinal dimensions of tourist history on his or her current behaviour. Trait products can be classified into three classes: theorists view personality as a collection of those related to ego-involvement with the traits, which are defined as relatively endur- symbols associated with the product; those ing characteristics. The trait concept implies concerning the sensory character of the a more quantitative approach, with assess- product attributes; and those concerning the ments effected through personality tests and functional aspects of the product. When a inventories. More holistic approaches make person wants to change his or her current use of personal observation, self-reported image in order to gain entrance into a refer- experiences or projective techniques. ence group, a whole new pattern of The consideration of personality types is purchases may result. This may lead to the important to appraise vacation behaviour trial of new products and to a different level trends. Psychocentric persons are more con- of purchasing. Marketers must be aware of cerned with themselves, anxious and these tendencies. Appeals based on certain inhibited. Allocentric persons tend to be desires of the tourist, such as to improve self-confident, outgoing and adventurous. health and attractiveness, can have a strong These differences must be taken into influence on individuals aiming to change Consumer Behaviour 45

their self-concept. individual’s reactions based on current The relation between self-image and knowledge. product-image is important to predict tour- An individual tends to organize his or her ists’ behaviour towards destinations and perceptions and knowledge in order to pro- services. There are several ways of assessing duce meaningful relationships among the congruity between these two images. separate elements. What an individual per- One of them involves the use of the semantic ceives in many situations is determined not differential technique, with scales having only by the intrinsic nature of the stimulus bipolar adjective endpoints. The tourist is object or sensations, but also by his or her required first to identify the position on the own system of values and needs determined scales of his or her self-concept and, follow- by the social context. ing that, to go through the same procedure The first stage of perception is the atten- with respect to product-image. Next, the dis- tion filter. One does not perceive all the crepancy of the two images is calculated by stimuli arriving but grasps information the following equation: selectively through a process of comparison of inputs with previous information. Fur-

m thermore, most stimuli to which one is Dkj = ∑ (Sij Ϫ Pij)2 exposed are screened out if they are unin- ͙i=1 teresting and irrelevant. The second stage is the interpretation process, whereby the where Dkj is the overall linear discrepancy stimulus content is organized into one’s between the jth tourist’s self-image and his own model of reality, resulting in awareness or her perception of the image of the kth and interpretation of the stimulus, that is, in destination; i is the speciﬁc image compo- cognition. nent used to assess destination and Selective perception self-image; Sij is the jth tourist’s self- perception on the ith image component; and Perception is selective in two ways: atten- Pij is the jth tourists destination perception tion and distortion. Selective attention on the ith image component. refers to the fact that individuals usually attend to those stimuli which are regarded as relevant to his or her needs and interests, and neglects or distorts inconsistent stimuli. Perception and Cognition Since we cannot perceive everything, we become selective in our attention, blocking The comprehension of the process of knowl- perception when an excessively high level edge acquisition and incorporation of of stimuli are affecting us (stimulus bom- experiences will permit better predictions of bardment), when arriving stimuli are actual vacation behaviour. Perception and irrelevant, or when they are culturally unac- learning strongly inﬂuence evaluation and ceptable, damaging or incompatible with judgemental processes. Perception is the our values and beliefs. That is the reason process by which an individual selects, why selective attention is also seen as a form organizes and interprets stimuli in a mean- of perceptual defence. The degree of com- ingful and coherent way. A stimulus is any plexity of stimuli will determine different unit of input affecting any of the senses. levels of attention: moderately complex Perceiving stimuli involves exposure, stimuli are more likely to attract our atten- reception and assimilation of information. tion than simple or too complex ones. Our sensory system is sensitive to different Perceptual bias or selective distortion is a modalities of external stimuli: auditory, vis- tendency for people to modify information ual, tactile, olfactory and taste. When inputs in the direction of personal meanings. are transmitted, information reception will Involvement in the object or message can be depend on the cues from the source of the a function of self-perception which, in turn, stimuli (a product, a message, etc.) and the is a function of need and social conditions; 46 L. Moutinho

the result is selective distortion and selec- services. The concept of overt search tive retention of available information. The includes all the activities of a potential tour- information obtained from a specific mes- ist directed at collecting information about a sage is the sum of the relevant statements as product. One reason for the occurrence of a perceived by the receiver. The audience limited external search is that tourists often receives the message and relates the symbols have available a large amount of informa- it holds by relating it to prior learning. Inte- tion, previously acquired, that can be gration of information implies different retrieved through internal search. processes in the audience, resulting in The mechanism of the use of information acceptance or rejection of the message, by the tourist comprises four stages: expo- retention or modification, belief or disbe- sure (contact with the sources of lief. information); awareness (interest in the Vacation destination comprehension is product); assimilation (attitude towards the related to the halo effect, which is the tend- product attributes); attitude change (aware- ency of a tourist to be biased by his or her ness of the product and association of overall opinion in the process of evaluating product and attributes). distinct attributes of a destination or service. This is a form of generalization and it mini- Memory mizes the effort required to make travel Memory plays a major role in consumer decisions. choice. There are three stages involved in memory. First the information enters mem- Information search ory and is encoded. Then the information is An important question is: how sensitive is stored. The third stage is retrieval. Storage is the average vacation tourist regarding the said to be a function of the level of informa- information received about a tourist prod- tion processing at the time the message is uct? Perceptual effects may be examined at received so that retention will depend on three levels: (i) the amount of information how information is processed. One influen- available to the tourist; (ii) the amount of tial approach to memory assumes it to be a information the tourist is exposed to; and multiple-store process, with different types (iii) the amount of information actually of memory storage systems, each with spe- retained. cific functions and properties. A typical Information seeking is the expressed model of this type assumes a set of sensory need to consult various sources prior to stores, a short-term and a long-term store. making a purchasing decision. Initially, For an advertisement to be remembered, there is the recognition of the problem it must be encoded and stored in the long- which is the result of a perceived imbalance term memory system. Information stored or need to shift to a desired state. It activates can be of two types: that actively acquired the decision process, through the search for and that passively absorbed from the envi- information about alternatives. One type of ronment. The quantity of information that search is internal, that is, the retrieval of will be retained in long-term memory (data information about alternatives, stored in considered relevant or useful) is only a frac- memory. However, and especially in the tion of the total information communicated. case of vacation travel, the search is often The stored information can be retrieved, that external, involving active processes and a is recovered for use. With respect to recall, variety of information sources. an inappropriate context as well as new and There are individual differences in terms old learning may interfere and reduce the of the likelihood of a tourist to be involved possibility of retrieving given material. For- in a search, but the level of active search is getting is mainly the result of interference of usually dependent on the degree of balance new information and experiences occurring between expectation of predicted benefits between the time of encoding and that of and costs, or on the degree of certainty about retrieval. the merits of alternative destinations and The process of response to communica- Consumer Behaviour 47

tion begins with a state of unawareness. The rienced, aspects of a destination on the basis initial response is to become aware of a of known stimuli. message. This response is followed by com- Hence, careful attention has to be given to prehension or knowledge, when the receiver the stimuli related to travelling and the way must relate the message to prior learning they affect tourist behaviour. The expres- experiences so as to give meaning to it. The sion ‘travel stimuli display’ refers to the subsequent states are liking, preference, different kinds of information presented to conviction and action. the tourist. Information may have a signifi- cative or a symbolic character related to the Learning process product attributes such as quality, distinc- Comprehension or knowledge about the tiveness, prestige and availability. Tourists’ tourist product consists of the facts acquired behaviour is influenced by affective and by about it that are used as the basic material for symbolic appeals. decision-making. To understand the acquisition of knowledge about a product, it is Tourist sources of communication necessary to consider the learning process. Depending on the source of information, Learning refers to the establishment of communication can be classified as primary new responses to the environment. Cogni- (experiences derived directly from the prod- tive learning theory focuses on problem uct), secondary (mass communication), solving, that is, on mental processing, and tertiary (information obtained from travel considers the tourist as an active learner. agencies or exhibitions), and personal. This approach emphasizes the topics dis- Tourists will actively process the informa- cussed above: information processing tion provided by the source but will not leading to comprehension and action. make judgements about the product based Instrumental learning theory emphasizes only on information; they combine it with the role of reinforcement and repeated trials. other experiences and previous knowledge Reinforcement is the process by which a to develop attitudes and intentions and to consequence increases the likelihood of a reach a buying decision. specific response to certain cues. When cues Messages received by the tourist are are pertinent to expectations, they tend to sometimes seen as ambiguous when con- activate certain drives (Evans et al., 1996). fronted with previous experience. The As mentioned above, in relation to the filtration process serves to protect the tourist halo effect, generalization is an important since it permits discrimination between aspect of the learning process to be taken facts and exaggerations in advertising. Com- into account in the analysis of vacation munication is the determinant of much of behaviour. Stimulus generalization is the vacation behaviour and an advertisement is process by which the same response is made intended to communicate, allowing the to similar but different stimuli, such as acquisition of knowledge, the formation or when a person responds to a given travel change of a product image, the arousal of situation in the same way he or she has needs and wants, the creation of interest in a responded to different but similar situations product, the inducement to action. in the past. On the other hand, stimulus The primary form of communication is discrimination involves the learning of dif- word of mouth. This conversation activity is ferent responses to different but similar a channel for both receiving and disseminat- situations. The processes of generalization, ing information concerning vacation emphasizing stimulus similarity, and of dis- destinations and tourist services. Product crimination, emphasizing stimulus involvement is one of the motivations for difference, are fundamental in consumer word of mouth. When a tourist product is behaviour assessment. Tourists can discrim- perceived to be central to the individual’s inate between two similar products and self-image, there is a high probability of the show preference for one of them and they product being used and focused in conversa- can generalize about different, not yet expe- tion. The content of conversation depends 48 L. Moutinho

Fig. 3.3. A possible relationship between information received, experience and action. on the assimilated communication, and the ability; in the affective domain, its rate of word of mouth depends on the tour- attractiveness and its likeability. ist’s awareness and attitude. Internalization of information occurs Product image formation when the individual accepts the opinion After processing the information, the tourist because it is congruent with his or her exist- will possess what is called ‘total thoughts’ ing values. Here, the factor ‘credibility’ of about the product, encompassing positive, message and personal relevance of the infor- negative and neutral thoughts. Given the mation play an important role. Based on information possessed about a vacation des- personal experience and expectations, the tination, the tourist will form an image of it. tourist uses a trade-off of all the alternatives This image is a description of the tourist’s to reach a decision to act. This process is attitude towards a number of cues related to shown in Fig. 3.3. Consumers use informa- the destination attributes. This attitude is tion in five different ways: (i) to evaluate based partially on feelings, not solely on alternatives in making a choice; (ii) to rein- knowledge. The destination image tends to force past choices as a rationalization be an oversimplification in the mind of the process; (iii) to resolve conflict between buy- tourist and, at the same time, a consistent ing and postponing; (iv) to remind them configuration constructed according to the when to buy; and (v) to acquire knowledge available information. To construct it the for epistemic purpose. tourist may add missing information, gen- The processes of exposure, perception eralizing information of known aspects to and retention will be influenced by the (other) unknown aspects. advertisement in different ways: in the cog- Physical attributes of a vacation destina- nitive domain, the extent to which it carries tion act only as stimuli inducing certain useful information, its relevance, its believ- associations; thus, the image is not what the Consumer Behaviour 49

product actually is, but what the tourist’s the latter theory people would seek beliefs tend to construct. There are three unknown places, restaurants and hotels. As components in image formation: (i) related a matter of fact, these theories explain differ- to awareness, implying the information the ent behaviours that do occur, and different tourist believes a tourist destination or serv- individuals may behave more in accordance ice possesses; (ii) related to attitude, with one or the other assumption. The most implying feelings and beliefs about the tour- likely is that people will seek for a balance ist product; and (iii) related to expectations, between consistency and complexity. implying the benefits expected to be derived In the case of leisure travel there is a from the tourist product. The concept of search for variety, that is, for situations image can be formulated as: which offer a certain degree (variable among individuals) of incongruity, uncertainty, I = f(Aw, BA, Ex) novelty and complexity, combined with a where I is the image of the destination or degree of familiarity; a contact with the service; Aw is the level of awareness in rela- familiar and the novel. tion to the product; BA is the beliefs and attitudes developed about the product; and Travel motivators Ex is the expectations created with the Satisfaction associated with vacation travel product. includes relaxation of tension, which is a The attractiveness of a tourist destination strong underlying element to different and the choice of it will greatly depend on desires and expectations concerning a vaca- its image. It is an important fact to marketers tion. The search for a mental state of renewal that, in general, images tend to be easily always seems to be involved. modified. The answer to ‘why do people travel?’ is not a simple one. Two sets of motivations must be distinguished: general and specific. General motivations imply that people Motivation travel for many reasons, and many times are not fully aware of them. Some general travel Motivation refers to a state of need, a condi- motivations are presented in Table 3.1. This tion that exerts a ‘push’ on the individual range of motives is broad, in common with toward certain types of action that are seen other classifications, for they are attempts to as likely to bring satisfaction. Vacation tour- encompass basic classes of motivators. ist motivation is greatly determined by A new generation of travellers is begin- social factors and is related to the need for ning to emerge, in the sense that the traveller optimal arousal. We have a need for stability has ceased to be a tourist and has become a as well as for novelty. In the case of travel- searcher. For that reason, many travel fold- ling there are usually multiple motives, ers and advertisements are still speaking a based on the tourist’s expectations of what language of the past. The motivations will be gained from the purchase. include the discovering of oneself and psy- There are two views in relation to the chological mobility, with the traveller individual’s logical consistency. Some theo- willing to know different cultures, the psy- ries stress the need for balance and chological aura, fauna and flora of an area harmony, considering the individual more and a country. The challenge involved in likely to be satisfied with the expected, and travelling is based on the exploring instinct to be uncomfortable with the unexpected. labelled the ‘Ulysses factor’ in reference to However, other theories maintain that the the hero of Homer’s Odyssey. It is the need unexpected is satisfying and that the indi- for exploration and adventure, involving an vidual will seek complexity, not sameness. exciting and even (according to the individ- In terms of travelling, the former theory ual’s perception) risky action. It is a physical would predict that the individual would and intellectual need related to knowledge visit well-known places, while according to and curiosity. 50 L. Moutinho

Table 3.1. A list of examples of general travel motivations. tion or service and implies judgement on the basis of emotion; the conative is the action Educational and cultural tendency which can have a favourable or unfavourable character (Hoyer and MacIm- To see how people in other countries live and mis, 1997). work To see particular sights, monuments or works of art Tourist attitude change To gain a better understanding of current events In order to change attitudes, marketers can: To attend special cultural or artistic events ● modify the characteristics of the tourist product (real positioning); Relaxation, adventure and pleasure ● alter beliefs about the product (psycho- To get away from everyday routine and logical positioning); obligations ● alter beliefs about competitive products To see new places, people, or seek new (competitive depositioning); experiences ● change the relevant weights of the prod- To have a good time, fun uct attributes; To have some sort of romantic sexual experience ● induce attention to certain attributes; Health and recreation ● modify the tourist’s ideal levels for certain attributes. To rest and recover from work and strain To practise sports and exercise Inhibiting factors may lead the tourist to respond to a destination in a way different Ethnic and family from his or her attitude towards it. The sense of uncertainty, of caution, or indecisiveness To visit places your family came from are also present in vacation behaviour. Some To visit relatives and friends To spend time with the family and children inhibitors of a positive attitude are the availability of alternatives, problems of Social and ‘competitive’ incompatible income, or other limiting factors such as the impact of other people’s To be able to talk about places visited behaviour. Travel preferences are devel- Because it is ‘fashionable’ oped as a result of perception of benefits. To show that one can afford it When choosing a destination, the traveller assesses the level of different benefits in each alternative. The outcome of this assessment is the intention to buy one Attitude and Intention destination. So, to influence a traveller’s decision, one Attitude may increase the importance of one or some An attitude is a predisposition, created by specific benefits. The perception of benefits learning and experience, to respond in a will shape the overall attractiveness of a consistent way towards an object, such as a destination. Alternatives are regarded as product. This predisposition can be favour- viable, neutral or rejected. The viable alter- able or unfavourable. Attitudes are generally natives will then be more carefully considered to have three components: cog- considered. Research has indicated that nitive, affective and conative. The cognitive usually travellers will analyse no more than component is sometimes called the belief or seven alternatives in a given vacation deci- knowledge component, consisting of the sion. beliefs and opinions, based on some evi- So far we have discussed attitudes dence, that an individual holds about towards an object. However, an alternative something (a place, an experience, another interpretation holds that attitudes are actu- person); the affective component refers to ally related to ‘behaviour towards’ an object. the feelings and emotions about the destina- The Fishbein (1967) attitudes-towards- Consumer Behaviour 51

behaviour model is expressed by the j; and ASij is individual i’s anticipation of following equation: events at the time of his or her behaviour n towards j. ∑ Attitude (behaviour) = biei The assessment of a market potential has i=1 to take into account that there are factors where bi is the strength of belief that ith that can be anticipated and others that can- specific behaviour will have a specific con- not. Variables that can be anticipated should sequence, and ei is the evaluation of the be analysed (for instance, demographic and outcome. economic factors) before further study of A multi-attribute object (e.g. a vacation behavioural variables is initiated. The rela- destination) is viewed as a bundle of attri- tionship between attitude formation, butes leading to costs and benefits of intention and the travel decision-making differential desirability to individuals or process is summarized in Fig. 3.4. segments of the market. Overall affect is pos- A final issue to be considered concerning ited to reflect the net resolution of an attitude and intention refers to their meas- individual’s cognitions (beliefs) as to the urement. Social psychologists have degree to which given objects possess cer- attempted to create methods of assessment. tain attributes weighted by the salience Attitudes may be inferred from systematic (importance) of each attribute to the individ- observations of the individual’s behaviour ual. Our general attitudes, interests and in social contexts or from responses to ques- outlook towards life are related to our atti- tionnaires. One problem with the tudes towards different kinds of vacation questionnaire technique is that respondents experiences and to what we would like to may misrepresent their feelings in their find in a vacation. Confidence generation is statements. Researchers have been cautious related to destination comprehension, about the power to predict subsequent buy- intention, and the degree of satisfaction ing behaviour from the assessment of gained in the purchase and utilization of a attitudes and intentions. Actually, in real product. Confidence also implies the tour- situations, there is a gap in time and space ist’s ability to judge the quality of the between the manifestation of an intention services offered. and buying behaviour. Several non- predicted factors may appear during this interval. Despite this fact, a useful technique Intention for measurement is the rank-order scaling Intention indicates the likelihood of pur- procedure. chasing a tourist product; it is the readiness-to-buy concept. Behavioural intention is said to be a function of (i) evaluative beliefs toward the tourist product; Perceived Risk (ii) social factors which tend to provide a set of normative beliefs to the tourist; and Being faced with a purchasing situation, a (iii) situational factors than can be antici- tourist has a certain degree of risk involved pated at the time of the vacation plan or in the decision to be made. Perceived risk is commitment. This function is expressed in a function of uncertainty and consequences. the following equation: This may include (i) uncertainty inherent in the product; (ii) uncertainty in place and

BIij = B1 (Ebijk) + b2(SEij) = b3(ASij) mode of purchase; (iii) degree of ﬁnancial and psycho-social consequences; and where BIij is individual i’s plan to behave in (iv) the subjective uncertainty experienced a certain way towards vacation destination j; by the tourist. The degree of risk may vary

Ebijk is individual i’s belief k about vacation with the costs involved in a decision and the destination j; SEij is individual i’s social degree of certainty that the decision will environment inﬂuencing behaviour towards lead to satisfaction. Costs may concern time 52 L. Moutinho

Fig. 3.4. Attitudes and the travel decision-making process. costs, ego costs, monetary costs and other The origin of risk perception lies in the costs resulting from the eventual failure of uncertainty of the congruence between self- need satisfaction. For this last case the types image and product-image. Researchers of consumer (vacation tourist) loss can be regard risk handling as a risk reduction defined as physical loss, loss in time, ego- process. Risk reduction methods are used loss, or financical loss. until its level reaches one which is tolerable Tourists can be risk-neutral, risk avoiders to the individual and consistent with pur- or risk-takers. The first types of risk to be chase goals. Figure 3.5 describes the risk perceived are connected with financial and variables relationships. social-psychological aspects. ‘Overall per- To understand how vacation tourists ceived risk’ includes performance, physical, reduce risk, it is necessary to consider the social-psychological, and time risks. The major types of perceived risk: concept of perceived risk can be formulated 1. Functional risk, the risk that the prod- as below: uct will not perform as expected. PRx = f(PERx, PSRx, PPRx) 2. Physical risk, the risk that the tourist product will be harmful. where PRx is perceived risk; PER is perceived economic risk; PSR is perceived 3. Financial risk, the risk that the product social risk; and PPR is perceived psycho- will not be worth its cost, either in time logical risk. or money. Consumer Behaviour 53

Fig. 3.5. The relationship of tourist risk variables.

Box 3.1. The buying behaviour process for airline products.

Airlines deal intimately with customers, selling a service which to many is threatening, which few profess to be able to evaluate objectively, and which constitutes a sizeable expenditure. Marketing-by-market promotional planning must continue the accent on reinforcing user ‘loyalty’. Surveys indicate that individuals do not have clearly formed beliefs about most airlines (although frequent ﬂyers generally prefer one above others), that utility for the ‘product’ is high, and that there is little emotional involvement when they discuss airlines. Companies in the airline business need a systematic, ongoing process of data collection to evaluate marketplace perceptions rather than awakening one day to ﬁnd their position eroded by more astute competitors. Since airlines can seldom be tried out, inspected or tested without a purchase, and are intangible, testimonials are one method to signify that the ‘product’ performs well and that the ‘quality’ is high, adding to convenience value for air travellers. An airline that is marketing-oriented has to examine periodically its responsiveness to tactical needs in different markets as well as to frenzied price competition.

4. Social risk, the risk that a poor product buying goals, uncertain purchase rewards, choice may result in embarrassment lack of purchasing experience, the predic- before others. tion of positive or negative consequences, 5. Psychological risk, the risk that a poor peer inﬂuence, and ﬁnancial considerations product choice will harm the consu- (see Fig. 3.6). mer’s ego. For an assessment of tourist risk variables, one should study the relationship The different types of risk have to be between the tourist’s past behaviour and his considered by a tourist organization in order or her learning process towards travel- to help the tourist to reduce the perceived related concepts, the tourist’s intra-personal risk (Box 3.1). Some sources of perceived characteristics, the type of information sour- risk in a buying situation include uncertain ces used by him or her before and after the 54 L. Moutinho

Travel stimuli: Social and personal determinants Advertising of travel behaviour: Travel literature Socio-economic status Travel reports Personality features Travel trade recommendations Social influence and aspirations Attitudes and values

Motivation Desires/needs Expectations

Travel desire Information research Travel assessment

Travel decision/ demand

External variables: Destination considerations: Confidence in travel trade intermediary Cost/value relations Image of destination/service Attractions/amenities Previous travel experience Travel opportunity Travel constraints, time cost Travel arrangements Assessment of risk (objective/ Quality/quantity of travel subjective) information

Fig. 3.6. Travel decision model. tourist product purchase, the tourist’s level tourist when utilizing the tourist service. of risk awareness and the tourist’s evalu- Product consistency follows a kind of rank- ation of the product attributes. Several ing system in the tourist’s mind, and it plays risk-reduction strategies can be used by an important role for the vacation destina- tourists: tion ‘sold’ to the tourist. ● expecting less from the product or service; ● regularly purchasing the same product Family Decision Process (characterizing tourists’ loyalty); ● acquiring tourist information; Family goals and roles are major determi- ● purchasing the most expensive prod- nants of vacation decision-making. Family uct; inﬂuences are important in two major ways: ● relying on government or consumer (i) they affect individual personality charac- travel reports; teristics, attitudes and values; and (ii) they ● relying on tourist guarantees. affect the decision-making process that is involved in the purchase of tourism ser- When studying the problem of adequacy, vices. the analysis of the cost-beneﬁt equilibrium One person in a family may be responsi- level for the prices paid by the vacation ble for problem recognition, another for tourist should be taken into account. The search and still another for making the deci- consistency of the product represents the sion. Family decision-making varies in sum of all real attributes perceived by the terms of social class. Decision-making in Consumer Behaviour 55

Table 3.2. Family decision-making styles.

Predominant family Family travel decision decision-making style

Type of lodging accommodation Husband dominant Vacation destination(s) Husband dominant Whether to take children along Joint influence-individual decision How long to stay on vacation Joint influence-individual decision Dates of vacation travel Joint influence-individual decision Mode of transportation on family vacation Joint influence-individual decision Vacation activities Joint influence-individual decision Whether to go on vacation Joint influence-joint decision How much money to spend on vacation travel Joint influence-joint decision

families, with respect to product selection, when there is a great deal of perceived risk may be described as syncratic, partially with regard to product attributes. An syncratic and autonomic. Syncratic decision- increase in role specialization occurs over making generally means joint decisions and the stages in the FLC, which is reflected by a partially syncratic decision-making means decline in the degree of joint decision- that some decisions are made on a joint basis making. There is a suggestion that men and some are made by either partner. Auto- strongly dominate decisions concerning the nomic decision-making means that actual date of vacation, the amount spent, approximately an equal number of separate the length of stay, and the price of lodging. decisions are made by each partner. Syncratic decision-making prevails in relation to the choice of the actual destination Family life cycle and the type of lodging. Changes in family characteristics produce In Table 3.2, different aspects of travel changes in lifestyle and dramatic changes in decisions are considered in relation to fam- consumer behaviour. Family life cycle (FLC) ily decision style. There is a dominant is a form of classification of family, marital decision-making role of the male partner in status, age and work status of family mem- two areas, lodging and destination point. bers. There are different FLC models. The Joint decision-making is strong with respect one presented by Wells and Gubar (1966) to the vacation destination and the amount can illustrate this form of classification. to be spent. Family vacation behaviour pat- They considered the following five stages: terns are, thus, associated with the life stages of the family, and the trips are often 1. bachelor stage; the highlights of family life, especially when 2. newly married couple with young chil- the family is growing. dren or no children; Cosenza and Davis (1981) suggested six 3. full nest I (youngest child under 6), full stages of FLC, each with a characteristic nest II (youngest children 6 or over), full decision-making dominance: nest III (older married couples with dependent children); 1. syncratic; 4. empty nest I (no children at home, head 2. husband dominant; in labour force), empty nest II (head 3. wife dominant; retired); and 4. wife dominant; 5. solitary survivor (in labour force or 5. syncratic; and retired). 6. wife dominant. Joint decision-making predominates In Stage 1, the couple is in the initial stage 56 L. Moutinho

of marriage and willing to participate in the stimuli that turn intention into choice of vacation decisions. They tend to seek infor- product or destination. The tourist can make mation actively. A change appears in Stage a decision through different approaches, 2, with the husband playing a slightly domi- from highly routine to very extensive. In the nant role, due to the fact that his career is at case of a routine decision-making approach, a critical stage and his work schedule is a decisions are made quickly and with little major criterion. In Stage 3, there is a dra- mental effort; the perceived knowledge matic change to wife-dominant decisions. about the alternatives available is high. Role specialization leads the wife to take When an extensive approach is taken, there charge of planning in the area of vacations. is need for considerable time and effort in This is a stage with a high level of vacation the search for information and evaluation of purchase. Stage 4 is marked by a slight shift alternatives. to syncratic decision again, but decisions are still wife-dominant. Stage 5 is one of syncratic decisions, although with a slightly The Influence of Friends and higher influence by the husband. In Stage 6 Relatives in Travel Decision-making decisions seem to be dominated by the wife again. This is the stage of the retired couple Although there are numerous facets who have been married for more than 40 involved in the decision-making process, years. The frequency of vacation travel tends one area that has begun to receive more to diminish at this stage. attention is the issue of who makes the deci- A final aspect that has to be included in sion within the travel group. This interest the consideration of the family decision- stems from a number of factors. First, a tour- making process is related to the children. ism experience appears to be a highly social The influence of children in the family deci- event, i.e. involving two or more people in sion is very important but usually indirect: the travel group and the likelihood that children’s needs as well as the benefits they many of these trips involve visiting family can gain from the travel experiences are or friends. Second, destination and attrac- taken into account in the process. Also, tion marketers must design their advertising travel is seen as an important opportunity to based on their knowledge of who will be strengthen family bonds. During the vaca- using the information to make various types tion travel children still have little direct of decisions. influence but they may direct choices of Most attempts to understand the dynam- lodging and restaurants, or of certain activ- ics of group decision-making related to ities. This influence by children will, of travel decisions have focused on the role of course, depend on the stage of family life. the spouse/partner or the children in the process. Very few, if any, research efforts have focused on the role of the spouse/ Vacation Tourist Process partner or the children in the process. Very few, if any, research efforts have focused on A decision is an outcome of a mental process the role of friends and/or relatives in the whereby one action is chosen from a set of decision-making process, beyond the role available alternatives. Decision-process this group plays in providing information to models describe how information is what are considered the primary decision- acquired and related in order to make a makers. There would appear to be a number decision. Most of the models deal with five of reasons why this latter group should be different steps in the decision process: prob- considered as a more dynamic element of lem identification, information search, the decision process. First, if we are visiting evaluation of alternatives, choice and post- an area for the first time, it would seem choice processes. logical that we might defer at least some of The tourist decision process involves the the decision-making to individuals who are tourist’s motives and intentions, as well as more knowledgeable about the destination Consumer Behaviour 57

Table 3.3. Role played by friends and/or relatives in selected travel decisions (%).

Which sites Length of stay What to do Where to eat Trip info Where to stay Level of inﬂuence (n = 67) (n = 66) (n = 67) (n = 64) (n = 60) (n = 45)

Sole decision maker 25 18 21 25 27 24 Dominant role 13 11 18 11 10 9 Equal role 12 20 16 25 12 11 Lesser role 655322 No role 43 47 40 36 50 54

Number of decisions where friends and/or relatives played total or dominant role (%)

Did not play sole or dominant role in any decisions 54 Sole or dominant decision maker in at least one type of decision 5 Sole or dominant decision make in two or three decisions 8 Sole or dominant decision maker in four or more decisions 34

Source: Gitelson and Kerstetter (1994) area. Second, the friends/relatives may in a group provides a reward or sanction for number of instances become part of the something that the decision-maker has group visiting a particular attraction. done. The third type of influence is exerted Crompton (1981), in his research on on the decision-maker’s self-concept and is pleasure travel, has suggested that friends called value-expressive influence (Hawkins and/or relatives influence behaviour et al., 1997). throughout the recreation experience. From Results in Table 3.3 indicate that all of the perspective of providing information to the travel-related decisions studied were decision-makers, the influence of friends influenced by friends and/or relatives. The and/or relatives has been well documented extent to which friends and/or relatives (Bultena and Field, 1980; Jenkins, 1978; van played either the dominant or sole decision- Raaij and Francken, 1984). In fact, when making role ranged from 29% in the case of asked what sources provide trip-related deciding how long the non-locals would information, friends and/or relatives are stay to 39% in the decision process to usually listed as the most frequent and most decided what the non-locals would do while credible source (Gitelson and Crompton, in the region. An additional 11–25% of the 1983; Capella and Greco, 1987). six decision areas were equally decided by Reference groups, including friends and friends and/or relatives and one or more relatives, are also important factors in the other group members. overall decision-making process. According In slightly more than half of the decisions to Peter and Olson (1994), reference groups (54%), friends and/or relatives were not the exert a major influence over most aspects of dominant or sole decision-maker. Of the six consumer behaviour, especially the decisions included in the study, friends decision-making process. They influence and/or relatives were involved in at least decision-makers in three ways. The first one decision as the sole or dominant type of influence involves the provision of decision-maker in 47% of the cases. In information, which is used or not used by approximately one-third of the groups the decision-maker based on the perception (34%), friends and/or relatives dominated that the information is useful and the refer- the decision-making process in at least four ence group member is credible. The second of the six types of decisions. type of influence is utilitarian in nature. Past studies have restricted their focus to This occurs when a member of a reference the role these friends and/or relatives play 58 L. Moutinho

in providing decision-makers with informa- in their outcomes for the buyer. This implies tion. But these results indicated that friends that they would influence the purchasing and/or relatives shape behaviour in a more behaviour of consumers. The fundamental direct fashion and, in many cases, take on characteristics of services appear to create the role of ‘sole’ decision-maker. Thus, particular uncertain and risky purchase sit- future research efforts need to include uations. In this context, Murray (1991) states friends and/or relatives as potentially equal that it is logical to expect that consumers partners in the decision-making process, acquire information as a strategy of risk just as they have done with the spouse/ reduction in the face of this specific uncer- partner and children. A number of tainty. Moreover he argues that services are important issues related to the decision- more difficult to evaluate than goods. As a making process deserve attention in future consequence, consumers may be forced to research efforts. At what point in time do rely on other cues and processes when eval- friends and/or relatives become influential? uating services. For example, do friends and/or relatives Tourism marketers may benefit from the affect the decision-making process prior to, improved knowledge of search behaviour in during, and/or after the trip has begun? vacation planning. In general, knowledge of Andereck (1992) suggests that information information acquisition strategies is impor- related to the timing of various decisions tant to marketing managers because would allow researchers to better under- information search is at an early influential stand tourist behaviour and, as a result of stage in the purchase decision process. In this knowledge, help tourism marketers and fact, the information sources employed by suppliers to more effectively target their tourists form the basis for vacation planning market(s). (Van Raaij and Francken, 1984). Consumer information sources can be classified into two broad types, internal and external; both External Information Search types are used by consumers to gather information and cope with perceived risk.

External information sources are employed Information sources by tourists and form the basis for vacation In this field of research, information impor- planning. For marketers it is relevant to tance is a significant determinant of both know what kind of information should be prepurchase and ongoing external search. used in tour brochures to stimulate the tour- Furthermore, ongoing external search and ist’s external search process. the balance of prepurchase search activities are also influenced by enduring involve- Gathering tourist information ment and previous experience (see Perdue, The problems of tourism marketing are dif- 1993). In general, sources of external infor- ferent from the problems of traditional mation search can be classified in terms of product marketing. The differences are the whether the source is marketing oriented or result of the characteristics of tourism sup- whether information comes from personal ply and demand. Tourism is a service. An or impersonal communication (Engel et al., intangible experience is being sold, not a 1995). Non-marketer-dominated informa- physical good that can be inspected prior to tion sources such as personal media are service (Mill and Morrison, 1985). General- expected to play a particularly important izations that have widespread acceptance role in the consumer decision process for among scholars and practitioners in the field services. However, personal information as being characteristic of services include sources and mass media are related in sev- intangibility, simultaneity of production eral ways. For example, tourism indicates and consumption and nonstandardization that mass media (such as tourist advertising (see Zeithaml et al., 1985). Services are not and brochures) are consulted most in the directly perceptible and are unpredictable beginning, and personal media (such as Consumer Behaviour 59

salespersons, friends, personal advice) are variable, particularly within the context of mainly used at a latter stage of the vacation the growing body of hedonic consumption planning (Van Raaij and Francken, 1984). literature, may significantly improve exter- Tour brochures and other sources of mass nal search theory, and distinguishing media initially play a significant role in between the decision or propensity to seek determining choice of recreation and vaca- information and the actual selection and use tion destinations. Because consumers of alternative sources of information may understand that the purpose of these mass significantly improve our theoretical under- media is to persuade as well as to inform, standing of external search behaviour. they discount the value of this ‘biased’ information and seek to verify its authenticity Brochures (see Maute and Forrester, 1991). The phe- Leisure studies demonstrate that tourists nomenon is reflected in the fact that people rely more on informational material while in the vacation group usually share in the preparing their trip at home rather than after information search process, and often sev- arriving at their destination (Mansfeld, eral sources of information are consulted in 1992). In this context Manfredo (1989) planning a trip. In general, the vacation points at the fact that so-called ‘active infor- search process involves one or more indi- mation seekers’ (i.e. individuals who are viduals along with a variety of sources for a deliberately searching for external informa- multiple set of decisions (e.g. see Capella tion) are of particular interest because of the and Greco, 1987; Snepenger et al, 1990). possibility that they are ready to act (visit a With regard to vacation decision-making it given area) and because they may be suscep- is found that social information sources are tible to persuasive appeals. When we keep the most important. Members of the in mind that tourists prefer personal infor- immediate family rank first, relatives second mation, it is reasonable to assume that and friends third (Jenkins, 1978). These facts persuasive communication strategies are in line with Murray’s (1991) conclusion should stress experiential or subjective that service consumers prefer the opinions rather than technical or objective dimen- and experiences of other comparable indi- sions of the trips on offer. This means that viduals in making service purchase travel agencies and tour operators should decisions. make the faction more tangible in brochures by providing visible or explanatory cues that Vacations are intangibles, which means that prospective tourists can use to evaluate the the prospective buyer can neither see nor ultimate (emotional) advantages and quality feel them prior to purchase, nor can he or of the vacation. Potential inclusive tour buy- she return the product if dissatisfied. Man- ers, although they can bear in mind sfeld (1992) states that tourism marketers word-of-mouth and published recommen- should follow two prevailing research strat- dations as well as their own past personal egies. One is the study of tourists’ stated experience, still have to rely largely on what preferences; the other is the study of actual they read and see in operators’ brochures; choice. He suggests that the second research the tour operators’ brochures have many direction should look into the information similarities with commercial published lei- gathering stage. In this case, the impact of sure magazines. They are regarded by their promotional information material on touris- users as being ‘a good read’, whetting the tic choice behaviour should be examined. appetite for the vacation products on offer Because this material is meant to create (see Hodgson, 1990). From this hedonic and favourable images and to stimulate ‘non- motivational point of view it is important to leading’ motivations, it is important to stress experiential information in bro- evaluate its ‘bias effect’ on possible choice chures. Promotional leisure information directions. More specifically Perdue (1993, about feelings of pleasure, relaxation, p. 184) states that research focusing on pro- excitement, adventure and fun will prob- pensity to seek information as a dependent ably motivate tourists to plan a trip. 60 L. Moutinho

Actually there is no scientiﬁc study avail- elaborated imagery and enhanced purchase able in the travel research and destination desire is directly relevant to a promotional marketing literature on whether advertising strategy that focuses on stimulating external stimulates tourism (see Woodside, 1990). search behaviour. Evidence suggests that While tourism ‘advertising conversions imagery-producing advertisements result in research’ studies are helpful in comparing superior recall and more positive attitudes the performance of different advertise- towards the product. However, there has ments, media vehicles and media, such been limited examination of the relation- advertising conversion studies do not ship between imagery and behavioural address the more basic question: what kind intentions in a marketing context. of information should be used in brochures to trigger the external search behaviour of Enactive imagery tourists? According to Aylwin (1990), adults can use Since tour brochures are infrequently three different though interconnected forms effective in getting the attention of the infor- of representation: verbal representation, or mation seeker, it is useful to examine the inner speech; visual imagery, or ‘pictures in impact of different types of brochure- the mind’s eye’; and enactive imagery, a information on external search behaviour. kind of imagined action or role play. Enac- tive imagery is specialized, for representing the temporal perspective of enactive Mental Imagery and Behavioural imagery extends to include the possible con- Intentions sequences of action. Enactive imagery provides an insider’s perspective on situa- In general, consumer researchers suggest tions, and allows access to subjective that the experiential aspects of consumption aspects opaque to subjects using verbal or play an important role in consumer choice visual representations. Aylwin (1990) states behaviour (see Hirschman and Holbrook, that effective and other subjective con- 1982). From this point of view, MacInnis structs are most frequent in enactive and Price (1987) state that in the choice of imagery. This fact is in line with Lang’s many leisure services an important part of (1984) work, which shows that representa- the choice involves assessing how it will tions involving active participation are feel (the sensation surrounding the antici- accompanied by more affective arousal (as pated leisure experience). Regarding the indexed by physiological indices such as latter, experiential processes, such as imag- heart rate) than purely visual representa- ining, daydreams and emotions, play an tions. important role in vacation choice behaviour Actually, enactive imagery is a form of (see Mannell and Iso-Ahola, 1987). In this cognitive representation in which the con- perspective, it is reasonable to assume that sumer is personally involved with stimuli, when consumers imagine tourist behaviour through ‘do-it-yourself or experience-it- they direct their attention on desirable feel- yourself’ thoughts (see Goossens, 1994a). ings and leisure experiences. It is The conceptualization of enactive imagery self-evident that other, more economic and is comparable with the concept of ‘self- rational, aspects of holidays will also be relatedness’ (see Bone and Ellen, 1990) and regarded (e.g. modes of travelling, accom- Krugman’s conception of high involvement. modation and expense). Krugman (1965) suggested that at the high- MacInnis and Price (1987) provide sev- est level of involvement consumers produce eral propositions about the potentially ‘personal connections’, or ‘bridging experi- unique effects of elaborated imagery on con- ences’, whereby they relate the sumer behaviour, such as the stimulating advertisement content to meaningful inﬂuence of elaborated imagery on affective aspects of their own life. Furthermore, enac- experiences, purchase intentions, and pur- tive imagery is narrowly related to the chase timing. This relationship between concept of ‘constructive processing’. Here, Consumer Behaviour 61

the consumer goes beyond the advertise- egies need to focus on helping persons to ment’s content and connects it in some imagine the positive sensory and emotional meaningful way to his or her own life. Exam- experiences of vacations. From this point of ples of these constructive elaborations view the tourism industry should use emo- include thinking up novel uses for the prod- tional information in their promotion uct and/or imaging the product in use (see campaigns. By using information about feel- MacInnis and Jaworski, 1989; Buchholz and ings of pleasure and fun, advertisers actually Smith, 1991). try to tempt the consumer to plan a trip. ‘The greater the use of cues that appeal to Self-related imagery hedonic needs, the greater consumers’ motivation to attend to the ad’ (see MacInnis et Bone and Ellen (1990) reported a study al., 1991). Apart from verbal information, which provides a stimulating contribution figural/prominent stimuli can be used to to the knowledge of the effect of imagery enhance the attention to tour brochures. processing and imagery content on behav- Research indicates a strong impact of pic- ioural intentions. Based on the study of tures on attention, elaboration and memory. Anderson (1983), they empirically exam- Moreover the size of the advertisement itself ined the relationship between self-related influences its prominence and consequent imagery and behavioural intentions in a attention paid to it (Finn, 1988). radio advertising context. In this experiment ‘The greater the use of figural/prominent radio was selected as the experimental executional cues, the greater consumers’ medium because self-generated imagery motivation to attend to the ad’ (see MacInnis should have a greater effect than other- et al., 1991). Because of the widespread use generated imagery. If a consumer is forced to of pictures in tour brochures, knowing the create his/her own images, then mental pro- effect of picture size on all kinds of depend- cessing is at a deeper level than if the images ent variables (such as attitude toward the are created for him/her (e.g. through pic- advertisement, behavioural intentions and tures). In their study Bone and Ellen (1990) overt behavioural responses) is of consider- found support for the hypothesis that self- able importance to tour brochure design. related imagery creates more positive Brochures with enactive imagery instruc- behavioural intentions than other-related tions, experiential texts and large pictures imagery. Given the results of this self- are supposed to be more attractive and will relatedness factor, it appears that consumer increase the return of the response card. researchers may wish to investigate other Brochures without texts and small pictures message characteristics, such as promo- will have a smaller impact. tional texts with hedonic information, According to MacInnis and Price (1987, which could directly or indirectly affect p. 485) imagery instructions may be an behavioural intentions when imagery pro- important manipulation strategy when con- cessing occurs (Antonides and Van Raaij, sumers are allowed the time to generate 1998). vivid imagery, when cues are concrete, when instructions focus on subjects’ reac- Brochure design tions to the image, and when consumers A characteristic of the medium ‘tour bro- have sufficient knowledge to generate chure’ is that pictures are used to generate imagery about reactions. In a study, Goos- mental imagery processing and emotional sens (1994b) found that both experiential experiences. In this context is it relevant for text and large pictures did not affect the tour operators to investigate the effect of the attractiveness of the cover and the overall use of self-related imagery – instructions information provided in the brochures. and verbal emotional information on exter- Besides, the emotional texts did not affect nal search behaviour. To be effective in the degree to which the subjects could proj- stimulating the external information search ect themselves into the experience of the of tourists, persuasive communication strat- vacation situation (i.e. enactive imagery). 62 L. Moutinho

There is reason to assume that a stated level interest, and to communicate the essence of of low involvement with the particular tour- the message. These three functions of emo- ist information explains the unexpected tions in information processing are essential results. On the other hand, it is possible that for advertising goals. Nevertheless, consid- mere descriptive (verbal) experiential infor- erable research suggests that advertising mation is not effective in making brochures executional cues may influence communi- more attractive. This may be explained by cation effectiveness. Related research the fact that people tend to respond to adver- indicates that communication effectiveness tising with what van Raaij (1989) calls a is in part driven by consumers’ motivation primary affective reaction. Furthermore, he to process information from an advertise- assumes that a cognitive elaboration of ment. However, little research has explicitly information does not change the first linked executional cues to communication impression of an advertisement. According effectiveness via their impact on motivation to van Raaij this phenomenon is especially and levels of processing. The greater the use valid for visual information. In this perspec- of visual cues that enhance the relevance of tive Goossens (1993) argues that vacation the vacation activities to the self, the greater pictures with people who express their pos- consumers’ motivation to process informa- itive feelings visually will have a positive tion from the adverts. Follow-up research is effect on the attractiveness of touristic bro- relevant because tourist organizations chures. Moreover visual information about usually communicate with their target emotional experiences, such as facial groups in an emotional manner, for example expressions of positive feelings, are cues by using hedonic and sensory information which probably improve the consumer’s in brochures, magazines, advertisements, motivation to attend to an advertisement. and so on. An important part of this information concerns the consumption experience of leisure products. Information about feel- In general, imagery processing is often used ings of pleasure, relaxation, excitement, by consumers to evaluate marketing stimuli, adventure and fun, meets consumers’ and consumers differ with respect to their hedonic needs; advertisers may motivate ability and desire to invoke imagery pro- tourists with adequate pictures of travellers cesses. Imagery may potentially improve the who express their satisfactory (leisure) feel- believability and memorability of a commu- ings. nication and influence consumer processing and responses. The understanding how Understanding search behaviour individuals differ in their abilities to process The marketing implications of knowledge of imagery in various senses (see Gutman, search processing are diverse. For example, 1988), and how use of enactive imagery insight into search processes may assist in influences the way consumers evaluate tour determining whether segmenting the audi- brochures, may help identify more effective ence may improve the efficiency of media ways to reach active vacation information communications. Knowledge of search pro- seekers. cesses may aid in the development of advertising appeals targeted at specific seg- Communication effectiveness ments. Knowledge of search processes may Regarding this Stern (1988) argues that crea- also help to select appropriate marketing tive and symbolic language may be used to strategies for different market segments. endow the abstract service with sense Besides, knowledge of external information appeal, and an analysis of figures of speech search may be quite useful in improving can help advertisers determine which kinds informational campaigns. will most effectively reach consumers. Various types of customer analyses iden- In communication messages, emotional tifying individuals’ search behaviour have information is often used to draw the atten- been used in tourism market planning (see, tion of the target group, to intensify their e.g. Manfredo, 1989; Perdue, 1993). In par- Consumer Behaviour 63 ticular Havitz and Dimanche (1989) Tourist Evoked Set suggested that the relationship of the ‘involvement’ construct with search behav- The specific destinations or tourist products iour and promotional stimuli is relevant in that a tourist will consider in making a pur- tourism contexts. In addition, Bloch et al. chase choice are known as the evoked set. (1986) noted that search behaviour is not Within the evoked set different types of sets always limited to prepurchase events. Indi- have to be taken into account in the various viduals engaging in ‘ongoing search’ focus stages of a decision: more on the recreational and enjoyment ● The total set comprises all possible tour- value of the search than on its information ist alternatives in a particular tourist value. This so called ‘ongoing search’ con- product category that are available in cept is strongly related to ‘enduring the market, even if the tourist is not involvement’. In this case consumers gather aware of them or cannot recall them. information as a goal in itself. This means ● The unawareness set is composed of all that the satisfaction (reward) stems from the tourist product alternatives that the engaging in the search process itself. Thus, tourist is not aware of in the market. ‘ongoing searchers’ are primarily intrinsi- ● Within the awareness set, one can find cally motivated for (leisure) information, all the alternatives that the tourist can which means that the search process can be recall at a certain point in time. seen as an activity for its own sake, or even ● Among all the product alternatives that as a specific facet of their leisure-lifestyle. the tourist may recall, only some of For direct marketers, such consumers are them will be considered important in a important with respect to ‘word-of-mouth purchase situation, and these will make information’ to other customers. Influence the consideration set. exerted by those sources appears to confirm ● Some of the alternatives may be impor- service marketing theory, which suggests tant but can be considered infeasible, that consumers desire subjective and experi- i.e. due to financial constraints (infea- ential information. sible or inept set). On the other hand, a consumer’s informa- ● Within the choice set, one will find only tion search activity may be mainly those alternatives that will be subjected extrinsically motivated, which means that to a ‘mental weight evaluation’, in terms the activity is satisfying in terms of its con- of the attributes considered important to sequence of payoffs. In fact these the tourist and his or her belief that information seekers are of particular interest some of them can deliver the expected for direct marketers because they may be benefits. susceptible to the emotional benefits of ● Based on this evaluation process, some hedonic appeals. Considerably more of the alternatives will be placed in the research is needed to develop communica- non-choice set. tion strategies that stimulate vacation ● Finally, the decision set will determine search behaviour. Tourist mass media, such the overall best alternatives to pur- as tour brochures, play a significant role chase. especially in the beginning of the vacation planning process in determining choice des- In some cases, we may find an inert set, tinations. Since brochures are manageable consisting of alternatives that the tourist is sales tools for tourism marketers, more indifferent towards because they are not per- research should be done on the effects of ceived as having any particular advantages. different kinds of verbal and visual informa- The ways in which travellers evaluate and tion on vacation search behaviour. choose vacation destinations have critical Continued research along these lines will implications in the planning and evaluation aid advertisers and media planners in their of destination tourism strategies. A central efforts to stimulate tourism (Goossens, concern for the marketing strategist is to 1994b). gain entry for his/her product and service 64 L. Moutinho

(specific brand) into customers’ abilities to specific destination indicate how the desti- retrieve such information into active mem- nation is positioned in the consumer’s mind ory when making product and service (Woodside et al., 1999). In the model, cate- choices. gorization in the destination awareness set is shown as a one-way directional influence on affective associations because some min- Mental Categorization imal amount of destination recognition/ memory recall and categorization may be necessary to activate positive, neutral, or Travellers are likely to consider a rather negative affective associations. limited number of travel destinations in Travellers construct their preferences for planning their leisure travel behaviour. The alternatives based on destination awareness rationale for the limited set is based upon and affective associations. Preferences are Howard’s (1963) concept of evoked set the rankings assigned to destinations by rel- which he originally defined as ‘the collec- ative attitude strength; that is, the ordering a tion of brands the buyer actually considers consumer assigns to alternative destinations in the purchase decision process’. The con- from most liked to least liked. Intention to cept of the evoked set was expanded by visit is the traveller’s perceived likelihood of Narayana and Markin (1975), who also sug- visiting a specific destination within a speci- gested the concepts of inert and inept sets. fied time period. In the model actual The inert set consists of those brands in the destination choice is predicted to be affected product category of which the consumer is by both intention to visit and situational aware but does not have sufficient informa- variables. Intention to act has been found to tion to evaluate them one way or the other. be significantly associated with actual The inept set consists of those brands the behaviour, provided that the intention ques- consumer has rejected from his purchase tion is posed concretely and related to a consideration, either because of an unpleas- specific time period and situation. The ant experience or negative feedback from greater the involvement or importance of other sources. Spiggle and Sewall (1987) leisure travel for the consumer, the smaller divided the evoked set into two: an ‘action the number of travel destinations consid- set’ of alternatives towards which a con- ered. Previous travel to a destination relates sumer takes some action, for example, by positively to the destination being included travelling to a destination from which he or in the consumer’s consideration set versus she has received information; and an ‘inac- other mental categories of vacation destination set’. tions (Swarbrooke and Horner, 1999). Destinations in consumers’ considera- Destination awareness tion sets are linked with more positive A general model of traveller leisure destina- associations compared with destinations in tion awareness and choice has been other mental categories, while destinations provided by Woodside and Lysonski (1989). found in consumers’ inept sets are most Destination awareness includes four cate- likely to be linked with negative associa- gories: consideration set, inert set, tions. Consumers’ preference for specific unavailable and aware set, and inept set. destinations is associated positively with Affective associations are specific feelings the rank order in which the destinations are (positive and negative) that are linked with a mentioned in consumers’ consideration specific destination considered by the trav- sets. On average, the first-mentioned desti- eller. The affective associations are positive nation is preferred more than the second, usually for destinations a consumer would the second more than the third. Intention to consider visiting and negative for destina- visit a specific destination is influenced pos- tions a consumer has decided definitely not itively by the consumer’s preference toward to visit. The learning of these associations the destination. While this preference- between specific affective concepts and a intention may appear self-evident, the link Consumer Behaviour 65

between preference and intention may be performance and planning marketing stronger for some destinations than others. actions. This general model is useful in planning for Tracking studies which focus on the tourism marketing decisions and measuring types of sets discussed above reveals if a performance in implementing such deci- particular nation often makes the traveller’s sions for specific destinations. mental ‘short list’ (the consideration set) and therefore a contender for further evaluation Consideration set and possible choice by travel customers. Such studies enable a marketing strategist to Some researchers have found an average learn the principle associations with his or consideration set of 3.4, and others an aver- her brand (i.e. country) stored in long-term age consideration set of 2.7. The average size memories by potential customers. Learning of the consideration set tends to get larger such associations provides clues for the with foreign travel destinations. Overall, the marketing strategist of what needs to be sizes of the consideration sets are relatively done for his or her nation to gain entry into small and quite similar in size to sets found travellers’ consideration sets, and how to for brands of non-durables being considered convert consideration into purchasing for purchase by consumers. The average size action. (Woodside and Ronkainen, 1993). of the respondents’ consideration set is significantly greater than the average number of In the process of evaluating alternatives, the destinations mentioned in the respondents’ tourist uses two kinds of information – the inert, unavailable–aware, and inept sets. range of products available composing the Given that the set sizes are relatively evoked set, and the criteria for selection – small, being mentioned in a consumer’s con- concerning the attributes of the alternatives. sideration set represents value given that The procedures used to facilitate the final most respondents mention only a limited selection are called decision rules, decision number of destinations and assuming that strategies or heuristics. The compensatory consumers are more likely to select final form of decision rule implies an evaluation choice from alternatives mainly from their of each attribute of each alternative. The consideration set. Experience via previous result of this will be a higher score for a visits to a travel destination is associated particular alternative, what makes it likely significantly with a subject’s categorization to be purchased. When tourists do not make of destinations in their consideration set. a balanced evaluation of the different alternatives, the decision rule is said to be Understanding destination awareness non-compensatory. Research results provide evidence that preference is associated strongly with The travel decision model consideration, that is, order of access of The travel decision model is based on moti- alternatives from long-term memory into vational levels, needs and desires of the working memory. Thus, using unaided individual as well as his or her expectations awareness measurement is useful in learn- when facing a travel decision. According to ing how well a nation is faring in building a the level of overall travel desire, he or she traveller franchise; that is, preference over will be more or less receptive to travel stim- competing destinations. Vacation travellers uli such as advertising and promotion, are likely to consider a limited number of travel reports, brochures, etc. The decision vacation destinations when planning trips process will be shaped according to social and categorize these alternatives into differ- and personal determinants of travel behav- ent sets according to perception, preference iour such as personality, socioeconomic and experience. Tracking potential custom- status, attitudes and values, reference er’s awareness, preferences and groups, and so on. The travel assessment of descriptions of competing vacation destina- the different alternatives includes the analy- tions is useful for measuring marketing sis of a variety of factors, such as cost/value 66 L. Moutinho

relations, attractions and amenities within be the one to be chosen. Alternatives are each destination, travel opportunity and compared on the one attribute that is arrangements as well as the quality and most important, and if one is noticeably quantity of available travel information. better, it is selected with no further Other external variables, such as confidence evaluation. If two or more are judged in the travel agent, the overall image of the about equal, they are compared on the alternative destinations and services, the second most important attribute. tourist’s previous travel experience, travel 4. A compensatory rule: the option chosen constraints (time, cost, etc.), and the degree will be the one which is perceived to of perceived risks (financial, functional, have the best overall balance of social, physical and psychological) are also favoured characteristics across all attri- important determinants in the travel deci- butes. This fourth rule is at the basis of sion model. most well-known multi-attribute models. Decision rules 5. Elimination by aspects: like the conjunctive process, alternatives are Information-processing theory aims to evaluated against minimum cut-offs on describe and explain the means by which attributes, but like the lexicographic people absorb, structure and utilize infor- process, evaluation starts with the most mation. In a marketing context, this is based important attribute. Those alternatives on the recognition that consumers are con- exceeding the cut-off point of the most stantly exposed to more information than important attribute are evaluated on the they can meaningfully cope with. Conse- second most important attribute, and quently, they adopt decision rules, or then the third, and so on. strategies, in order to simplify the choice process. Five major types of strategies have A tourist may, in a particular choice situa- been identified: tion, adopt any one or more of these decision rules. For instance, he or she may, by means 1. A conjunctive or threshold rule: options of the threshold rule, eliminate several (e.g. vacation destinations) are elimi- available alternatives from consideration: nated from further consideration when e.g. they may all be regarded as too expen- they are perceived to have certain unac- sive; this process will leave a repertoire of ceptable features. Minimum acceptable alternatives for further consideration and levels exist for each attribute and each the choice from within this repertoire may alternative is judged in relation to these then be made by a compensatory balancing cut-off points. An alternative that falls of pros and cons. Pre-decision information below the cut-off point on one or more search acts as a filter for the available set of alternatives is eliminated. A second products and product attributes for each strategy (such as the lexicographic proc- vacation tourist. ess) may be used to make a final choice. 2. A disjunctive rule: options are chosen Modelling decision-making on the grounds that they are believed to The trade-off model is based on the assump- possess a single overwhelming advan- tion that, on many purchasing occasions, tage, in terms of the features being tourists are faced with a series of imperfect considered. This is the simplest of all options. In arriving at a decision, an individ- judgement models. ual will sacrifice (trade-off) a desired level of 3. A lexicographic rule: postulates that, a particular attribute in order to obtain a on occasions, people may screen certain level of a different attribute. In mak- options by priorities, i.e. the first vaca- ing choices between different levels of tion destination to demonstrate an various attributes, the tourist will reveal the advantage on a subset of key attributes, utilities, or the relative value, he or she atta- considered in order of importance, will ches to these attributes. Stewart and Stynes Consumer Behaviour 67

(1994) explored the development of a model or behavioural processes, but rather as pre- of decision-making associated with long- dictive tools. term, complex purchase processes. The lengthy decision-making process associated Process models with complex purchases creates more In contrast to predictive structural models, opportunities than usual for marketers to process models focus on how a choice is assist, direct and influence a buyer’s choice, made, and argue that this process has much but to do so they must understand both how to do with which choice is made. Behav- and when in an extended choice process ioural decision theory states that decision- potential buyers are most easily reached. making involves learning and adaptation to The process of choosing one alternative the decision environment. Learning can over others involves making a series of deci- alter the decision-maker’s perception and sions in which an individual’s motivations, judgement, and is most likely to occur when preferences, knowledge, cognitive proces- the decision-maker is initially unfamiliar ses, resources and constraints all play a role. with the choice alternatives or the decision Research into the behaviours and conse- environment. Adaptation will be most quences of decision-making is conducted in important when the decision environment many fields, each with a slightly different is unfamiliar, or when the environment theoretical and methodological emphasis. changes over time. Both of these conditions, Structural models are frequently grounded an unfamiliar task and a changing decision in economic theories of consumer choice, environment, are most likely to be associ- while process models rely more heavily on ated with complex choice, implying that psychological theories of perception, learn- learning and adaptation will be most impor- ing and judgement. The research objectives tant when choice is most complex. and methods used to test the two classes of Other decision theories also support the models reflect these different origins. concept of learning and adaptation during decision-making. According to some researchers, each person needs to under- Structural models stand and interpret or frame the choice in Most applications of decision research to their own terms before they begin trying to recreation and tourism utilize discrete solve it. In these models of problem solving, choice models, in particular multinomial framing is proposed as a first step in solving logit models (Stynes and Peterson, 1984) a problem or making a choice. The frame used together with conjoint scaling methods coordinates and directs other decision- (Louviere, 1983; Louviere and Timmer- making activities. Information processing mans, 1990a). Conjoint choice models research focuses on the ways people deal predict a consumer’s choice based on (i) with large amounts of information, and has attributes of the alternatives in the choice shown how people create and use a variety set; (ii) assumptions about how perceptions of methods for searching and processing of the attributes are combined to form over- information to avoid being burdened with all evaluations; and (iii) the assumption that too much information; an example of adap- the individual will choose the alternative tive decision-making. which maximizes his or her utility (Lou- While structural models treat decision- viere, 1988). In recreation and tourism making as a static or a temporal event, contents, these models have been applied to dynamics are an implicit element of most studies of park visitation (Louviere and Tim- process models, as the notion of a process mermans, 1990b), the effect of park implies some sequence of events. The con- management options on park choice (Leiber cept of adaptive behaviour, for example, and Fesenmaier, 1984), and vacation desti- assumes that the decision-maker will react nation choice (Goodrich, 1978; Haider and to perceptual and environmental changes, Ewing 1990). Structural models are not con- and their decision-making behaviour will sidered useful as replica models of cognitive reflect that reaction. 68 L. Moutinho

Decision theory has moved from its origins ate) are more reliant on extrinsic cues. Due in microeconomic consumer theory to a to the tourists’ limited cognitive capabil- more psychologically based, empirically ities, perceptual selectivity results in the supported perspective which adds recogni- tourist becoming more attentive to a limited tion of the importance of both number of tourist product attributes and, environmental constraints and human cog- consequently, tourists may not notice a dif- nitive limitations. The basis for ference when changes in a tourist product decision-making behaviour in process the- formulation do not reach a critical thresh- ory encompasses both the economic concept old. Tourism brand names are very of subjective expected utility maximization, important extrinsic cues. Quality research and the psychological concepts of stimulus- may benefit from a de-emphasis on price as response behaviour and cognitive the main extrinsic quality indicator. processing. A major difficulty in reaching value is the Simpler choices such as those widely variety of different meanings of ‘value’ held studied in marketing and tourism can be by tourists. Building a model of value seen as special cases or simplifications of requires that the researcher understands more general decision processes. Time is which of many meanings are implicit in the perhaps the dimension that decision tourists’ expressions of value. Tourists form researchers have most neglected, explaining judgements based on samples of cues which the general absence of learning, adaptation, they believe to be indicative of certain char- and feedback processes within decision acteristics. Consumers assign information models. values to the available cues, selecting those The importance of decision framing in with the highest values. complex choice, together with the preva- lence of strategic and complex decisions A cue’s information value is a function of its predictive value (accuracy of predicting related to tourism has implications for con- an attribute) and its confidence value ducting tourism choice research. (consumer’s confidence in the predictive Understanding how people frame tourism value assigned to the cue). decisions would allow researchers to present subjects with choices that utilize frames Research shows that tourists base their deci- like their own, improving the validity of sions on a limited number of the available decision experiments. The extent of individ- cues and that the predictive value of a cue ual variation in decision-making makes has a dominant effect on cue utilization, reliance on a single choice model problem- with a moderating effect from the confi- atic. Because of their proposed link to dence value. The somewhat restricted level decision behaviour, decision frames could of information search undertaken by tourists be a useful tool for segmenting decision- can be explained within this framework. If a makers into groups, allowing succinct few cues offer high predictive and high con- structural models to be developed for each. fidence values, these will be selected. However, where none of the cues has high predictive and high confidence values, more Evaluation of Alternatives cues would be consulted. Learning, through tourist product experience, would enable Tourists interpret products as arrays of cues tourists to adjust their predictive and con- and select only a few cues which have a high fidence values internally which would informational value, based on predictive stabilize over time and reduce the need for and confidence values. Cues can also be information. In other words, each tourist conceptualized in terms of whether they are sees a tourist product as a bundle of product part of the physical object (intrinsic) or aug- attributes with varying capacities for deliv- ment it (extrinsic). Tourists show a ering those benefits which can be acquired preference for intrinsic cues, but in some by buying such tourist products or services. situations (e.g. quality is difficult to evalu- Consumers will pay the most attention to Consumer Behaviour 69

Extrinsic High level Intrinsic attributes abstractions attributes

Intrinsic Perceived Perceived PURCHASE attributes quality value

Objective Perceived Perceived price monetary sacrifice

Perceived non-monetary price

Key: Lower-level attributes Perceptions of lower-level attributes Higher levels of attributes

Fig. 3.7. The relationship between price, perceived quality and perceived value.

those attributes that better connect with within a tourist product category – may pro- their needs. vide different signals about quality. As Figure 3.7 shows a model which affords attributes become more abstract, tourist an overview of the relationships among the products become common to more alterna- concepts of price, perceived quality and per- tives. ceived value. Thus, according to this model, Tourists represent the attributes in mem- both intrinsic and extrinsic cues may deter- ory at abstract levels, this is seen in the way mine both the quality and perceived value. by which, for example, tourists compare It is now time to discuss the circumstances non-comparable alternatives (e.g. how they under which these cues may affect the choose between such diverse alternatives as evaluation of tourist products from both a stereo and a Hawaiian vacation). Tourists their perceived quality perspective and per- may use informational cues to develop ceived value. beliefs about products and that task response (i.e. choice or evaluation) may be a Perceived quality direct function of these mediating beliefs. Figure 3.8 depicts the perceived quality These beliefs may be of two types: descrip- component of the conceptual model in Fig. tive, which involves a restatement of the 3.7. First of all, a tourist product’s quality is original information in more abstract terms; evaluated as high or low depending on its and inferential, which involves an inference relative excellence or superiority among to information missing in the environment. tourist products or services that are viewed Therefore, these distinctions illustrate as substitutes by the tourist. The fact that the level at which dimensions of quality can speciﬁc or concrete intrinsic attributes differ be conceptualized. The intrinsic tourist widely across tourist products, as do the product attributes that signal quality may be attributes tourists use to infer quality – even product-speciﬁc, but dimensions of quality 70 L. Moutinho

Brand name or Level of destination image advertising

Reputation

Intrinsic Abstract PERCEIVED attributes dimensions QUALITY

Perceived Objective monetary price price

Key: Lower-level attributes Extrinsic attributes Intrinsic attributes Perceptions of lower-level attributes Higher-level attributes

Fig. 3.8. The perceived quality component of the conceptual model.

can be generalized to tourist product classes ● when the tourist is aware of tourist or categories. Price, brand name and level of product prices; advertising are the extrinsic cues frequently ● when consumers have not sufﬁcient associated with quality in research, yet tourist product knowledge to detect many other extrinsic cues are useful to quality variation among tourist prod- tourists. ucts. Thus, tourists appear to depend more on Price price as a quality signal in some tourist Price appears to function as a surrogate for product categories than others. Facts like the quality although a multitude of experi- difference in price–objective quality rela- mental studies on the topic reveal that the tionship by tourist product category may relationship may not always be positive. make the price as a signal of quality relevant However, the use of price as an indicator of or not; while the existence of little variation quality may be used: in prices within the same tourist product category may not attribute high quality to ● when the tourist has inadequate infor- tourist products that cost less than the mation about intrinsic attributes; competitors. ● when intrinsic cues to quality are readily accessible, when brand names provide evidence of a tourism compa- Brand name ny’s reputation, or when level of Similarly, brand name may serve as a ‘short- advertising communicates the tourism hand’ for quality by providing tourists with company’s belief in the brand, the tour- a bundle of information about the tourist ist may prefer to use those cues instead product. It is accepted that tourists have of price; limited cognitive capabilities and that to Consumer Behaviour 71

overcome this limitation they seek efficient intrinsic tourist product attributes. At the means of processing and storing informa- point of purchase, tourists cannot always tion. There is clear evidence that tourists evaluate relevant intrinsic attributes of a recognize a brand name as an informational tourist product (insufficient time or interest chunk. Thus, the brand names may enable or tourists have little or no experience with stored information to be recalled from mem- the tourist product). The last difficulty is ory which then interacts with the intrinsic that the signal quality changes over time cues to produce different results. because of the development of technically better tourist products (the features that sig- Level of advertising nal superiority change), promotional efforts, Level of advertising has been related to tour- and as a response of competence; changing ist product quality. The level of advertising, tourist tastes and information. rather than actual claims made, informs The particular implications for tourism tourists that the tourism company believes marketing researchers are that attention the tourist products are worth advertising must be focused on finding the few key tour- (i.e. are of high quality). Supporting this ist relevant attributes, rather than relying on argument is the finding that many consu- a managerially derived attribute list. As the mers perceive heavily advertised brands to intrinsic cues used by tourists vary by tour- be generally higher in quality than brands ist product, a standardized attribute list with less advertising. cannot be contemplated. Thus if tourism marketers want to assess tourists’ apprecia- Thus, we can conclude by saying that extrin- tion of formulation changes, the use of sic cues serve as generalized quality trained panels may be of value. Besides, indicators across tourist brands, products since tourists may develop categories and and categories. Research shows that extrin- evaluate tourist products by deciding which sic cues serve as generalized quality mental category the tourist products are indicators across tourist products (e.g. brand more similar to, and hence what their prop- name as a surrogate for quality), but the erties are likely to be, it could happen that nature of intrinsic cues as indicators of qual- these categories do not contain mental ity is tourist product specific. Besides, images of all competing brands, but just tourists show a preference for intrinsic cues those perceived as relevant to the tourist. when they have a choice. However, when Thus, if, for example, a tourism company intrinsic cues are not available, if quality is wants to be good at developing new tourist difficult to evaluate or when the evaluation products, given the rapid changes in prefer- of intrinsic cues requires more effort than ences, technology and competition, a tourists perceive to be worthwhile, extrinsic comparative, rather than monadic, analysis cues will be preferentially sought. may be very useful.

Implications Perceived value All this consumer behaviour theory may be In order to finish the whole picture, we add used to help tourism companies to decide the last component of the model, before the whether to invest in tourist product purchase is completed: value. Value is pro- improvements (intrinsic cues) or in market- posed to be a higher level abstraction and ing (extrinsic cues) to improve perceptions differs from quality in two ways. First, value of quality. A single answer is unlikely to be is more individualistic and personal than given because of the difficulties involved. quality and is therefore a higher-level con- On the one hand tourists depend on intrin- cept than quality. Although value has been sic attributes when the cues have high defined in many ways (as an ‘emotional pay- predictive value. On the other hand, tourists off’, an abstract, multi-dimensional, difficult depend on extrinsic attributes more than to measure attribute, and as ‘instrumental intrinsic attributes when the tourist is oper- values’) the concept remains a high-level ating without adequate information about abstraction for all of them. Second, value 72 L. Moutinho

unlike quality involves a trade-off of ‘give’ be factored into the explicit or implicit val- and ‘get’ components. Though many con- uation of a tourist product by many ceptualizations of value specify quality as consumers. A given tourist product may be the only ‘get’ component in the value equa- high quality, but if the tourist does not have tion, the tourist may include other factors, enough money to buy it (or does not want to several that are in themselves higher levels spend the amount required), its value will of abstraction, such as prestige and conveni- not be perceived as being as high as that of a ence. Therefore, benefit components of tourist product with lower quality but a value include salient intrinsic attributes, more affordable price. The same principle extrinsic attributes, perceived quality, and may apply to tourist products that need other relevant high-level abstractions. more decision-making time than the tour- Tourists may sacrifice both money and ist’s time constraints allows. other resources to obtain tourist products and services. To some tourists, the monetary Implications sacrifice is pivotal and anything that reduces Research is required that investigates which the monetary sacrifice will increase the per- cues are important and how tourists form ceived value of the tourist product. Less impressions of quality based on objective price-conscious tourists will find value even cues. Tourism companies may also benefit at the expense of higher costs because time from research that identifies the abstract and effort are perceived as more costly. Oth- dimensions of quality desired by tourists in ers may respond depending on the cues – a tourist product basis. This process often extrinsic cues – in forming impres- involves a careful look at situational factors sions of value. Thus, tourists who may surrounding the purchase and use of the define value as low price, may not compare a tourist product. Identifying the important reduced price tourist product with the pri- quality signals from the tourist’s viewpoint, ces of other tourist brands. then communicating those signals rather Those tourists who define value as the than generalities, is likely to lead to more quality that they get for the price they pay vivid perceptions of quality. Linking lower- may mention either intrinsic or extrinsic level attributes with their higher-level attributes (level of service, or brand name). abstractions locate the ‘driving force’ and Finally, the tourists who define value as ‘leverage point’ for advertising strategy. what they get for what they pay, may depend The dynamic nature of quality suggests on intrinsic attributes. However, not all the that tourism marketers must track percep- intrinsic attributes of tourist products can be tions over time and align tourist product and evaluated in the same way. One would promotion strategies with these changing expect to find a more rational evaluation in views. Because tourist products and percep- situations of high information availability, tions change, tourism marketers may be able processing ability, time availability, and to educate tourists on ways to evaluate qual- involvement in the purchase. ity. Advertising, the information provided, All this goes to show that the diversity of and visible cues associated with tourist meaning of the perception of value for tour- products can be managed to evoke desired ists may depend on the frame of reference in quality perceptions. Tourism marketers which the tourist is making an evaluation. should also acknowledge the existence of That is, at the time of purchase, value may non-monetary costs, such as time and effort. mean low price or sale, etc. (extrinsic attri- Anything that can be built into tourist prod- butes). On the other hand, value may ucts to reduce time, effort and search costs involve some calculation about the tourist can reduce perceived sacrifice and thereby product itself (intrinsic attributes: location increase perceptions of value. and so on). Finally, it has also been suggested that not all tourists want to buy the Reducing monetary and non-monetary highest quality product in every tourist costs, decreasing perceptions of sacrifice, product category. Instead, quality appears to adding salient intrinsic attributes, evoking Consumer Behaviour 73

perceptions of relevant high level filtration, attention and learning processes, abstractions, and using extrinsic cues to and choice criteria. signal value are all possible strategies that tourism companies can use to affect value Field 1: Preference structure perceptions. The tourist’s preference structure for a particular destination is based on a set of Thus, the selection of a strategy for a partic- factors, and as additional objective informa- ular tourist product or segment depends on tion modifies that set, effective judgements its tourists’ definition of value. Strategies for the destination can be expected to based on tourists’ value standards and per- change over time. Among those factors are ceptions will channel resources more the internalized environmental influences effectively and will meet customer expecta- which include cultural norms and values, tions better than those based on tourism family and reference groups, financial status company standards. and social class. These are broad determi- An understanding of what quality and nants of preference structure and, thus, will value mean to tourists offers the promise of influence tourist product evaluation. Indi- improving tourism brand positions through vidual determinants of preference structure more precise market analysis and segmenta- comprise concepts such as personality, life- tion, tourist product planning, promotion style, perceived role set, learning and and pricing strategy. An understanding of motives. Motives can be defined as the con- consumer behaviour can also help to design scious recognition of a psychological need more realistic marketing procedures and influenced by genetics, experience and sit- evaluate a tourism company’s strategy. uation. Therefore, this line of thinking implies that Intention to purchase depends on con- tourism marketing researchers can better fidence generation, that is, certainty and guide marketing decisions by applying these sureness towards the vacation destination or aspects of consumer behaviour theory to dif- tourist service. Confidence generation is a ferent aspects of tourism marketing ‘summary’ concept in the sense that it procedures. results from all the preceding elements. The consumer has a pervasive sense of uncertainty, caution, anxiety and indecisiveness. Tourist Behaviour Modelling Those sentiments are no less present in travel than elsewhere, and are no less con- A vacation tourist behaviour model is pre- sequential. They are inhibitors which cause sented in Fig. 3.9. It consists of a flow-chart a tourist to respond differently from the way with three parts: (I) pre-decision and deci- his or her attitude towards the destination or sion process; (II) post-purchase evaluation; service dictates. and (III) future decision-making. Each part is composed of fields and subfields, linked by SUBFIELD A: STIMULUS FILTRATION. Travel other concepts related to the tourist’s behav- stimuli display can appear via mass media ioural processes. or personal sources and it has either a significant or symbolic connotation related to Part I: Pre-decision and decision processes attributes such as quality, price, distinctive- This part is concerned with the flow of ness, prestige, service and availability. events, from the tourist stimuli to purchase Consumers do not use raw information pro- decision. The fields included are: preference vided by mass communication, but process structure (as a major process in the pre- it before using it. Stimuli may be intention- decision phase), decision and purchase. As ally or incidentally apprehended. Also, the two last phases are outcomes of pre- messages arriving to the tourist vary in decision, the model is more detailed in degrees of stimulus ambiguity. This leads to respect to this process, and its analysis a search for additional data and holds a includes the following subfields: stimulus confrontation of information received and 74 L. Moutinho

Fig. 3.9. A vacation tourist behaviour model. Consumer Behaviour 75

real experience. Thus the filtration process evoked sets are usually expressed in terms comes to protect the tourist, since it implies of tourist product attributes that they feel are the ability to discriminate facts from exag- important to them. Sometimes the tourist gerations in advertising. would maintain in the long-term memory an The concept of search includes all activ- overall evaluation of the alternatives in his ities directed at collecting information about or her evoked set. This would make assess- a product. It may become stronger when the ment by individual attributes unnecessary. tourist is uncertain about the merits of alter- Instead, the tourist would simply select the native destinations. One reason for the alternative with the highest perceived over- limited scope of external search is that tour- all rating. This type of synthesized decision ists often have available a wealth of rule has been labelled the ‘Affect Referral previously acquired information, based on Rule’ and may represent the simplest of all past experience and previous knowledge, decision rules. which can be retrieved through internal search. The promotional information may arrive Field 2: Decision either from a tourist board/organization or The decision process may be studied as a from intermediaries or channels of distribu- sequence of conflicts; the conflict situations tion. Advertising of a vacation product constituting a decision process are those results in a fraction of potential users that precede the choice and are necessary to becoming aware of the product and the explain what is chosen. This decision remaining entering the non-aware class. The results in a psychological predisposition in aware tourists then become either triers or terms of intention towards the buying act. non-triers. A tourist’s decisions may be based on perceived images, on information from tourism destination promotion, on previous SUBFIELD B: ATTENTION AND LEARNING PROCES- experience, on image of potential destina- SES. Assuming the system is active, the tions, on travel intermediaries, advice or on individual ‘sizes up’ inputs selectively social interaction. The decision process is through a process of comparison whereby determined by the tourist’s background inputs are compared with information awareness, which includes formation of stored in memory. Attention indicates sensi- beliefs and images (revised tourist terms of tivity to information and deals with the reference), the evaluation of vacation con- magnitude of information intake by an indi- cepts and, finally, the travel decision (the vidual at a specific time. merging of different beliefs and accommo- Learning can be considered as any sys- dation of opinions). tematic change in behaviour, and is measured by the increase in the probability of making a particular response. It holds an Field 3: Purchase interrelationship with the cognitive struc- The preceding steps can lead to the act of ture, which is an organized system of buying a vacation destination. Purchase has knowledge and beliefs formed from sources been described as the outcome of psychic of learning. The search for meaning, the processes taking place more or less con- need to understand, the trend towards better sciously. The total tourist product is organization of perceptions and beliefs to generally purchased in a sequence (i.e. provide clarity and consistency for the indi- transportation, accommodation, tours, etc.) vidual permit the comprehension of the and not always as a tour package. tourist product. Purchases can occur out of necessity; they can be derived from culturally man- SUBFIELD C: CHOICE CRITERIA. The criteria dated lifestyles or from interlock purchases; tourists employ in evaluating destinations they can result from simple conformity to or tourist services that constitute their group norms or from imitation of others. 76 L. Moutinho

Part II: Post-purchase evaluation Field 5: Repeat buying probabilities Post-choice evaluative feedback has a sig- Subsequent behaviour will, thus, depend on nificant impact on the decision-maker’s set levels of return prospect and may result in: and/or subsequent behaviour. One of our (i) ‘straight re-buy’; (ii) re-buy in different key elements noted as affecting a tourist’s time parameters (subsequent, short-term, expectations is the satisfaction with post- medium-term or long-term); and (iii) mod- purchase. Post-purchase evaluation has ified re-buy behaviour, based on the change three major purposes. First, it adds to the to new tourist products or on the search for a tourist’s store of experiences and it is better quality of services. through post-purchase assessment that experience is taken into the tourist’s frame The inclusion of post-purchase evaluation of reference. Hence, it broadens personal and future decision-making in this model needs, ambitions, drives, perceptions and was an attempt to contribute to a global understanding. Second, post-purchase analysis of tourist behaviour and, as a prac- assessment provides a check on market- tical outcome, to marketing decision related decisions. Third, it provides planning. The development of the tourism feedback to serve as a basis for adjusting industry requires generation of criteria for a future purchase behaviour. better quality of services in order to match the changing needs and desires of the tourist SUBFIELD D: ADEQUACY EVALUATION. Ade- population (Moutinho, 1987). quacy evaluation is the factor related to the ‘ideal’ point of each attribute of the tourist product as perceived by the tourist. When References evaluating adequacy, the tourist uses a mental cost-benefit analysis; this leads to an Andereck, K. (1992) Comments on researching equilibrium level for the prices paid. Prod- consumer information. Proceedings of the 23rd Annual Conference of the Travel and uct consistency represents the sum of all Tourism Research Association. Travel and real attributes perceived by the tourist when Tourism Research Association, Minneapo- utilizing the service, and follows a kind of lis, Minnesota, pp. 50–52. ranking system in the user’s mind. Anderson, C.A. (1983) Imagination and expectation: the effect of imagining behavioural Field 4: Satisfaction/dissatisfaction scripts on personal intentions. Journal of Gratification varies in terms of levels of Personality and Social Psychology 45(2), reward, and these are key factors to benefit 293–305. delivery and future decision-making. The Antonides, G. and van Raaij, W.F. (1998) Con- satisfaction/dissatisfaction dimension must sumer Behaviour – A European Perspective. John Wiley and Sons, Chichester. also be considered in relation to the cogni- Aylwin, S. (1990) Imagery and affect: Big ques- tive dissonance mechanism. Although tions, little answers. In: Hampson, P.J. commitment to repurchase will also depend Marks, D.E. and Richardson, J.T.E. (eds) on factors such as variety seeking, subse- Imagery: Current Developments. Interna- quent behaviour will be shaped by zones or tional Library of Psychology, Routledge, latitudes of acceptance and of rejection in London. consumer perceptions. In the present model Bloch, P.H., Scherrell, D. and Ridgway, N. (1986) a third zone was introduced, the non- Consumer search: An extended framework. commitment latitude. Journal of Consumer Research 13, 119–126. Bone, P. and Ellen, P. (1990) The effect of imagery Part III: Future decision-making processing and imagery content on behavioural intentions. Advances in Consumer Future decision-making is mainly related to Research 17, 449–454. the study of the subsequent behaviour of the Buchholz, L.M. and Smith, R.E. (1991) The role of tourist by analysing different probabilities consumer involvement in determining cog- for repeat buying a particular destination or nitive response to broadcast advertising. tourist service. Journal of Advertising 20(1), 4017. Consumer Behaviour 77

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4 Tourism Marketing Research

L. Moutinho

Introduction widely separated from those consumers. Marketing research is used throughout all Marketing research in tourism is the system- four phases of the management process: atic gathering, recording and analysing of selecting strategies, developing marketing data about problems related to the marketing plans, putting the plans into action and eval- of tourism services. The five most common uating their effectiveness. Some tourism types of tourism marketing research activ- companies are now beginning to coordinate ities are as follows: and integrate their marketing research activities into marketing information systems 1. determination of market characteristics designed to provide managers with the rele- 2. measurement of market potentials vant information they need for recurring 3. market share analysis problems and decisions. However, market- 4. sales analysis ing research is not the same as a marketing 5. studies of tourism business trends. information system (MIS) (see Table 4.1). The marketing research process is a struc- The function of marketing research is to tured procedure linking together the provide information that will assist market- marketing researcher, the marketing ing managers in recognizing and reacting to decision-maker and the sources of relevant marketing opportunities and problems. The information concerning a particular prob- importance of such information is shown in lem. The key to the process is planning. The Box 4.1. marketing research process has its roots in scientific research and the scientific method. In practice, however, marketing research studies in tourism range from the Benefits ‘quick’ and ‘simplistic’ to carefully planned, systematic empirical investigations of Marketing research links the organization hypotheses. Marketing research is usually with its marketing environments. It involves conducted on request to provide informa- the specification, gathering, analysing and tion relevant to the solution of specific interpretation of information to help man- problems as they occur. agement understand the environment, Marketing research is a growing and identify problems and opportunities, and widely used business activity in tourism develop and evaluate courses of marketing because organizations need to know more action. Marketing research is defined as an about their final consumers but typically are informational input to decisions, not simply © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 79 80 L. Moutinho

Table 4.1. Differences between marketing research and a marketing information system (MIS).

Characteristic Marketing research Marketing information system (MIS)

Data type 1. Primarily external information 1. Can be internal and external data oriented Problem orientation 2. Primary function is to solve 2. Solves problems but also attempts problems to prevent problems through controls System orientation 3. Handles projects in a prescribed 3. Operates as a true system rather project-to-project basis than intermittent as projects Information focus 4. Usually oriented towards present 4. Projection techniques provide and past data means for acquiring future oriented data Hierarchy 5. One source of information for 5. This system includes a variety of decision making and a market sub-systems of which marketing information system research is one Degree of commitment 6. Can be sporadic because of project- 6. Total organizational commitment to-project basis secures the best efﬁciency

Box 4.1. The place of information in effective marketing.

Marketing research information helps the marketer to be an effective decision-maker. To be effective, the marketer needs to gather enough information to: ● Understand past events ● Identify what is occurring now ● Try to predict what might occur in the future Marketing research is the systematic and objective process of gathering, recording, and analysis of data for marketing decision-making.

Guideline 1: The term ‘marketing research’ suggests a speciﬁc, serious effort to do research. The term ‘research’ suggests a patient, objective, and accurate search. Guideline 2: Marketing research is not limited to product research. Marketing research should yield information that helps managers to make decisions.

the evaluation of decisions that have been may be essential in deciding effective strate- made. gies, yet the answers may be difﬁcult for The marketing research process is a tool management to answer without conducting that helps tourism managers wisely or ade- research. Relying on collected market infor- quately resolve marketing problems. Many mation enables managers to make effective tourism companies are geographically sepa- decisions relating to all target markets. rated from the bulk of their markets. Finally, accurate and carefully researched Collecting information about these distant information is needed because of the high markets is essential so that management can cost of making a mistake. Tourism manage- make intelligent decisions about what is ment cannot afford the risk of making a needed in far away places. Also, important wrong decision on the basis of intuition or information is seldom obvious. Accurate guesses. Too little information results in answers to important behavioural questions needless risk, but attempting to collect too Tourism Marketing Research 81

much information involves excessive costs. company or organization; usually this prob- Therefore, it is prudent for management to lem should be specifically and correctly make a trade-off between the cost of collect- defined. To help identify the true probing and analysing additional information, lem(s), a company should conduct a and the expected cost of making a wrong situation analysis, which is an investigation decision if the information is not collected. of the factors internal and external to the Neither marketing research nor marketing firm or organization that potentially relate to information systems can, however, elimi- the problem area. In the situation analysis, nate all uncertainty and risk. the marketing manager or researcher relies Relationships between managers and on secondary data, which is data that has marketing researchers are being improved already been collected or published, for pur- because both parties are communicating poses other than the one immediately at more effectively with each other and are hand. The secondary data could come from developing a better understanding of each internal or external sources. Secondary data other’s needs and problems. Management is should be used whenever possible because also becoming more involved in marketing they are readily available and are relatively research. A marketing research activity pro- low cost compared with primary data. viding management with the maximum After having defined the specific research possible support will be one that reflects objectives and consulted the secondary data management’s responsibility and involve- available, the market researcher can lay out ment. the research design and then proceed to collect the necessary primary data. A research Classification of techniques design is a blueprint or map for obtaining and collecting the primary data needed to One should take the line that a research solve a particular research problem. problem with a certain basic format (e.g. the Qualitative or motivational research can convergent causal structure) leads to the be very useful for exploratory purposes. It is choice of a technique of multivariate analy- designed to find the ‘emotional hot buttons’ sis which corresponds to that format. of the tourist in relation to a particular sub- Therefore, the first and most important cri- ject, by bringing hidden stimuli up to the terion for the classification of techniques is level of conscious awareness (see Chapter the underlying format. An obvious criterion 3). Qualitative research involves many tech- is the measurement level of the variables: niques ranging from in-depth interviews to quantitative, ordinal or nominal. Another group discussions. In the give and take of criterion of frequent occurrence is the pres- focus group discussions, tourists often ence or absence of dependency, in other reveal attitudes and perceptions that they words the causal asymmetry, whereby the would not make evident through other data distinction between independent and collection methods. Furthermore, motiva- dependent variables is made. The measure- tional research contributes to the process of ment level and the dependency are the two questionnaire design. The most appropriate most widely used criteria for the classifica- type of survey depends on the nature of the tion of techniques. The basic format is the information sought, the required sample most important criterion, because it ensures size, and the location of subjects. the correspondence with the conceptual A variety of methods can be used to col- structure of a social-scientific research prob- lect primary data, and each method has lem (Tacq, 1997). certain situations for which it is most appropriate. The three principal methods for collecting primary data are as follows: Implementation 1. The observation method where data are At the initial stage of the marketing research obtained by watching human behav- process, a particular problem confronts the iour. 82 L. Moutinho

2. The survey method where people are collecting data from respondents are by questioned directly by telephone, mail communication and by observation. We or personal interviews. shall first look at methods of communica- 3. The experimental method in which the tion. researcher assesses how changes in manipulated variables affect other vari- Communication methods ables; the factor to be assessed is called A useful way to classify communication the dependent variable, and the factors methods is by their degree of directness and that affect it are called the independent degree of structure, as shown in Fig. 4.1. A variables. direct approach is one where the objectives of the research are obvious to the respondent All methods for collecting data require some from the questions asked, while an indirect type of data collection form. When design- approach asks questions in such a way as to ing a questionnaire, it is not easy to develop disguise these objectives. The degree of effective questions. There are, however, six structure may be seen as a continuum, from criteria to consider for an effective question; the highly structured formal questionnaire it must be relevant, clear, brief, inoffensive, where the respondent must choose from pre- unbiased and specific. Several basic types of determined responses, through questions can be used: open-ended, struc- semi-structured questionnaires where res- tured, indirect rating scales, semantic ponses may be open-ended, to sets of differential, control, semi-open, graphic rat- questions which are no more than guide- ing scales, verbal scales, filter, Likert scales, lines for a discussion in which respondents and Thurstone scales, among others. Since express their views freely. We shall now even the experienced marketing researcher consider the uses, advantages and disadvan- can make mistakes, many companies insist tages of different methods. on questionnaire pre-testing, which consists of administering the questionnaire to a small Structured-direct group before using it to gather information This is the most commonly used method, from the entire survey group. the standardized questionnaire where res- In the next section of this chapter we will ponses require selection of one or more consider methods of data collection in more alternatives from a set of predetermined res- detail. However, almost all marketing ponses. Questions are asked with exactly the research projects require a sample of the same wording and in exactly the same order population, because it is too costly in terms for each respondent. This type of approach of time and money to contact all the people is most appropriate where the data required in the study population. Therefore, after from the respondent are easily articulated, consideration of data collection methods clear-cut and limited in scope, but less and experimentation we will address the appropriate where researchers want more issue of sampling. in-depth information related to the formation and evolution of attitudes. Structured-direct questionnaires require Data Collection time and skill to develop effectively, and generally also need extensive pretesting to Acquiring data from respondents is a major ensure that the questionnaire is correctly part of tourism marketing research. Data interpreted by respondents and that the may be required concerning respondents’ questions measure what they are designed to past behaviour (e.g. what tourism brands measure. they have purchased), attitudes (what The advantages of this method are its beliefs and feelings they have about a tour- ease of administration (by mail, telephone or ism product) and characteristics personal interview) and ease of data pro- (demographic, socioeconomic, psychologi- cessing and analysis. The format is designed cal or psychographic). The two basic ways of to control response bias and thus increase Tourism Marketing Research 83

Structured Unstructured

Structured questionnaire Focus-group interview Direct Depth interview Semi-structured questionnaire

Performance of Thematic apperception test objective task Role playing Indirect technique Cartoon completion Word association Sentence completion

Fig. 4.1. Classiﬁcation of communication methods.

the data reliability. Disadvantages are that must create an environment in which the respondents may not be willing or able to respondent is comfortable to discuss the provide the required data, or the interview- topic freely. Interviewers with the skills and ing process may bias their responses, e.g. experience to create a high level of rapport, they may give socially acceptable responses while also probing to get the required level rather than true ones. of information, are relatively few in number and generally highly paid. The high cost per Unstructured-direct interview and the length of interview The two main techniques using this required imply a small sample size, and this, approach are the depth interview and the coupled with the lack of structure, means focus group. that analysis will be qualitative rather than quantitative (Brunt, 1999). THE DEPTH INTERVIEW. An unstructured personal interview where the respondent is THE FOCUS GROUP INTERVIEW. A frequently encouraged to express freely his or her used technique in tourism marketing detailed beliefs and feelings on the subject research. It is a loosely structured interview in question. The interviewer will have a conducted simultaneously with a group of note of the general areas for discussion but respondents, who all have something in no ﬁxed sequence in which they must be common (e.g. all full-time housewives, or covered, and will use probing questions to teenagers who are still at school, or members fully explore the respondent's ideas and atti- of a particular interest group). The inter- tudes. The approach is used when the object viewer, usually called a moderator, must be of the research is to get below surface reac- highly skilled and experienced in order to tions to the more fundamental reasons for establish rapport among the group, to keep respondents’ beliefs and feelings. the discussion relevant to the topic and The advantage of the depth interview is ensure the required depth of discussion, and the depth of insight which can be gained create interaction within the group rather into the respondents’ feelings and motiva- than seem to be interviewing participants tions, and so it is used mainly in exploratory individually. The selection of respondents research. Disadvantages include the high and the physical setting of the group are also degree of reliance on the interviewer, who important. Focus group interviews can be 84 L. Moutinho

used for several purposes: to stimulate new where explanations and more detail are ideas on tourism products or concepts, to get required. Disadvantages are that interviews impressions of new tourism product con- still require a fair amount of interviewer cepts, to generate hypotheses for further time, so samples are likely to be fairly small quantitative testing, or to interpret previ- and, as in the depth interview, much ously obtained quantitative results. depends on the skill and experience of the The advantages of well-conducted focus interviewer (Sudman and Blair, 1998). group interviews are many. They are a chance for tourism marketers to listen Structured-indirect directly to the consumer’s opinions, thus This method is often called the performance gaining a valuable insight into how their of objective task technique. Respondents are tourism product is actually perceived. The asked to memorize and/or report informa- combined group is likely to produce more tion about a tourism-related topic, for ideas than the same number of respondents example they are exposed to a range of tour- interviewed individually, due to participant ism advertisements and asked to recall what interaction, a higher level of involvement in they remembered about them. The tech- the discussion, and more spontaneous res- nique assumes, based on research on ponses. As with the depth interview, a selective information processing, that res- highly trained and experienced interviewer pondents are more likely to recall is required, but is used more efficiently in information which is consistent with their ‘interviewing’ several people at once. Group own attitudes, and thus the amount and type sessions are often recorded to allow further of information recalled is used to draw infer- analysis at a later date. ences regarding respondents’ underlying The major disadvantage of the focus attitudes. group is that the data gathered cannot be The method is an attempt to gain the data used in a conclusive manner; no quantita- collection and processing advantages of a tive information can be elicited which can structured approach without asking respon- be extended to tourism target markets, and dents directly about behaviour and attitudes findings are highly dependent on the per- which they may be unwilling or unable to ception of the moderator and others who discuss. However, many researchers doubt interpret them. Other disadvantages relate whether it is valid to extend the research to the risk that groups will be poorly recrui- findings on which it is based to the measure- ted or conducted. ment of factual information as a reliable indicator of attitudes and beliefs. Semi-structured-direct This category covers questionnaires which Unstructured-indirect are less formally structured than the stan- These data collection methods are known as dardized questionnaire, but do not offer the projective techniques. They are designed to complete flexibility of the depth interview. obtain data indirectly about beliefs and feel- They would typically be used in a personal ings which respondents may be unwilling or interview where a range of information is unable to communicate, by asking them to required, some of which is easily classified interpret the behaviour of others. The most into categories and some of which requires commonly used techniques are the thematic more detail. apperception test (TAT), role playing, car- The advantages of a semi-structured toon completion, word association and approach are the possiblity of generating sentence completion. both quantitative and qualitative data, and the flexibility of the approach. For instance, ● The thematic apperception test uses one some or all of the standardized questions or more pictures or cartoons depicting a may be mailed to the respondent prior to the scenario concerning the tourism prod- interview date, so they are already answered uct or topic being investigated. The and the interviewer only needs to probe situation is ambiguous with no hint as Tourism Marketing Research 85

to whether its interpretation should be might not reveal when questioned directly. positive or negative towards the tourism Their disadvantages lie in their complexity, product or topic. The respondent is which means that they need highly skilled asked to describe what has happened or interviewers and interpreters. The cost per will happen, and can thus indirectly interview is therefore high, which leads to project personal attitudes into their the use of small samples (Chisnall, 1996). interpretation of the situation (Tull and Hawkins, 1993). Communication media ● Role playing presents the respondent The three main media of communication are with a situation in which they are asked the personal interview, the telephone inter- to describe the feelings or reaction of a view and the mail interview. Structured third person. Their response is believed communication techniques may use any of to reveal their own attitudes. A variant these, while unstructured techniques typi- of the technique is to ask respondents to cally need personal interviews. Table 4.2 characterize a person based on the tour- analyses the advantages and disadvantages ism products they have bought; their of each method. description is thought to reveal their attitudes towards the tourism products. Observation methods ● The cartoon completion technique asks The other method of collecting data is by respondents to complete a cartoon observation, which involves recognizing showing people in a situation relevant and recording behaviour. Tourism market- to the tourism product or topic, by com- ers frequently use informal observation, pleting a caption to respond to a remark such as noting competitive prices or tourism made by one of the characters, e.g. ‘We product availability. Techniques for formal have just bought a trip and a cruise’, observation are designed to minimize the ‘Our neighbour is thinking of buying a large error potential in informal observation. time-share’, etc. Observation is useful in collecting data ● The word association technique uses a about tourism behaviour which the list of carefully selected words which respondent is unaware of or unwilling to are presented in turn to respondents, discuss, and potential bias caused by the who are asked to give the thoughts that interviewing process is eliminated. How- come to them when they hear the word, ever, attitudes and feelings cannot be or to give as many single associated observed, and it is also difficult to observe words as possible in response to each many personal activities such as those word. The test is analysed by the fre- which take place within the home. For the quency of responses, the amount of observation method to be cost-effective in hesitation in responding, and the num- terms of observer time, the behaviour to be ber of respondents unable to respond to observed must be reasonably predictable or particular words in a certain time. Non- occur frequently, and must be of short dura- response is assumed to indicate a high tion. Observation methods are therefore far level of emotional involvement, and less frequently used than communication hesitation a lesser level. methods. ● Sentence completion is similar; the There are several ways of classifying respondent is asked to finish an incom- observation methods. The setting may be plete sentence with the first phrase that natural or contrived, e.g. watching people comes to mind, and these are analysed. shopping normally as opposed to in a mock ‘store’ created for the purpose of the Projective techniques are used in research. Observation may be disguised or exploratory research, to discover hypoth- undisguised, according to whether respon- eses to be tested using more direct dents are aware of being observed. In techniques. Their advantage is in eliciting structured observation, observers are told feelings and attitudes which respondents exactly what they are to measure and how it 86 L. Moutinho

Table 4.2. Comparison of communication media.

Personal Telephone Mail

Versatility High, can use visual cues, Medium, can explain/probe Low explain complex to a lesser extent questions, probe answers Cost Most expensive More expensive than mail Least expensive unless interview is very short Time Depends on size of sample Usually faster than other Depends on how many and number of methods follow-up mailings interviewers required to achieve acceptable response Sample control Easiest to control, Relies on less efﬁcient Can control selected researcher can select sampling methods sample for mailing, but exactly who is to be (simple random or no control over return of interviewed, e.g. from systematic). Sample bias questionnaire or whether electoral register or may result as not selected person is mailing list everyone has a phone actually the one to complete it Quantity of data Most Least Medium obtainable Quality of data Good if well administered. Better control of Found to be better quality Dependent on interviewers likely to lead on sensitive topics, but interviewer, bias could to better quality data bias can result from result from bad misunderstood questions, interviewing techniques changing answers after or cheating. Control completion, failure to procedures required to recall events minimize chances of these Non-response Callbacks necessary to Good timing of calls, and Avoids problem of non- (respondents reduce proportion callbacks, can reduce availability. Prepaid unavailable or unavailable. Little can be proportion not available. return envelopes, refusing to done about refusals Little can be done about reminders and incentives participate) refusals (free gifts, entry to prize draw, etc.) can be used to lessen refusal rate

is to be measured, while in unstructured are switched on and the station to which observation, observers monitor any behav- they are tuned; and the eye camera, which iour that seems relevant to the research records eye movement to discover how res- questions. Direct observation is the observa- pondents read a magazine or advertisement: tion of behaviour as it actually occurs, while in what sequence, and for how long they indirect observation looks at some records of look at speciﬁc parts. There are also devices past tourism behaviour, for instance, look- which measure respondents’ physical reac- ing at previous holiday bookings to estimate tions to stimuli, such as the their future purchases of speciﬁc types of psychogalvanometer, which measures chan- tourism products. Observation may be ges in perspiration rate, and the human or mechanical. Mechanical means pupilometer, which measures changes in include motion picture cameras, the audio- the diameter of the pupil of the eye. meter, which records when radio or TV sets Another technique which has been Tourism Marketing Research 87

attempted is brain wave analysis; the elec- example, those airline routes where the trical ‘signals’ emitted from the brain can be price is changed. In order to measure the monitored to indicate the level and type of effects of manipulation, it is also necessary interest of respondents in the stimuli they to have a part of the population where the are presented with. The left hemisphere of independent variable is unchanged; i.e. in the brain deals with more sequential and some airline routes price should be left at its rational activities, while the right hemi- original level. This group is known as the sphere specializes in pictorial and control group. emotional responses. Thus the level of brain It can only be claimed that effects on the waves emitted from each side of the brain dependent variable are caused by manipula- can indicate the type of interest in the stim- tion of the independent variable, if effects of ulus. However, brain wave monitoring other variables are measured or controlled. needs to be done in laboratory conditions, The two most usual methods of achieving which may affect responses, and there are this are by randomization, random assign- other complex theoretical and methodolog- ment of population elements to a treatment ical issues associated with the analysis, and control group, and by matching, assign- which require further research. ing elements speciﬁcally to treatment or control groups in a way that achieves a balance on key dimensions. A well-designed Experimentation experiment thus allows measurement of the causal relationship between an independent The testing and evaluation of different alter- and a dependent variable, because it con- natives is a frequent part of tourism trols all other possible causal relationships marketing activities. For instance, a tourism relating to other variables (Kinnear and product may be sold for a period at a higher Taylor, 1996). or lower price than normal in order to monitor the effect on sales, or a travel agency Ex post facto studies claim may try out different wordings of Although frequently used in tourism mar- appeals to discover which one attracts most keting research, these are not true donations. Here, we discuss the essential experiments. They attempt to trace back features of a controlled experiment, the use- over time from a present situation, in order fulness of ex post facto studies which to discover the causes of some aspect of that resemble experiments, and the errors which situation. For instance, in attempting to dis- can occur in experimental research. We then cover why one travel agency has look at some of the most common experi- consistently higher sales than another in a mental designs, and at suitable similar area, a researcher may discover a environments for conducting experiments. difference in management style, and deduce that a more democratic management style is What is experimentation? a factor leading to success. However, this Experimentation involves the manipulation cannot be proved; many other factors may of one or more variables, in such a way as to have been overlooked which have greater measure its effect on other variables. Vari- impact upon sales, and it is impossible to ables being manipulated are known as say how much, if any, of the difference in independent variables, while those vari- sales is due to management style. The short- ables which reﬂect the impact of the comings of this type of research are that the independent variable are known as depend- independent variable is not manipulated by ent variables. For instance, in price the researcher, and that there is no preselec- manipulation, price is the independent vari- tion of population elements into treatment able and sales the dependent variable. and control groups, in order to control extra- The treatment group is that part of the neous variables. population which is exposed to manipula- Ex post facto studies are frequently used tion of the independent variable; for because experimentation may be impracti- 88 L. Moutinho

cal or impossible, but they do not have the the dependent variable. This can be validity of controlled experiments, and are especially problematic in experiments vulnerable to many of the errors we now that continue over a long period of time, discuss. for instance repeated questioning of young people on attitudes to a activity Common experimental errors holiday camp. As these respondents 1. Premeasurement refers to changes in grow older, their tastes and perceptions the dependent variable produced as a are likely to change rapidly. result of initial measurement. A tourism 5. History refers to events outside the confirm wishing to test the effect of a trol of the experimenter which occur change in discounting (the independent between pre- and post-measurement, variable) on tourists’ purchase con- and affect the dependent variable. An sumption of a certain travel package airline may attempt to measure the tour may interview respondents before effect of a price reduction on sales of a and after the change. A respondent who particular route. However, if there is an has never before tried the package tour unexpected heatwave during the exper- may, after the first interview, decide to imental period, it will be difficult to try it, and like it. By the time of the separate the effects of the price reduc- second interview, his or her travel pur- tion and the weather in accounting for chase pattern may have totally changed, increased sales. but this is due to the interest brought 6. Selection of treatment and control about by the original interview, rather groups can cause errors if the groups are than any effect of the discount change initially unequal with respect to the (Sheldon, 1993). dependent variable, or in sensitivity to 2. Interaction error occurs when respon- changes in the independent variable. dents’ interest in, or sensitivity to, the Random assignment and matching, independent variable is changed by the described earlier, are techniques which premeasurement. Tourism marketing can minimize this problem. research may test attitudes to a tourism 7. Mortality refers to the loss of respon- product before and after a particular dents from the different experimental advertising campaign. If the same peo- groups. A long-running experiment is ple are interviewed, the very fact that almost certain to lose some respondents they have answered questions about the between start and finish. If different tourism product may cause them to pay types of respondents are lost from the more attention to the campaign than treatment group and the control group, they would have otherwise. Here the the groups may no longer be well mat- premeasurement and the independent ched, and conclusions may not be variable (the advertising) jointly affect valid. the dependent variable (attitude to tour- 8. Measurement timing errors can occur ism product) (Pizam and Mansfield, when either pre- or post-measurements 1999). are made at an inappropriate time for 3. Instrumentation error refers to changes measuring the effect of manipulating in the measuring instrument over time. the independent variable. A typical sit- These are most likely to be due to uation is when post-measurements are human involvement; interviewers or taken too early, measuring the immedi- observers may become more skilled as ate rather than the long-term effect of a the experiment progresses, or they may change. become bored and disinterested so that 9. Reactive errors occur when the experi- the quality of interviewing or observa- mental situation itself causes effects tion diminishes. that alter the effects caused by the 4. Maturation refers to changes due solely manipulation of the independent varia- to the passing of time, which may affect ble. Respondents ‘shopping’ in an Tourism Marketing Research 89

experimental travel store may behave to interpret results, with no standard of differently to their normal shopping comparison. behaviour. If they see prominently dis- 2. Before-after. Here premeasurements are played tourism products which they made, followed by the manipulation of think are of interest in the experiment, the independent variable, followed by they may buy them because they feel post-measurements. For instance, sales they ought to, or conversely, some peo- of a tourism product are monitored, the ple may resist buying them. Either way, price is reduced, and sales are mon- results are affected. Reactive errors can itored again in a similar fashion. If no only be controlled by the structure of errors exist, price can be said to be the the experimental setting. cause of any change in sales. However, 10. Surrogate situation errors occur when this design may also be affected by the experimental situation is somehow errors of premeasurement, history, different, in terms of environment, sam- interaction, instrumentation or mortal- ple population or variable ity. manipulation, from the actual situation The two above designs cannot control which will occur. The experimental history effects because they lack a control travel store cited above is an example of group, and are thus often referred to as such a situation. Alternatively, a tour- quasi-experimental designs. ism product which has been successfully test marketed may not sell 3. Before-after with control. This is like as well as predicted because competi- the before-after design, except that the tors respond to its introduction by test population is divided into a treat- increased advertising of, or price reduc- ment group and a control group. All tions on, competing tourism products. sources of potential error apart from interaction and mortality should affect Experimental design both groups equally, so their effects on the control group can be measured and All the types of error described above, apart these changes subtracted from the total from reactive error, measurement timing changes in the treatment group, to and surrogate situation errors, can be con- measure changes due solely to manip- trolled for by the experimental design. ulation of the independent variable. However, different designs are most efﬁ- However, premeasurement may cause cient in the control of different types of interaction errors, and mortality errors error, so researchers need to select a design may be caused by loss of group mem- that controls for the most potentially serious bers if the experiment is a lengthy one. and most likely errors in their particular 4. Simulated before-after. This design situation. Experimental designs can be controls premeasurement and interac- divided into basic designs which consider tion errors by using two different, the impact of only one independent variable randomly selected groups of respon- at a time, and statistical designs which may dents for the pre- and consider the impact of more than one. post-measurements. However, the other potential errors in the before-after Basic designs design can still occur. 1. After-only. Here the independent varia- 5. After-only with control. Here, both ble is manipulated and then a treatment and control groups are selec- post-measurement is made. For ted, but only post-measurements are instance, a new tourism product is dis- taken. The design eliminates interac- played in travel stores and its sales are tion errors, and all other errors monitored. After-only designs do not eliminated by the before-after with con- control for errors of history, maturation, trol design apart from selection error. It selection or mortality. Neither is it easy is thus suitable when selection error is 90 L. Moutinho

unlikely to be a problem, for instance design cannot be used, a Latin square or with large random samples. factorial design is needed. 6. Solomon four-group. This design, also known as the four-group six-study Latin square designs design, consists of two treatment groups These allow the control of two non- and two control groups. One treatment interacting extraneous variables. They group and one control group are subject require that each of the two blocking vari- to a before-after with control design, ables, and the independent variable, be while an after-only with control design divided into an equal number of blocks or is used on the other treatment group levels. For instance, we may wish to exam- and control group. This design controls ine the impact of price reductions on sales of for all sources of error which can be a theme park product. We suspect that the controlled by design, as the effects of impact will vary according to the region of interaction and mortality, which cannot the country and also to the type of travel be controlled by the before-after with store in which it is sold. We would then control design, can be estimated by construct a Latin square design in the form comparison with the after-only groups. of table, with the two blocking variables as the rows and columns. Here we will divide Statistical designs each variable into three blocks: North, Mid- lands and South for the regions, Statistical designs allow the travel independent travel agency, chain travel researcher to measure the effects of more agency and department store travel shop for than one independent variable, and also to the travel store types. The independent vari- control for specific extraneous variables. able (price) must also be divided into three, This is done by structuring a combination of so we will use three different reductions, several experiments of basic design to run £20, £40 and £60. These levels are randomly simultaneously. Statistical designs are thus assigned to the cells of the table, so that each susceptible to the same errors that can occur level occurs once and once only in each row in the basic designs used (Frechtling, and each column. Table 4.3 shows our 1996). design, known as a 3 ϫ 3 Latin square as it has three rows and three columns. Randomized blocks design A basic design experiment is then con- This design is appropriate when it is ducted in each cell, usually either a thought that there is one major extraneous before-after or after-only design, with or variable likely to influence results; for without control. For instance, an after-only instance, reactions to tourism destination design with control, using groups of ten advertisements may differ according to the travel outlets, would entail ten travel agen- gender of the respondent. Treatment and cies in the North making a £40 reduction, control groups are stratified on the basis of ten in the Midlands making a £20 reduction, this variable; for instance, if gender was the ten in the South making a £60 reduction, ten extraneous or blocking variable, the sample chain travel agencies in the North making a would first be divided into male and female £60 reduction, etc. For each of the nine cells subgroups, and individual respondents a control group of ten travel outlets would within these groups would then be allocated hold the original price. Thus the effect of randomly to treatment or control groups. each price reduction could be seen once in The randomized blocks design is generally each type of store and once in each region. more useful than a completely randomized Levels of sales could be analysed to find out design because in most tourism marketing how reductions affected sales, and how the research studies there is at least one extra- effect varied by region and travel outlet neous variable – e.g. gender, age, income – type. which should be controlled for. However, if Latin square designs are often used in there is more than one such variable this tourism marketing research, particularly in Tourism Marketing Research 91

Table 4.3. 3 ϫ 3 Latin square design.

Region

Travel store type North Midlands South

Independent travel agency £40 £20 £60 Department store £60 £40 £20 Travel shop £20 £60 £40

retailing. One drawback is that it is not and then a fractional factorial design can be always easy to subdivide blocking and inde- used, consisting of only the relevant part of pendent variables into the same number of the full design. groups, and another is the requirement for the blocking and independent variables to Experimental environments be non-interacting. Also, only two extrane- Experimental environments can be classi- ous variables can be controlled. However, fied according to how closely they mirror the technique can be extended to control for the normal situation in which the observed three such variables, this is known as the behaviour takes place. An experiment test- Graeco-Latin square design. ing the effect of different tourism product prices on sales in a normal store obviously Factorial design has a much higher degree of realism than an Factorial designs can measure the effect of attempt to measure such effects by showing two or more independent variables, and respondents the same tourism products in allow for the possiblity of interaction an artificial laboratory setting and asking between the variables, i.e. that the effect of how much they would be willing to pay for the variables taken together may be different them. Where human respondents are con- from the sum of their effects taken sepa- cerned, it is necessary to make a study as rately. Interaction is measured by using realistic as possible, in order to minimize factorial designs and analysis of variance reactive error. (ANOVA) analytical procedures. Experiments with a high degree of artifi- A factorial design with only two inde- ciality are known as laboratory experiments, pendent variables can be shown as a table, and those with a high degree of realism as one variable being represented by the rows field experiments. The next section looks at and the other by the columns. A cell is typical uses of these experimental types, needed for each possible combination of and the advantages and disadvantages of independent variables, i.e. if there are four each. levels of one variable and five of the other, 20 cells are required. The same basic experiment is then carried out in each cell. Laboratory experiments Analysis of variance procedures can deter- These are often used in initial testing of new mine the effects of each variable and of their tourism products and promotional material. interaction (Fesenmaier et al., 1996). They take place in an isolated setting, where If there are more than two independent independent variables can be manipulated variables, the number of cells required will under carefully controlled conditions. This increase rapidly, especially if each has sev- means that researchers can be sure that the eral different levels. Thus factorial designs experiment will produce similar results if can become very complex and costly. It is replicated (internal validity). Effects of his- often the case, however, that only some of tory are minimized as the experimenter is in the effects and interactions are of interest, control of the laboratory situation. Labora- 92 L. Moutinho

tory experiments generally use much less keting mixes: different advertising time and fewer resources, and they also have strategies, different types of travel packag- the advantage of keeping ideas secret from ing, price changes, etc. In addition, the competitors. introduction of a new tourist product to a However, the great strength of internal test market may highlight problems with the validity leads directly to the weakness of tourist product that were not evident until low external validity, or generalizability. the tourism product was actually bought or Behaviour of respondents in a laboratory used in a realistic way. The three basic types setting may not be replicated when they are of test tourism marketing are standard, con- in a more normal situation with many other trolled and simulated market tests. influences and distractions. Thus, laboratory experiments are often used at a STANDARD MARKET TESTS. Here a sample of ‘screening’ stage of development, and the market areas is selected – regions, towns, tourism products or advertisements receiv- etc. – and the tourist product is sold as ing a favourable reception go on to market normal, using either a standard tourism mar- testing. keting mix or varying the mix in specific and Laboratory experiments may also be sub- controlled ways. Test markets are selected ject to reactive errors, when respondents are carefully to be representative, both demo- influenced either by the experimental situa- graphically and in terms of competition, of tion or the experimenter. Respondents may the wider travel market. They should be deduce the purpose of the experiment and large enough to give meaningful results, and attempt to behave as expected, or may react (if being used for new tourist product test- to non-verbal cues by the experimenter. ing) should allow testing of the tourist Reactive errors may be minimized by using product in all conditions in which it is likely control groups, and by using skilled experi- to be used. If more than one version of the menters and, as far as possible, standard and tourism product, or more than one tourism impersonal means of communication such marketing mix, is to be tested, then test mar- as written instructions or tape recordings. kets must also be sufficiently similar to allow valid comparisons between them. The Field experiments length of time for which test markets should Field experiments in tourism marketing be run depends on initial consumer research generally take place in the market- response, the purchase cycle for the tourism place. This means that the advantage of a product, and the extent of competitive activ- high degree of realism is offset by a lack of ity. It is generally recommended that tests of control of extraneous variables, and some- new tourism products should run for 10–12 times even of the independent variable – for months to achieve correct market share example, some travel retailers may be forecasts. unwilling to cooperate in varying the price Standard test tourism marketing is an of a tourism product, making random selec- example of an after-only design experiment, tion of travel stores impossible. Extraneous and thus is subject to the errors discussed for variables such as competitor activity or this design. In addition, test markets may be weather conditions may affect findings. subject to greatly increased competitor Internal validity is thus lower than for labo- activity, designed to produce unfavourable ratory experiments, but external validity is results for the test and thus stop the tourism higher, due to the more realistic environ- product reaching the wider market. Test ment. Marketers therefore tend to place tourism marketing may also give competi- greater reliance on their results. tors advance warning of tourism products One of the most common types of field being developed, allowing them to produce experiment conducted in tourism marketing competitive tourism products which may research is test tourism marketing. This may even beat the original to the wider market. be used to judge market acceptance of a new Another disadvantage of test tourism mar- tourism product, or to test alternative marketing is its high cost. Tourism Marketing Research 93

CONTROLLED MARKET TESTS. A controlled chase of the tourism product. These market test differs from a standard market estimates are combined with an estimate of test in that the tourism product is not dis- frequency rate in order to produce an esti- tributed through normal channels, but by a mated market share for the tourism market research firm on behalf of the com- product. pany. This firm will pay a number of travel Due to the artificial environment, simu- stores for the tourism product to be placed lated test markets are vulnerable to surrogate with them: perhaps a small number of travel situation errors and reactive errors. These stores in several areas (controlled-store test) can be controlled to some extent by compar- or a large percentage of travel stores in a few ing behaviour in laboratory situations with smaller areas (minimarket test) that observed in the actual marketplace – an The advantages of these tests are that they experienced researcher may have discov- are somewhat less visible to competitors, ered, for instance, that for every 20 people and competitors have no access to sales who are inclined buy a new tourist product data. They are also quicker and less costly in a laboratory situation, only 14 will buy in than standard test markets. However, the the actual market. This finding can be used small sample of travel stores makes results in future situations with similar tourism less reliable, it is hard to test the effect of products (Moutinho et al., 1998). advertising as so few travel stores carry the tourism product, and there can be no estimate of retailer support as the participating Sampling retailers are being paid for cooperating in the test. These tests are therefore more often Once we have decided the method we will used as a final check before proceeding to use to collect data, we must consider the standard test tourism marketing, than as the question ‘From whom will we collect this only precursor to national market launch. data?’ The alternatives are to take a census or a sample. In a census we use all available SIMULATED TEST MARKETS. As the name sug- elements of the population of interest, i.e. if gests, these fall into the category of we wanted to find out what consumers laboratory experiments. A sample of respon- thought about a new tourism brand targeted dents is selected, representative of the target to families with children, we would go to all market. They are not informed of the true households with children. For a sample, we purpose of the test. They are exposed to would select, based on clearly defined cri- advertising for the new tourism product, in a teria, a subset of these households from disguised format; for instance, they may see which it would be valid to draw inferences a television programme with several adver- about the whole population. tisements during the commercial breaks, Sampling offers major benefits over tak- only one of which is for the test tourism ing a census. It saves time and money as product. Respondents then have the oppor- fewer interviews are carried out. It may even tunity to purchase the tourism product, be more accurate, as there will be fewer non- either in a real or simulated shopping envi- sampling errors, resulting from factors such ronment. After allowing a reasonable time as less skilled interviewers and data pro- for respondents to use the tourism product cessors, or inadequate control of or travel to the destination product, they are procedures. (A sample will, however, contacted again and asked for their evalu- include sampling errors, which will be dis- ation of it. The percentage of the original cussed later.) Thus most market research sample who purchased the tourism product studies use sampling. Box 4.2 shows some is used to estimate the percentage of the key aspects of sampling. target market who would try it, given knowl- Before we discuss how a sample is selec- edge of it and its availability to them. The ted, we must define some basic concepts. after-use evaluations are used to estimate how many of the triers will repeat the pur- ● Element. An element is the unit about 94 L. Moutinho

Box 4.2. Selecting a sample: simple relationships.

Deﬁnition: A sample is simply a portion or subset of a larger population.

Sampling involves answering three questions: 1. Who is to be sampled? 2. How big should the sample be? 3. Who should be included in the sample? Working deﬁnitions: ● Census: a survey of all the members of the group. ● Probability sample: a sample in which every member of the population has a known, non-zero probability of selection. ● Non-probability sample: sample selected on the basis of convenience or personal judgement.

which information is required: an indi- ● Sampling frame. A sampling frame is a vidual person, family, company, etc. list of all sampling units available for ● Population. A population, or universe, selection at a stage of the sampling proc- is the aggregate of all the elements ess. For instance, in the last example the defined prior to the selection of the sam- first sample frame would be a list of ple. It is vital that the population is towns with population under 100,000, defined in detail, in terms of elements, the second sample frame would be a list sampling units, extent and time. The of households within these towns, and population for a consumer survey on a the third would be a list of adults aged new foreign tourism destination might 18–25 within these households. Tele- thus be defined as: phone directories, the electoral register Element: travellers who contemplate and mailing lists are commonly used holidaying abroad age 18+ sample frames. Sampling units: travellers who con- ● Study population. A study population template holidaying abroad 18+ is the aggregate of elements from which Extent: UK the sample is actually selected. This is Time: 1–14 October, 1999 likely to differ from the population ● Sampling unit. A sampling unit is the defined at the start of the survey, as element or elements available for selec- some members of the original population at some stage of the sampling tion may be omitted through incomplete process. The example above is a single sampling frames, e.g. people who have stage sample, where the element and the no telephone or have an ex-directory sampling unit are the same; the sample number, or people who have recently is selected directly from the population. moved house. More complex sampling procedures may use several stages, for instance, in a Sampling procedures survey of how young people spend their The general procedure for selecting a sample leisure time, we may want to interview is shown in Fig. 4.2. We now continue with young people aged 18–25 in households a discussion of specific sampling methods. in towns with a population of under First we must make a basic distinction 100,000. Here the primary sampling between probability and non-probability unit would be towns with population samples (see Table 4.4). In probability sam- under 100,000, the secondary sampling pling, sampling is done by mathematical unit would be households, and the terti- decision rules so that each element of the ary, and also final, sampling unit would population has a known chance of being be adults aged 18–25. chosen for the sample. This allows calcula- Tourism Marketing Research 95

Define the population and so it is unclear what actual population 1. Elements the sample is drawn from. Thus sampling 2. Units error cannot be measured, and we cannot 3. Extent make any conclusive statements about 4. Time results. The convenience sample is therefore most often used at an exploratory stage of research, as a basis for hypothesis generation.

Identify the sample frame JUDGEMENT SAMPLE. A judgement (or pur- posive) sample is selected on the basis of expert judgement as to what particular sampling units would be most useful to research. For instance, in selecting travel Determine sample size agencies in an area to test a new tourist product, experts might select the ‘best’ for the purpose, on criteria such as typical traveller proﬁle or turnover of similar tourist products. Again, sampling error is unmea- Select a sampling procedure surable and conclusive statements cannot be made, but the method will give better results than convenience sampling, as long as the expert judgement is valid.

Select the sample QUOTA SAMPLE. A quota sample seeks to replicate in the sample the distribution of the population, on the basis of defined control Fig. 4.2. Procedure for selecting a sample. characteristics such as age, gender, social class, income, etc. For instance, if we know that 15% of the population is aged between 35 and 44, and our total sample is to be 1000, tion of the sampling error: the likely extent then 150 people aged between 35 and 44 to which results for the sample differ from should be interviewed. This can get much those for the population as a whole. In non- more complicated if we have several control probability sampling, the selection of characteristics, and may cause problems for sample elements is based partly on the interviewers trying to find the last few res- judgement of the researcher or interviewer. pondents in their quota. In a quota sample There is thus no known chance of selection we must ensure that all control character- and no means of calculating sampling istics related to the subject of interest are error. included, and that the proportions for each category are correct and up to date, which is not always easy. The selection of specific Non-probability sampling procedures sample elements to fit the quota is left to the CONVENIENCE SAMPLE. A convenience sam- interviewer; this may introduce an ple is selected on the basis of the unknown bias, and thus it is again impos- convenience of the researcher. Examples sible to measure sampling error. However, would be calls for volunteers for travel prod- quota samples are used in much consumer uct testing, a university researcher using research, and carefully selected samples are students as research subjects, or stopping likely to produce the best results of non- people at random to ask for their opinions. probability methods. But they are likely to Sample elements are either self-selected, or be less valid than probability sampling selected because they are easily available, methods, which we shall now consider. 96 L. Moutinho

Table 4.4. Classiﬁcation of sampling procedures.

Non-probability procedures Probability procedures

Convenience sample Simple random sample Judgement sample Stratiﬁed sample Quota sample Cluster sample Systematic sample Area sample

Probability sampling methods ● Mean. The mean or average of a sample The most simple method of probability sam- is the sum of the sample values divided pling is known as simple random sampling. by the sample size. Here, the selection of sample elements is ● Degrees of freedom. The number of made by using a list of random numbers. degrees of freedom of a sample indicates This means that each element in the popula- the number of values that are free to vary tion has an equal chance of being selected, in a random sample of given size. This and also, for a sample size of n, each possible can also be expressed as ‘sample size – combination of n elements has an equal number of statistics calculated". If, for chance of being selected. We shall now dis- example, we have calculated the mean cuss the types of statistics that can be of a sample of n observations, only n-1 calculated from a simple random sample. of those values would be free to vary, First, we need to explain some definitions once we had set values for n-1 sample and the notation used. observations, only one possible value for the last observation would give the ● Continuous variable. A continuous vari- correct mean. able may take any of a range of values. ● Variance. The variance is the sum of For instance, age, examination marks squared deviations about the mean and prices would be continuous vari- divided by the available degrees of free- ables. dom. Thus the population variance is ● Dichotomous variable. A dichotomous given by the formula or binomial variable may only take one n ∑ 2 of two values, for instance yes or no, (Xi Ϫ µ) i=1 male or female. σ 2 = n ● Parameter. A parameter describes some measure of the defined population, for and the sample variance by the for- instance the average time period in mula n planning overseas travel, obtained by ∑ 2 (Xi Ϫ X) adding all the time periods and dividing s2 = i=1 by the number of people included in the nϪ2 defined population. For dichotomous variables this ● Statistic. A statistic describes some becomes measure of the selected sample, and is n ∑ 2 used to estimate the population parame- (Xi Ϫ p) i=1 ter. Thus, if in the above example a s2 = nϪ1 simple random sample of n overseas travellers was selected, the average ● Standard deviation. The standard planned time period obtained by adding deviation is the square root of the vari- these n time periods and dividing by n ance. (total sample) would be a statistic. ● Sampling error. Statistics used to esti- ● Sampling fraction. The sampling frac- mate population parameters are subject tion is the size of the sample divided by to sampling error: the difference the size of the population. between the sample statistic and the Tourism Marketing Research 97

Table 4.5. Symbols used in sampling.

Population symbol Sample symbol

Continuous measures Size of population or sample Nn Mean (or average) µ x Variance σ 2 s2 Dichotomous measures Proportion answering ‘yes’ π p Proportion answering ‘no’ (1 Ϫ π) (1 Ϫ p) or q Variance of proportion σ 2 s2

true parameter, due to the fact that a The mean of this population is 22.22, the sample rather than a census has been variance 33.41 and the standard deviation taken. 5.78. These values can be calculated using Table 4.5 shows the conventional symbols the formulae given. Any good spreadsheet used in sampling. Generally, Greek letters program should have a function to calculate are used for population parameters and Eng- these parameters, and also sample statistics, lish letters for sample statistics. directly. Now, let us select ten random numbers in EXAMPLE. An example will serve to illus- order to take a simple random sample. Say trate the various concepts discussed. The our numbers are 1, 9, 12, 13, 14, 25, 29, 31, following list shows the ages of the 50 young 41, 47. This is a sample of 10 from 50 so our 10 tourists taking a scuba-diving and para- sampling fraction is ⁄50 = 0.2. The ages of gliding holiday. these young holiday-makers are 20, 20, 19, Young tourist Age Young tourist Age 19, 20, 18, 19, 21, 26, 37. The sample mean is no. no. 21.9, sample variance is 32.99 and standard 1202619deviation 5.74. 2192719 3192820 Confidence intervals 4182919The mean of a simple random sample pro- 5203019vides a good estimator of the mean of the 6183121whole population, but it is of course highly 7213220unlikely that it will be exactly equal to it, 8193323due to sampling error. Thus we use an inter- 9203422val estimation of the population mean, i.e. 10 18 35 18 sample mean plus or minus a sampling 11 22 36 18 error. This is known as a confidence inter- 12 19 37 20 val, and the probability that the true 13 19 38 19 population mean lies within this interval is 14 20 39 19 the level of confidence. On the basis that the 15 22 40 20 sample mean calculated comes from a nor- 16 21 41 26 mal distribution, we express confidence 17 18 42 35 intervals as sample mean plus or minus a 18 18 43 42 specified number of standard deviations. 19 21 44 27 The table of areas under the normal curve 20 20 45 30 will tell us the number of standard devia- 21 20 46 32 tions for different levels of confidence. 22 22 47 37 It is common to use a 95% confidence 23 21 48 27 level, whose confidence interval is sample 24 18 49 40 mean plus or minus 1.96 standard devia- 25 18 50 28 tions. Thus for our example, the 95% 98 L. Moutinho

confidence interval would be 21.9 ± research the total population of interest will (1.96ϫ5.74) = 21.9±11.25 = 10.65 to 33.15 be very large, and thus we need not be con- This means that if we took 100 independent cerned about corrections for population random samples and calculated the 95% size. However, for finite populations our confidence level for each, we could expect previous formula for the standard error of the true population mean to lie within that the sampling distribution of the mean needs confidence interval in 95 out of the 100 to be corrected by the finite correction factor samples. We can also talk about the preci- N Ϫ n sion of our estimate of the mean at a 95% , so that our formulae become confidence level, precision being the width N Ϫ 1 of the confidence interval. (In this example, you will see that the confidence interval is σ x N Ϫ n s N Ϫ n σx¯ = and s = very large; we will discuss ways of reducing ͌ x¯ Ϫ n Ί N Ϫ 1 ͌n Ί N Ϫ 1 it when we look at more complex sampling methods.) Thus it is possible with simple random π(1 Ϫπ) NϪn pq N Ϫ n σp = and sp = sampling to measure our sampling error and Ί n Ί NϪ1 Ί n Ί N Ϫ 1 state clearly how accurate our statistics are, something that was impossible with the For large values of N relative to n, the finite non-probability sampling methods dis- correction factor is approximately equal to cussed earlier. Although confidence 1. Thus the correction can be ignored as long intervals are sometimes quoted for results as the sampling fraction is relatively small; a from non-probability samples, such calcula- frequently used rule of thumb in marketing tion implicitly assumes that the sampling applications is only to use a correction fac- procedure yielded a simple random sample, tor if the sample includes more than 5% of an assumption likely to be invalid and cer- the population. If we ignore the correction tainly untestable. factor when we should have used it, we overstate the standard error and thus Effect of sample size on precision increase the size of our confidence interval. A sampling error occurs when the mean X of any individual sample is used as an estimate Non-sampling errors of the population mean µ. For this reason we We must remember that calculation of con- talk about the standard error rather than the fidence intervals only measures sampling standard deviation of the sample mean. The error. If non-sampling errors occur in proba- formula for the standard error of the sample bility sampling procedures, an unknown mean is element of bias is introduced and we cannot n state our results with known accuracy. It is ∑ 2 (Xi Ϫ X) / n Ϫ 1 s Ίi=1 thus critical to control non-sampling errors. sx = = ͌n ͌n Sample size We note that the standard deviation varies We have seen that in simple random sam- inversely as the square root of the sample pling we can calculate the confidence level size, and so will decrease as the sample size of our estimate of the mean sample size, increases, thus also lessening the width of s the confidence interval around the mean using the equation X ± 1.96 at the 95% and increasing the accuracy of our estimate. ͌n Increasing sample size thus improves our confidence level and the precision of the estimation of the population mean. estimate by using part of the equation Preci- sion = ± 1.96 s/͌n. Now suppose we want Effect of population size to reach a given level of precision. If we have So far we have not discussed the size of the a value for s, we can solve this equation for total population. For most marketing the required sample size n. For instance, Tourism Marketing Research 99

suppose that we wish to obtain an estimate, wish to find an optimal sample size. Using at the 95% confidence level, of the mean age, coefficient of variation and relative allow- within 1 year, of a target segment for a new able error, the optimal sample size for a children’s ‘boot camp’ resort. Assume we specific confidence level can be simply read also have a value for s of 5.0. The required off a graph. sample size can then be obtained by substituting in the equation: Difficulties with calculation of optimal sample size Precision = ±1.96s/͌n We see above that to calculate required sam- 1=1.96ϫ5/͌n ple size we need a value of s for absolute precision and a value of s/X for relative ͌n = 9.8 Ϸ10 precision. Although it is unlikely that we n = 100 will be able to cite an exact value for s, researchers experienced in the problem area A sample size of 100 will be required. are likely to be able to obtain fairly accurate estimates. In addition, the scale used in the In this example we have expressed preci- measurement of the variable will set limits sion in the relevant units, years. We call this on the size of s; for example, a 5-point atti- absolute precision. Precision may also be tude rating scale would be likely to have an s expressed as a percentage of the mean value of around 2, and it must certainly be under calculated. Here precision would vary 5. according to the size of the mean, and is For absolute precision the required sam- called relative precision. Using .b to denote ple size will vary directly with the the precision percentage expressed as a dec- confidence level required and the value of s, imal, we can write our equation for a 95% and inversely with the size of precision confidence level as required. In most marketing research studies we would wish to measure many variables, ͌s and so the optimal sample size for each .bX = ±1.96 n would be different. To assure required precision for all variables, we would have to This can be rearranged to make select the largest of all these optimal sample sizes. s .b͌n = 1.96 X Optimal sample size for a proportion Our previous formulae have dealt with the This rearrangement demonstrates that we do measurement of optimal sample size for a not need to know both mean X and standard continuous variable. Now let us look at the deviation s, but only the ratio of the standard corresponding calculations for a dichoto- s mous variable. Assume p = 0.4 and we want deviation to the mean, . This ratio is ± 0.05 as the absolute precision at a 95% X confidence level. Then known as the coefficient of variation. Another ratio often used in practice is the Ί(0.4)(0.6) 0.05 = 1.96 relative allowable error, defined as n 0.5(precision)/mean. For instance, if a researcher will accept an error of 1 year 0.24 (0.05)2 so = and n = 369 either way on a mean age of 10 years, the n 1.96 precision will be ± 1 year = 2 years, and the relative allowable error is 1/10 = 0.1. giving a required sample size of 369. An instrument called a nomograph has In this case we need to know the mean p been developed so that researchers do not in order to determine required sample size. have to solve the equation whenever they However, p is likely to be the value we are 100 L. Moutinho

trying to obtain by carrying out the study. As deals with only one variable at a time. We in the continuous variable case, experience have seen already how the precision of esti- in the problem area and consideration of the mates of one variable is affected by sample measurement scales used can give us rea- size. If we want to examine the relationships sonable estimates of p. between two variables (bivariate analysis), We can see then that the formula for cal- the issue of sample size becomes more com- culation of required sample size relies in plex, and larger sample sizes will be most studies on an initial estimate of the required. If we intend to carry out multi- variables of interest, and thus functions as a variate analysis, examining relationships guide to the researcher in determining opti- between several variables, the general rule is mal sample size, rather than a hard and fast that the more parameters we are estimating, rule. A researcher can assume different pos- the larger sample size we require. However, sible values of X, s, p, etc. and see what there are some multivariate analysis tech- sample sizes are required. niques which can be used with small sample There are several other factors which will sizes, e.g. multidimensional scaling, factor affect the determination of sample size, such analysis, cluster analysis, regression and as the study objectives, cost, time, type of analysis of variance (ANOVA) (see later in analysis planned, and existence and type of this chapter). Other techniques, such as the non-sampling errors. We shall briefly look at AID (automatic interaction detector) model, these now. require very large samples. Thus researchers must have an idea of the analyses they will STUDY OBJECTIVES. Sample size is affected by wish to carry out before deciding on a sam- the use to which the information is to be put. ple size. If precise informational inputs are not required, a small sample may be adequate. NON-SAMPLING ERRORS. Some non-sampling For instance, a company doing a survey to errors will get larger with increased sample determine the level of interest in a new hotel size; for instance, interviewer errors, non- chain magazine might be happy to estimate response errors, data processing and to within 10 or 15%. However, in a survey of analysis errors. Thus decrease in sampling visitation intentions, an estimate which was error may be offset by increase in non- only 1 or 2% out could make the difference sampling error. There is a general between correct and incorrect prediction of perception that studies based on large sam- the result, so a much larger sample would be ples are somehow more credible, but this is required. not necessarily true. The statistical precision quoted may be an accurate statement of COST. Financial constraints may limit the sampling error, but only detailed knowledge number of interviews it is possible to carry of how the study was carried out will reveal out and thus force the sample size down- possible sources, and likely size, of non- wards. Conversely, if the study is well sampling error. financed, researchers must guard against choosing a larger than necessary sample size Stratified sampling just because it can be afforded. We now turn to more complex types of probability sampling, which are more frequently TIME. The larger the sample, the longer the used in practice than simple random sam- study will take. But a long survey time may pling. First we consider stratified sampling, mean that final results are less valid or less the advantage of which is that it may result useful. Sample size may have to be limited in a decrease in the standard error of an so that results are produced in appropriate estimate. time. Sample selection DATA ANALYSIS PROCEDURES. The most basic The first step in sample selection is to divide type of data analysis, univariate analysis, the population into mutually exclusive and Tourism Marketing Research 101

Table 4.6. Comparative results for each stratum.

Mean Variance Standard deviation

Without stratiﬁcation 21.9 32.9 5.74 Stratum 1 19.5 0.86 0.93 Stratum 2 31.5 60.5 7.78

collectively exhaustive subgroups or strata; Stratum 2 (see Table 4.6). The overall sam- that is, each sampling unit will belong to one ple mean is now a weighted average of the and only one stratum. Suitable strata could within-strata means, with the weight for be chosen on the basis of gender, age (with each stratum being the ratio of the popula- mutually exclusive age groups covering the tion size of the stratum to the overall whole span of ages in the population), or population size, i.e. some other suitable variable. Having subdivided the population, an independent A N ∑ Si random sample is selected from each stra- X = Xsi i=1 ΂ N ΃ tum. Stratified sampling will only be of use in where Nsi is the population size within stra- reducing the standard error of an estimate of tum i, Xsi is the mean of stratum i, and A is a variable if the designated strata are more number of strata. homogeneous on the variable of interest In our example this works out to 21.9, than the population as a whole. For that is, exactly the same as the mean calcu- instance, let us return to our young tourist lated without stratification. To calculate the population. This group in fact contains sev- standard error of this mean, we need to use eral more experienced holiday-makers, the formula those numbered 41–50, who are considerably older than the rest of the group. Thus A (W )s ∑ j st.j we can stratify the population into two s x = j=1 groups, less and more experienced holiday- ͌mst.j makers. These two strata are more homogeneous than the whole population on where A is the number of strata, Wj is the the variable of interest, age. weight for each stratum, sst.j is the standard error within stratum j and mst.j is the size of Proportionate stratified sampling sample from stratum j. If we draw samples from each stratum in For our example this works out as proportion to the relative sizes of each stratum in the whole population, this is known 0.93 as proportionate stratified sampling. Let us 2 Stratum 1 sx = = 0.465 so sx = 0.22 try this with the young tourists sample. ͌4 There are 40 less experienced and 10 more 7.78 experienced holiday-makers, so a propor- 2 Stratum 2 sx = = 7.78 so sx = 60.53 tionate stratified sample of 10 will include 8 ͌1 less experienced and 2 more experienced 2 2 so sx = (0.8) (0.22) + (0.2) (60.53) = 2.56 holiday-makers. Conveniently, the sample previously selected is suitable. We may also calculate this directly with- We shall call less experienced tourists out first calculating standard errors within Stratum 1 and more experienced tourists each stratum. The formula then is 102 L. Moutinho

2 mean (because in order to calculate the Nst.j 2 A standard error within a stratum we divide 2 ∑ N 2 sx = sst.j the within-stratum standard deviation by j=1 ΂ nst.j ΃ the square root of the stratum sample size). The optimal allocation of a fixed sample A 2 2 (Wj) s st.j size among strata is the one giving the least = ∑ j=1 nst.j standard error for the overall estimate. Obvi- ously, then, we need to know something For our example this works out as about the variability in strata before we select the sample. The formulae used to (0.8)2 (0.868) (0.2)2 (60.5) + combine within-strata statistics to provide 4 1 estimates for the whole sample are exactly the same as for proportionate stratified giving the same final answer, 2.56. Using the sampling. unstratified sample, the standard error of the mean was 5.67. The use of a stratified sam- Cluster sampling ple has reduced this to 2.56. So far, we have discussed probability sampling methods where each element for the CONFIDENCE INTERVAL. The 95% confidence sample is selected individually. In cluster interval for the stratified sample is 21.9 ± sampling, a cluster of elements is selected at (1.96 ϫ 2.56) = 21.9 ± 5 = 16.9 to 26.9. The one time. Thus, for this method, the popula- unstratified 95% confidence interval was tion must be divided into mutually 10.65 to 33.15. The absolute precision has exclusive and collectively exhaustive thus been reduced from ± 11.25 to ± 5. Thus groups, from which a random sample of a stratified sampling procedure is much groups are selected. Let us return to our more efficient than an unstratified one. The young tourist population and divide them reason for this is that we are only using into ten groups of five, for example: within-stratum variability in calculating the overall standard error, and across strata vari- Group Young tourist numbers ability becomes irrelevant. By using 1 12345 stratified sampling we can increase the pre- 2 678910 cision of our estimates without increasing 3 1112131415 sample size. Alternatively, we could use a 4 1617181920 smaller sample than that used in unstratified 5 2122232425 sampling, to obtain the same precision. 6 2627282930 7 3132333435 Disproportionate stratified sampling 8 3637383940 9 4142434445 It is also possible to allocate the overall sam- 10 46 47 48 49 50 ple size to strata on a basis disproportionate with stratum sizes. The reason for this There are two ways in which we can select a would be to allow for differences in variabil- cluster sample of size 10. For the simpler ity between strata. For a fixed sample size, way, one stage cluster sampling, we would the overall standard error can be reduced by randomly select two of the above groups and sampling more heavily in strata with higher use all the elements in each. For two stage variability. As an extreme case, suppose we cluster sampling, we select groups and then had a stratum in our young tourist popula- select a random sample of elements from tion where the ages of all the holiday-makers within the chosen groups, for instance our were 19. This stratum has no variability, and random selection of groups could be 1, 3, 4, thus a sample of 1 is sufficient to measure its 7, 9, after which we would randomly select mean accurately. Conversely, a stratum with two elements from each group. high variability will require a larger sample The big difference between cluster sam- size to produce an efficient estimate of the pling and simple random sampling is that in Tourism Marketing Research 103

cluster sampling not all combinations of ele- extensively used in practice. We now go on ments in the sample are equally likely. In to discuss briefly various methods of cluster fact, most combinations are impossible. sampling. Thus it is crucial to the success of cluster sampling that the groups are as close as Systematic sampling possible in heterogeneity on the variable of In systematic sampling, every kth element in interest to the heterogeneity of the whole the sampling frame is selected, starting from population. In our example above, this cri- a random numbered element between 1 and terion is clearly not satisfied, as we know k. If we wanted to select a sample of 10 from that groups 9 and 10 contain more experi- our young tourist population, then k = enced holiday-makers who are older than 50/10 = 5. This ratio, number in population the others. If group 9 or 10 (or both) are divided by required sample size, is known selected in our cluster sample, the sample as the sampling interval. So first we would mean will be too high. If neither group is generate a random number between 1 and 5, selected, it will be too low. Either way, bias say 4. Then the sample is obtained by start- has occurred due to the use of cluster sam- ing with the fourth element and taking every pling. fifth element thereafter, so our sample of ten Ideally, groups would be exactly as het- would be the elements 4, 9, 14, 19, 24, 29, erogeneous as the population; this ideal is 34, 39, 44, 49. never reached in practice, but the closer it Given a starting random number and can be approached, the less bias there will sample size, sample selection is automatic, be in our estimates. Thus the criterion for so the selected elements form a cluster sam- forming groups for cluster sampling is ple. As we use all the elements in the cluster, exactly the opposite of that used in forming systematic sampling is defined as a one- strata for stratified sampling. stage cluster sampling procedure. There are The size of the standard error generated only k possible samples that can be selected, from a cluster sample, compared with that e.g. in our example only five samples of ten. generated from a simple random sample, If the population is large relative to the sam- depends on the relative heterogeneity of the ple size, the sampling interval, and thus the groups and the population. If the groups are number of possible samples, will increase. exactly as heterogeneous as the population, It can be shown that the mean of the both methods will give the same standard sampling distribution of means generated by error. If the groups are less heterogeneous taking repeated systematic samples equals than the population, cluster sampling will the population mean. Thus the mean from a give a greater standard error than that systematic sample is an unbiased estimator obtained by simple random sampling. This of the population mean, so confidence inter- comparison of standard errors generated by vals may be calculated as with simple different sampling procedures is known as random sampling. If we are sampling from a assessing the statistical efficiency of the truly random sampling frame, the results procedures. from a systematic sample are likely to be If in practice groups are always less het- almost identical to those from a simple ran- erogeneous than the population, so that dom sample. Systematic sampling is often cluster sampling is less statistically efficient used in practice because it is easier and than simple random sampling, why is clus- cheaper to select a sample systematically ter sampling used? Simply because cluster than by simple random sampling, duplica- sampling procedures are often much tion of elements cannot occur, and it is not cheaper than other procedures for a given always necessary to have a complete sample sample size. The combination of statistical frame. For instance, an interviewer could efficiency with cost is known as overall or select every tenth house without a full list- total efficiency. Cluster sampling is often the ing of houses. Systematic sampling may also most efficient method overall in terms of be used to select elements within strata in standard error per pound spent, and is thus stratified sampling. 104 L. Moutinho

Area sampling whole, so even a small sample may yield a Area sampling was developed as a solution reasonably small sampling error. Clusters to the problems of incomplete and inac- tend to be more heterogeneous (e.g. people curate sample frames. It means that living in different city districts may differ geographic areas, or pieces of land, are selec- greatly in terms of age, income, beliefs, etc.), ted for the sample, and then a further so a large number of clusters is necessary to selection is made from the people who live reduce the sampling error. in these areas. Area sampling usually However, more clusters mean more lists involves more than one stage. Here is an of elements to be made, and higher inter- example of a multistage area sample (four viewer travel costs. Thus consideration of stages): overall efficiency may mean reducing the number of clusters and increasing the num- ● Stage 1. The UK is divided into counties ber of elements selected from each. and a sample of counties is chosen by Researchers must make a trade-off between one of the probability methods. statistical efficiency and cost, based on ● Stage 2. The cities, towns and rural research objectives and budget, and the areas in the chosen counties are listed, amount of acceptable error. thus stratifying each county into three strata. A probability sample is again Probability area sampling selected within each stratum. Often in area sampling, elements do not all ● Stage 3. Each location selected at stage 2 have the same probability of being selected. is further subdivided, e.g. cities into dis- There may be several reasons for this, some tricts, etc. All these are listed and intentional and others not. For instance, a another probability sample chosen. researcher wanting to do detailed analysis of ● Stage 4. All households in the areas cho- some particular subgroup may deliberately sen at stage 3 are listed and a final oversample that subgroup in order to have a probability sample taken from these to large enough sample for meaningful analy- decide on the final sample. sis. Or disproportionate stratified sampling Multistage area sampling is much less statis- may be done at some stage of area sampling tically efficient than simple random in order to reduce sampling error. It could sampling, because of the accumulation of also be found that the cluster sizes used standard errors (one for each stage of the were incorrect (due to new building for sample). The formulae for calculation of example), or that a sample yields a different standard error in a multistage area sample proportion of a particular subgroup to that are too complex for discussion in this book. found in the whole population. In such a In practice, the final sample of a multistage case, weighting of samples will be necessary area sample is often treated as if it had been to achieve unbiased estimates for the whole directly selected from the population, e.g. in sample. Most good computer statistical the case above the selected households analysis packages have a facility for doing would be treated as having been selected this. from a listing of all UK households. Thus the Finally, Table 4.7 shows a comparison of formulae for simple random sampling and the various sampling methods we have con- stratified sampling are used, leading to an sidered, on the basis of four criteria which understatement of standard error. are likely to be of prime importance to a The highest statistical efficiency when tourism researcher. using multistage area sampling is achieved by choosing a large number of clusters (areas) and a small number of elements Multivariate Analysis within each cluster. This is because elements within clusters (e.g. the people living With the growth of computer technology in in a specific district of the city) tend to be recent years, remarkable advances have more homogeneous than the population as a been made in the analysis of psychological, Table 4.7. Summary of sampling methods.

Non-probability samples Probability samples Tourism MarketingResearch

Dimensions Census Convenience Judgement Quota Simple random Stratiﬁed Systematic Area

1. Generation of No No No No Yes Yes Yes Yes sampling error 2. Statistical efﬁciency — — No measurement — The base level High when Somewhat low Low for comparison stratiﬁcation variables work 3. Need for population Yes No No No Yes Yes Not necessary in Only for selected list all applications clusters 4. Cost Very high Very low Low Moderate High High Moderate Moderate to high 105 106 L. Moutinho

Table 4.8. The main multivariate analysis techniques.

Dependence methods Interdependence methods

Multiple regression analysis Path analysis Multivariate analysis of variance Factor analysis Canonical correlation analysis Principal components analysis Multiple discriminant analysis Linear structural relations Conﬁrmatory factor analysis Latent structure analysis Cluster analysis Multidimensional scaling Correspondence analysis Conjoint analysis

sociological and other types of behavioural of measurement used (ratio, interval, ordi- data. Computers have made it possible to nal or nominal). analyse large quantities of complex data There are two basic groups of multivari- with relative ease. At the same time, the ate techniques: dependence methods and ability to conceptualize data analysis has interdependence methods. If the technique also advanced. Much of the increased attempts to explain or predict the dependent understanding and mastery of data analysis variable(s) on the basis of two or more inde- has come about through the study of statis- pendent variables, we are attempting to tics and statistical inference. Equally analyse dependence. Multiple regression important has been the expanded under- analysis, multiple discriminant analysis, standing and application of a group of multivariate analysis of variance and canon- analytical statistical techniques known as ical correlation analysis are some of the multivariate analysis. most important dependence methods. In Multivariate analysis is not easy to contrast, the goal of interdependence meth- define. Broadly speaking, it refers to all sta- ods of analysis is to give meaning to a set of tistical methods that simultaneously variables or to seek to group things together. analyse multiple measurements on each No one variable or variable subset is to be individual or object under investigation. predicted from or explained by the others. Any simultaneous analysis of more than two The most common interdependence meth- variables can be loosely considered multi- ods are factor analysis, cluster analysis and variate analysis. As such, multivariate multidimensional scaling. techniques are extensions of univariate In the following pages a number of multi- analysis (analysis of single variable distribu- variate data analysis techniques are tions) and bivariate analysis discussed and summarized in Table 4.8. (cross-classification, correlation, and simple regression used to analyse two variables). To Benefits of multivariate analysis be considered as truly multivariate analysis, Any researcher who examines only two vari- all of the variables must be random variables able relationships and avoids multivariate that are interrelated in such ways that their analysis is ignoring powerful tools that can different effects cannot meaningfully be provide potentially very useful information. interpreted separately. The multivariate Multivariate analysis methods make it pos- character lies in the multiple variates (multi- sible to ask specific and precise questions of ple combination of variables), not only in considerable complexity in natural settings. the number of variables or observations. This makes it possible to conduct theoret- Like bivariate measures, the appropriate ically significant research and to evaluate multivariate measure depends on the scale the effects of naturally occurring parametric Tourism Marketing Research 107

variations in the context in which they nor- more samples simultaneously. The purpose mally occur. In this way, the natural of multivariate analysis is to measure, correlations among the many influences on explain and/or predict the degree of rela- behaviour can be preserved and separate tionship among variates (weighted effects of these influences can be studied combinations of variables) (Dillon and Gold- statistically without causing a typical isola- stein, 1984). What follows is a brief tion of either individual or variables. description of how some of these techniques Another reason to use multivariate analysis can be used to help analyse tourism market- is to improve the ability to predict variables ing management problems. such as usage or to understand relationships between variables such as advertising and Multiple regression analysis usage. This is a relatively easy procedure that will Tourism managers are interested in build on one’s ability to deal with the sim- learning how to develop strategies to appeal pler cases of univariate and bivariate data. to customers with varied demographic and Predicting a single Y variable from two or psychographic characteristics in a market- more X variables is called multiple regres- place with multiple constraints (legal, sion. The goals when using multiple economic, competitive, technological, etc.). regression are the same as with simple Multivariate techniques are required to regression, i.e.: study these multiple relationships adequately and obtain a more complete, ● describe and understand the relation- realistic understanding for decision- ship making. ● forecast (predict) a new observation The techniques of market segmentation ● adjust and control a process. (see Chapter 5), product positioning and perceptual mapping represent early applica- Multivariate analysis of variance tion of methodologies such as cluster (MANOVA) analysis which are now thought to have When you have more than one quantitative some potential for identifying strategic response variable, you may use the multi- groups. Researchers in the area of strategic variate analysis of variance to study the management are making use of methodolo- differences in all responses from one sample gies that are quite common tools in to another. If, for example, you had three marketing, such as those relating to segmen- quantitative ratings measured for each tour- tation and perceptual mapping approaches. ism service (How friendly does it look? How Methodologies such as multidimensional efficiently is it provided? How well is it scaling, cluster analysis, factor analysis, and explained?) then you could use MANOVA other techniques have been extensively to see whether these measures differ sig- used in market analyses. More recently nificantly according to the main effects of those multivariate analysis techniques have shift (day or night) and supplier. been applied to the study of clusters of competitors, or strategic groups, in order to explore better the dynamics of the market Canonical correlation analysis structure, and define subsequent strategic Canonical correlation is the appropriate moves. technique for identifying relationships Multivariate analyses are widely used in between two sets of variables. If, based on strategic marketing because of the wide vari- some theory, it is known that one set of ety of flexible analytical techniques variables is the predictor or independent set available to analyse large and complex data- and another set of variables is the criterion sets. They can be defined simply as the or dependent set, then the objective of can- application of methods that deal with rea- onical correlation analysis is to determine if sonably large numbers of measurements (i.e. the predictor set of variables affects the cri- variables) made on each object in one or terion set of variables. However, it is not 108 L. Moutinho

necessary to designate the two sets of vari- where an independent variable affects a ables as the dependent and independent dependent variable through a third variable, sets. In such cases the objective is simply to which itself directly or indirectly affects the ascertain the relationship between the two dependent variables. The indirect effect is sets of variables. given by the product of the respective path coefficients. Discriminant analysis A close approximation between the reproduced and original correlations can This involves deriving linear combinations serve as evidence attesting to the validity of of the independent variables that will dis- the proposed model. Essentially, it is criminate between the prior defined groups desired that the reproduced correlations are in such a way that the misclassification error close to the original correlations. When this rates are minimized. Discriminant analysis is true, the hypothesized causal structure is the appropriate statistical technique when under which the reproduced correlations the dependent variable is categorical (nom- were generated fits or is consistent with the inal or non-metric) and the independent pattern of the intercorrelations among the variables are metric. Discriminant analysis variables. Thus, the ability of the hypothe- is widely used in market segmentation, sized model to reproduce the correlation studies of the diffusion and adoption of new matrix R plays a crucial role in assessing the products and consumer behaviour analysis. validity of the model (Dillon and Goldstein, However, enough attention has not been 1984). accorded to the assumptions which underlie its applicability. Factor analysis Path analysis This is usually applied in order to derive a smaller set of factors that are truly inde- Path analysis is a method for studying pat- pendent of each other, and that may explain terns of causation among a set of variables, the intercorrelation among a larger set of which was popularized in the sociological variables. In other words, factor analysis literature (Heise, 1975). Though path dia- aims to summarize the data contained in the grams are not essential for numerical original variables with a minimum loss of analysis, they are useful for displaying information. Primarily it is a tool to reduce a graphically the pattern of causal relation- large number of variables to a few inter- ships among sets of observable and pretable constructs. Factor analysis unobservable variables. Path analysis pro- attempts to simplify complex and diverse vides means for studying the direct and relationships that exist among a set of indirect effects of variables. observed variables by uncovering common The method is not intended to accom- dimensions or factors that link together the plish the impossible task of deducing causal seemingly unrelated variables, and conse- relations from the values of the correlation quently provides insight into the underlying coefficients. It is intended to combine the structure of the data. quantitative information given by the correlations with such qualitative information as may be at hand on causal relations to give a Principal components analysis quantitative interpretation. This method transforms the original set of Path-analytic models assume that the variables into a smaller set of linear combi- relationships among the variables are linear nations that account for most of the variance and additive. A path coefficient indicates of the original set. The purpose of principal the direct effect of a variable taken as a cause components analysis is to determine factors of a variable taken as an effect. Path coeffi- (i.e. principal components) that explain as cients are equivalent to regression weights. much of the total variation in the data as Direct effects are indicated by path coeffi- possible with as few of these factors as possi- cients. Indirect effects refer to the situation ble. It is often used in marketing research as Tourism Marketing Research 109

a basis for providing mathematical descrip- ric independent variables, referred to as tions of attitude dimensions. covariates, can be included. The design is then termed an analysis of covariance Linear structural relations (LISREL) design or covariance structure analysis. An This is a method of structural equation mod- important strength of structural equation elling that allows the researcher to modelling is its ability to bring together psy- decompose relations among variables and to chometric and econometric analyses. test causal models that involve both observ- Structural equation modelling enables one able (manifest) and unobservable (latent) to decompose relations among variables and variables. Path analysis and LISREL models test causal models that involve both observ- are two important analytical approaches for able and unobservable variables. testing causal hypotheses. Essentially, the analyst wants the reproduced correlations to Confirmatory factor analysis be close to the original correlations. The It is also possible to use confirmatory (as LISREL model allows the researcher to eval- opposed to explatory) factor analysis to uate simultaneously both the measurement examine whether a prior expectation of the and causal (i.e. structural) components of a grouping is possible (often using the LISREL system. package). This essentially requires predict- The LISREL model provides an integral ing the assignment (loading) matrix and approach to data analysis and theory con- seeing how well it fits the data. struction. The causal component refers to the hypothesized structural relationships Latent structure analysis between the latent constructs. LISREL can Latent structure analysis is a statistical easily handle errors in measurement, corre- methodology somewhat related to factor lated errors and residuals, and reciprocal analysis and structural equation models, causation. It uses maximum likelihood esti- which can be used as a framework for inves- mation, which is a full information tigating causal systems involving both approach. This means that all the parame- manifest variables and latent factors having ters are estimated simultaneously. With the discrete components. Latent structure anal- maximum likelihood method, the fitting ysis shares the objective of factor analysis function is minimized by an iterative proce- (i.e. first to extract important factors and dure, until convergence is obtained. express relationships of variables with these The measurement model can be descri- factors and, second, to classify respondents bed by two equations, which specify the into typologies). relations between endogenous latent and The latent class model treats the manifest manifest variables and between exogenous categorical variables as imperfect indicators latent and manifest (i.e. observable) vari- of underlying traits, which are themselves ables, respectively. inherently unobservable. The latent class Since the objective of LISREL is to repro- model is only one model in a larger set of duce the covariances as closely as possible, methods subsumed under what are com- if the observed covariances are very low, the monly called latent structure models. Latent residual covariances must be even lower, class models are quite flexible. They provide and a good fit can thus be obtained. LISREL a means for testing (via goodness-of-fit tests) allows for a holistic, more realistic concep- whether a latent factor explains the tion of social and behavioural phenomena: it observed association of interest, the sub- recognizes that measures are imperfect, stantive meaning of the latent variable, the errors of measurement may be correlated, prominence of the manifest variables as residuals may be correlated and that recipro- indicators of latent factors, and how to cal causation is a possibility. assign individuals to the classes of the latent A priori theory is absolutely necessary for factor itself. There is also a close resem- covariance structure analysis. In any blance between certain restricted latent ANOVA (analysis of variance) design, met- class models and some of the LISREL mod- 110 L. Moutinho

els. Latent class analysis begins with a two- structure analysis called MLLSA is available or higher-dimensional contingency table in to marketing researchers. Latent class mod- which the variables making up the table els have great potential and no doubt will be exhibit association. Essentially, latent class used more frequently in marketing inves- analysis attempts to ‘explain’ the observed tigation. However, one of the major association between the manifest variables limitations related to these models concerns by introducing one or more other variables. the estimation problem, which previously When these so-called ‘moderator’ or ‘test’ made this class of models largely inacces- factors are controlled for, the relationship sible to most marketing researchers. This among the original variables making up the problem was later solved by formulating observed contingency tables is one of latent class models similarly to the general mutual independence in each of the condi- framework of log-linear models. tional tables obtained at each level of the test factor. Thus, the basic motivation behind latent class analysis is the belief that the Cluster analysis observed association between two or more This is an important technique which pro- manifest categorical variables is due to the vides a set of procedures that seek to mixing of heterogeneous groups. In this separate the component data into groups. sense, latent class analysis can be viewed as The goal in such applications is to arrive at a data unmixing procedure. This assump- clusters of objects that display small within- tion of conditional independence is directly cluster variation relative to the analogous to the assumption in the factor- between-cluster variation. The goal in using analytic model. cluster analysis is to identify a smaller num- As indicated, the objective of latent class ber of groups such that objects belonging to a analysis is to characterize the latent variable given group are, in some sense, more similar that explains the observed association of to each other than to objects belonging to interest. In practice, this is accomplished by other groups. Thus, cluster analysis estimating the latent class parameters, attempts to reduce the information on the namely: (i) the relative frequency distribu- whole set of n objects, to information about, tion of the latent variable (i.e. the class sizes) say, g subgroups, where g < n. and (ii) the relative frequencies of the One of the major problems in strategic observed variables for each category of the marketing consists of the orderly classifica- latent variable (i.e. the conditional latent tion of the myriad data that confront the class probabilities). Thus, it is hoped that by researcher. Clustering techniques look for estimating the latent class parameters (i.e. (i) classification of attributes or subjects on the and (ii)), the substantive meaning of the basis of their estimated resemblance. Like latent class variable for the research ques- factor analysis, cluster analysis is an tion at hand can be inferred. In evaluating exploratory method that seeks patterns the latent class models several test statistics within data by operating a matrix of inde- and indices of fit can be used. The two test pendent variables. Usually objects to be statistics are the log-likelihood ratio (L2) and clustered are scored on several dimensions the Pearson (X2) x2-statistics. Useful indices and are grouped on the basis of the likeness of fit that can be applied are the symmetric of their scores. The primary value of cluster index of association and incremental fit analysis lies in the preclassification of data, indices. as suggested by ‘natural’ groupings of the A recent extension of the basic latent data itself. The major disadvantage of these class method is the so-called simultaneous techniques is that the implicit assumptions latent class model. With this method, the of the researcher can seriously affect cluster researcher can formulate and test latent results. Cluster analysis can be applied in class models for categorical variables across strategic marketing for clustering buyers, different groups. A very flexible computer products, markets, as well as key competi- program for maximum likelihood latent tors. It has been found to be a particularly Tourism Marketing Research 111

useful aid to market segmentation, experi- with description rather than inference. The mentation and product positioning (Hair et construction of the homogeneous subgroups al., 1994). of competitors is generally based on the (dis- Several questions need to be answered )similarity of companies’ performance rating with respect to a given cluster solution, profiles within an industry. including: (i) how the clusters differ, (ii) Cluster analysis is concered with classifi- what is the optimal (i.e. correct) number of cation. Managers should seek to group clusters; and (iii) how good is the fit of the competitors so that each competitor within a solution for a pre-specified level of clusters? strategic group is more like other members The first question concerns the distinctive- of the group than competitors outside the ness of cluster profiles. The second question strategic group. The objective is to classify concerns the trade-off between parsimony, competitors into a small number of mutually in the sense of fewer clusters, and some exclusive and exhaustive groups based on measure of increase in within-cluster homo- similarities in corporate profile and strategy. geneity resulting from having more clusters Unlike discriminant analysis, the strategic in the solution. The third question concerns groups are not predefined. In fact, the major cluster recovery which can be viewed in objectives of cluster analysis are to deter- terms of the fit between the input data and mine how many strategic groups really exist the resulting solution. This should be high. in the industry and what is their composi- Cluster analysis is a flexible tool that pro- tion. vides a number of opportunities for strategic Having identified a number of underlying management. Cluster analysis can be con- patterns which seem adequately to describe sidered a technique for data reduction. The the principal differences between industry goal in most studies that have used cluster- competitors, managers can classify all the ing techniques is to identify a smaller competing organizations into strategic number of groups such that elements resid- groups. The typical clustering procedure ing in a particular group are, in some sense, assigns each competitor to one and only one more similar to each other than to elements strategic group class. Competitors within a belonging to other groups. strategic group class are usually assumed to Cluster analysis is a generic label applied be indistinguishable from one another. to a set of techniques designed to identify Thus, we assume here that the underlying ‘similar’ entities from characteristics pos- structure of the data which measure the sessed by a group of entities. It aims to competitive set involves an inordered set of summarize associative information in inter- discrete classes. In some cases, we may also dependent data structures. The clusters view these classes as hierarchical in nature, should have high within-cluster homogene- where some classes are divided into sub- ity and high between-cluster heterogeneity classes. and the points within a cluster should be The objective of the utilization of a clus- geometrically close together, while different tering procedure for the definition of clusters should be far apart. Cluster proce- strategic groups of competitors can be stated dures have been found to be a particularly as follows: Managers need to set up a classi- useful aid to market segmentation, experi- fication system which is relevant to the mentation and product positioning. By design of corporate policies and strategies. offering a range of alternative views, cluster This classification should have the follow- analysis can be of utility to strategic manage- ing characteristics: ment. Cluster analysis can be used in this case to define those groups of competitors ● The differences between strategic within a particular industry who exhibit groups defined by the system should be similar strategic behaviour. It is applied here important and large. Small differences to maximize variance between potential stra- are of no consequence because they are tegic groups. Cluster analysis is analogous to not actionable. stratification in sampling and is concerned ● The major strategic groups isolated by 112 L. Moutinho

the system should be large enough. If Once the clusters of competitors are devel- they are not, they will probably not rep- oped, we still face the task of describing resent competitive threats for corporate them. One measure that is used frequently is policy activity. the centroid: the average value of the com- ● If two competitors belong to the same petitors contained in the cluster on each of strategic group, managers should be the variables making up each strategic able to approach both with the same group’s profile. corporate strategy. For researchers in strategic management, there is no substitute for analysis of several Many of the elements in cluster analysis levels within the clustering hierarchy, and procedures were developed on the assump- presenting them as clearly as possible to tion that the data fell naturally into clusters. decision-makers so that the configuration The overall effectiveness of clustering is that most closely fits the needs and capabil- determined by comparing the sum of the ities of the organization can be chosen. The within-cluster variances with the original final clusters of competitors formed, their total variance. The tightness of each strate- usefulness, and even the decisions which gic grouping is indicated by the coefficient managers may make on the basis of them, are of dissimilarity in an inverse relationship. likely to vary with the hierarchical proce- The higher the coefficient, the more dissim- dure chosen. ilar are the competitors within the cluster. With some degree of success, cluster The level of association with a cluster of analysis has been used to aid strategic man- competitors decreases as more companies agement decisions in a number of ways (e.g. join the cluster. In a given cluster, com- market segmentation, product positioning, petitors will usually vary in their strength of etc.), but in all situations, it is one technique membership. among others which are available (i.e. factor The manager should assume that the data analysis, multidimensional scaling, etc.). are ‘partially’ heterogeneous; that is, that It seems that clustering techniques may ‘clusters’ of competitors exist. This type of be useful – in many ways comparable with presupposition is different from the case in the employment of factor analysis – as sys- discriminant analysis where a prior group of tematic procedures for the orderly competitors have been formed on the basis preclassification of multivariate data related of criteria not based on profile resemblance. to strategic groups of competitors. Cluster Given no information on strategic group def- analysis is conceptually a simple idea. inition in advance, the major problems of Partly because of its simplicity, users have use in cluster analysis can be stated as: developed many variations in order to fit their particular needs or inclinations. 1. What measure of intercompetitor sim- Managers can investigate the relation- ilarity is to be used, and how is each ship between the various strategic types and variable to be ‘weighted’ in the con- views towards specific strategic marketing struction of such a summary measure? elements. The purpose is to investigate the 2. After intercompetitor similarities are relationship between the formation of strate- obtained, how are the classes of com- gic groups of competitors and the general petitors to be formed? strategy for the organization, as well as the 3. After the strategic groups have been specific strategic marketing responses asso- formed, what summary measures of ciated with each of the strategic groups each cluster are appropriate in a within the industry. It is important that a descriptive sense; that is, how are the firm is organized appropriately and that rel- clusters to be defined? evant strategies for the particular strategic 4. Assuming that adequate descriptions of group are planned and implemented. Mar- the clusters of competitors can be keting strategists are encouraged to evaluate obtained, what inferences can be drawn the consistency of the relationship between regarding their statistical reliability? the particular market environment and the Tourism Marketing Research 113

resulting strategic groups, and also the con- among the various variables analysed. The sistency between the strategic groups and attitudinal or perceived similarities (or dis- the corporate and marketing strategy ele- similarities) among a set of objectives are ments employed. statistically transformed into distances by It is worthwhile considering organization placing these objects in a multidimensional typology in the context of the relationship space. between strategic organizational types and Multidimensional scaling, especially the development of corporate strategies. non-metric (NMS), has been applied in stra- Competing firms within an industry exhibit tegic marketing in areas such as product patterns of behaviour representative of four position, market segmentation, large-scale basic organizational (or strategic) types: (i) new product development models, the mod- defenders; (ii) prospectors; (iii) analysers; elling and evaluation of buying behaviour and (iv) reactors (Miles and Snow, 1978). and the determination of more effective mar- The key dimension underlying this typology keting mix combinations. NMS may also be is the organization’s response to changing applied in the product development process environmental conditions, that is, the rate at by finding consumer attitudes towards vari- which an organization changes its products ous product attributes. In such applications or markets to maintain alignment with its the technique can (i) construct a product environment. According to Miles and Snow space; (ii) discover the shape of the distribu- (1978), defenders have narrow product- tion of consumers’ ideal points throughout market domains and tend not to search such a space; and (iii) identify likely oppor- outside their domains for new opportun- tunities for new or modified products. ities. Prospectors continually search for market opportunities and tend to be creators Correspondence analysis of change in the industry. Analysers are a This method is a visual or graphical tech- mixture of both, operating in perhaps one nique for representing multidimensional relatively stable and one changing product- tables. It can often be impossible to identify market domain. Reactors lack a consistent any relationships in a table and very diffi- strategy and simply respond to environmen- cult to account for what is happening. tal pressures when forced to do so. Correspondence analysis unravels the table Clustering procedures can then be and presents data in an easy-to-understand employed to determine if the complex com- chart. One approach for generating maps petitive structure in a particular market can uses cross-classification data (e.g. brands be summarized into simpler corporate per- rated as having or not having a set of attri- formance dimensions and whether the butes) as a basis (Hoffman and Franke, different industry players can be grouped 1986). In this approach, both brands and into strategic types. The next stage is to eval- attributes are simultaneously portrayed in a uate the alternative strategic groups and single space. This technique is particularly assess the strength of competition. Multi- useful to identify market segments, track variate analysis provides a valuable brand image, position a product against its framework for decomposing the competitive competition and determine who non- environment and building up a viable pos- respondents in a survey most closely itioning strategy. resemble. While development of this approach continues (cf. Carroll et al., 1986), Multidimensional scaling it has shown promise. Unlike the other multivariate methods, multidimensional scaling starts with infor- Conjoint analysis mation pertaining to perceived similarities This is concerned with the joint effect of two or dissimilarities among a set of objects such or more independent variables on the order- as products, buyers, competitors, etc. The ing of a dependent variable. It is rooted in main objective of using the technique is to traditional experimentation. A definition of obtain a configuration showing the relations conjoint analysis must proceed from its 114 L. Moutinho

underlying assumption that a composition For this study, path analysis was the chosen rule may be established to predict a method since, as has been described briefly response variable from two or more pre- earlier in this chapter, it provides the means dictor variables. Conjoint analysis, like for studying the direct and indirect effects of multidimensional scaling, is concerned variables, by offering quantitative informa- with the measurement of psychological tion on the basis of qualitative data on causal judgements, such as consumer preferences. relations. It seems that various types of marketing It was recognized that some of the vari- planning models and other procedures ables under study were actually directly using judgemental estimates in a formal unobservable (latent) and had at best moder- manner might benefit from the utilization of ate reliabilities. Thus, since it is unrealistic conjoint models in additive or, more gen- to believe that a single indicator can capture erally, polynomial form. Moreover, buyer complex constructs reliably and validly, the preferences for multi-attribute items may authors decided to use multiple indicators also be decomposed into part-worth evalu- and then assess the construct validity of the ations in a similar manner. Potential areas of observable measures. application for conjoint analysis include The model being considered is assumed product design, new product concept to be correctly specified a priori, that is, all descriptions, price–value relationships, atti- of the causal determinants have been prop- tude measurement, promotional congruence erly included in the model. If other causal testing and the study of functional versus determinants of endogenous variables have symbolic product characteristics. The out- been excluded, the assumption is that they put of conjoint analysis is frequently are independent of the ones included in the employed in additional analyses. Since model. Only variables for which directional most studies collect full sets of data at the hypotheses could be developed and trans- individual respondent level, individual lated into causal links were included in the utility functions and importance weights path analysis. Each link represents a theoret- can be computed. This fosters two addi- ically founded hypothesis. Bearing in mind tional types of analyses: (i) market the over-identified nature of the postulated segmentation; and (ii) strategic simulation model, the path coefficients were estimated of new factor-level combinations. through a series of regression equations whereby only those variables assumed to Example of applying multivariate have direct causal effects on a given depend- data analysis ent variables were included as predictors. A specific example of an application of a Subsequently, the non-significant paths multivariate data analysis technique will were removed, and the model re-estimated now be described. It was developed for a in its reduced form. tourism marketing study as described by Insight into the overall performance of the model can be gained by looking at the McDonagh et al. (1992). The aim was to 2 measure the effect of three major environ- coefficients of determination (R ) of the mental factors (exogenous variables), i.e. dependent variables. It should be stressed, however, that the prime purpose of path ● preservation of local landscape analysis is not to maximize R2, but rather to ● preservation of architectural values, trace the consequences of a set of causal and assumptions. ● overcrowding Spurious effects pertaining to the effects of common antecedent variables can be as a direct causal impact on two critical detected in the correlation between the two endogenous variables, i.e. endogenous variables. For example, ‘global ● concern towards a policy of global con- conservation’ and ‘preservation of culture’ servation, and share two common causes: overcrowding ● preservation of cultural values. and preservation of architecture. Tourism Marketing Research 115

Preserve local landscape X1

RX1 X2 = 0.560 PY2 X1 = 0.229

RX1 X3 = 0.488

PY X = 0.416 Overcrowding 2 2 Global conservation eY = 0.664 X2 Y2 2 PY2 X3 = 0.137

RX X = 0.478 2 3 PY2 Y1 = 0.218

PY1 X2 = 0.316 Preserve architecture X3

PY1 X3 = 0.376

Preserve culture eY = 0.646 Y1 1

Fig. 4.3. Path diagram relating single indicators X1, X2, and X3 with Y1 and Y2.

Sample path analysis results matrix and the use of the standardized For England, Scotland and Wales Fig. 4.3 regression weights. presents a path diagram depicting the The ﬁndings provided by path analysis hypothesized relationships between ﬁve indicate that global conservation of the envi- environmental variables: a single indicator ronment is strongly affected by the degree of overcrowding, which itself is highly corre- of preservation of local landscape (X1), a lated with the need for preserving the local single indicator of overcrowding (X2), a single indicator of preservation of architecture landscape and the architectural assests of a particular tourist region or locality. The con- (X3), a single indicator of preservation of cern towards the preservation of cultural cultural values (Y1) and a single indicator of values and identity of a tourist destination is global conservation of the environment (Y2). The implication is that the single indicators highly associated with the protection of historic buildings and monuments, which itself X1, X2, X3, Y1 and Y2 are perfect indicators of their respective latent constructs. should be tied with an effective policy The system of equations corresponding designed to protect the local landscape and to the hypothesized structure for the endog- physical environment, as well as with the enous variables can be written as: control of overcrowding levels. The efforts related to the preservation of the physical

Y1 = py1 x2 X2 + py1 x3 X3 + e y1 environment and nature reserves have a

Y2 = py2 x1 X1 +py2 x2 X2 + py2 x3 X3 + direct causal effect on the policy of global

e y2 conservation of the environment in which the provision of tourist services takes where all variables are expressed in devia- place. tion form. Values for the path coefﬁcients It can be noted that there is a lower causal were obtained directly from the correlation effect coefﬁcient between the concern 116 L. Moutinho

towards preserving architectural values and research is neural networks. This approach assets and the need for a global policy of is based on the working of the brain, which conservation and protection of the environ- is taken to comprise an interconnected set of ment as felt by the sampled English, Scottish neurons. Neural network models attempt to and Welsh hotel managers. Furthermore, the replicate the brain’s own problem solving somewhat low path coefﬁcient found in the processes, whereby input neurons receive measurement of causation between the two direct stimuli which are then fed through a endogenous variables seems to indicate that pattern matching process to produce a con- the need to preserve cultural values and the clusion or response. Pattern matching cultural heritage of a tourist destination, operations translate well into the marketing region or country is not perceived to have a environment, to the extent that we are con- very strong direct causal effect on the global cerned with perceptions, cognition and protection and conservation of the environ- stimuli. The simplest form of neural net- ment. works consist only of two sets or ‘layers’ of neurons: input and output layers. Each Summary of multivariate data analysis input is potentially linked to each output. Multivariate analysis methods will predom- The modelling process involves inserting an inate in the future and will result in dramatic optional number of intermediate layers in changes in the manner in which tourism between the input and output layers. These managers think about strategic problems and layers are the ‘hidden layers’ in that they do how they design their research. The avail- not contain directly measurable variables. A ability of prepackaged computer programs vital feature of the approach is that the for multivariate analysis has facilitated the values of the weights are established by complex manipulation of data matrices that ‘training’, whereby they are induced from have long hampered the growth of multi- example connections. The neural network variate techniques. Most tourism business approach can be seen to have both a statis- problems are inherently multidimensional. tical framework as well as a strong As tourism researchers become increasingly foundation in artiﬁcial intelligence. Candill aware of the multidimensional nature of (1993) provides a useful primer on the sub- their problems, they will use multivariate ject. analysis more and more to help them solve The original inspiration for the neural complex problems. network (NN) approach came from physiol- Not all multivariate analyses need to ogy and psychology. The aim is to work with involve relatively complex and sophisti- a direct analogy of the human brain as a set cated statistical techniques. Relatively of interconnected processing nodes operat- simple multivariate analysis can provide ing in parallel, copying the lower level small business management with a useful computational actions (as opposed to cogni- focus for developing marketing strategies. tive operations) carried out by the brain. Techniques like the ‘importance- Knowledge is acquired by the NN through a performance grid with attribute ratings’ and process of learning from examples presen- other similar multivariate analysis tools will ted to it, and thus NNs can be viewed not be low-cost and easily understood by just in terms of the replication of human research information users. A number of intelligence but also as a mechanism for computer software packages have changed machine learning. Neural networks learn techniques that once were expensive and directly from data using pattern recognition exotic into affordable and regular forms of to simulate human learning and make pre- analysis. dictions. Neural computing attempts to model directly the biological structure of the Neural Networks human brain and the way it processes information (albeit at a somewhat simple level). Another analytical approach that is likely to One implication of neural networks for be increasingly useful in tourism marketing computing technology is that they may offer Tourism Marketing Research 117

new approaches to processes that have not ens the pattern of the neural network been easily susceptible to conventional model. computing, for example, those that involve a Training a neural network involves large element of ‘gut feel’. Typically such building a set of parameters that define the processes require integration of disparate input and output used for training, or re- types of data, including current, past defining input/output for training an (experience) and future data (expectations) existing network. In ‘supervised training’, as well as the use of data that are incomplete. the network is fed training pairs of related Neural computing may therefore provide a inputs and outputs. In ‘unsupervised train- useful tool for strategic management in touring’ it is forced to rely solely on input ism seeking to escape from the simple vectors and learns by means of clustering extension of past trends which traditional methods. Learning depends very heavily on computing processes imply. Neural net- the correct selection of training examples. works have been applied in tourism to solve Learning takes place through a statistically a number of specific problems such as, pos- based procedure of iteratively adjusting the itioning analysis, study of tourist weights. perceptions of product attributes, simulta- It is the purpose of m hidden units to neous positioning and segmentation extract and to compress the information analysis, as well as strategic planning effec- arriving from n input units (m < n). In the tiveness (see Mazanec, 1999; Phillips et al., ‘hybrid’ network, however, the hidden units 1999). share responsibility for only a subset of input units. Advantages An important strength of this method is Neural networks are designed to offer the its ability to bring together psychometric end-user the capability to by-pass the rigid- and econometric analyses so that the best ity of expert systems (ES) and to develop features of both can be exploited. Whereas ‘fuzzy logic’ decision-making tools. Several expert systems are good at organizing authors claim that neural networks provide masses of information, neural networks may the user with the ability to design a decision prove capable of duplicating the kind of support tool in less time and with less effort intuitive, trial-and-error thinking that mar- than can be accomplished with other deci- keting managers typically require. sion support system (DSS) tools. Datasets, rather than rules, are the basis for the development of many neural network models. Limitations Neural networks use structured input While the accuracy of the neural network is and output data to develop patterns that not as high as that of many other DSS, the mimic human decision-making. Input data neural network has the ability to learn from is compared with relative output data for increased input/output facts and the ability many data points. The relationships to address data that other DSS cannot han- between the input data and output data are dle logically. To examine a network’s used to develop a pattern that represents the performance and practical relevance the decision-making style of the user. The same prediction criteria which are custom- development of patterns from data points ary in discriminate analysis may be applied. eliminates the need to build rules that sup- Neural network techniques, in that they deal port decision-making. Unlike the ES that with the inner workings of a process in requires user or knowledge engineer inter- numeric terms, employ what may be termed vention to accommodate variable changes ‘sub-symbolic’ computation and are more within the model, the neural network is difficult to interpret than expert systems. capable of re-training. Re-training is accom- The labelling of the endogenous non- plished through the addition of new input observable variables is somewhat more and output data. The inclusion of additional complex in the NN approach, although the data points weakens, reinforces or strength- interpretation of the interconnected rela- 118 L. Moutinho

tionships between these variables is actually ● the relative attractiveness (profitability) richer in a neural network. of the alternative decisions; As trainability is one of the most useful ● the cost of acquiring the information. properties of neural networks, the problem Tourism managers need to pinpoint the needs to be one that is trainable. A fairly exact types of information needed. In doing large number of training examples is needed so, they should answer the following ques- to sufficiently train the neural network. Neu- tions: ral networks might also involve more computing time. Neural networks are not 1. What type of decisions do you regularly well suited for highly structured problems. make and what information do you However, neural networks have been suc- need for them? cessfully applied in the following marketing 2. What types of special studies do you areas: consumer behaviour analysis, market need? segmentation, pricing modelling, copy strat- 3. What types of information would you egy and media planning. like to get that is currently unavailable? 4. How should the information be repor- Follow-up ted, in terms of both forms and frequency? A research project should not be forgotten 5. What improvements in formation upon completion; in the final stage the ana- would you like to see? lysts should specify follow-up procedures. By itself, though, simply spending money Proper follow-up procedures anticipate on research is no guarantee of useful results. changing conditions or incorrect conclu- Some studies merely verify the obvious: oth- sions that may have been drawn because of ers are performed haphazardly. Whether the erroneous assumptions or other reasons. By research is done internally or contracted performing follow-up studies, possible trou- from outside sources; it is management’s ble spots may be uncovered before it is too responsibility to be in a position to assess a late to take corrective action. research project’s usefulness and to judge whether or not it represents a quality piece How do we determine the value of the of work. This is accomplished by under- information that is collected? standing the nature of objectivity and the If the information does not increase the like- scientific method. lihood of making a good decision, then it is of little value. Information increases the likelihood of going ahead with a success or Conclusion not proceeding with a failure. There are two conditions under which information gen- Regardless of the primary objective of a tour- erally proves to be most useful: ism business, satisfactory profits must be 1. If there is a great deal of uncertainty obtained if the business is to remain finan- concerning what is the best course of cially viable in the long run. It should be action to take. clear that marketing research plays a vital 2. If the alternative courses of action role in ensuring that satisfactory profits are would lead to either substantial losses achieved because it is through marketing or profits. research that a tourism business comes to understand which services will satisfy con- The actual worth of information depends on sumers’ needs and wants. Marketing three factors: research plays an extremely instrumental ● the likelihood of making a correct deci- role in strategy development. The informa- sion on the basis of information tion collected through marketing research collected; can provide valuable information on: Tourism Marketing Research 119

● change in the organization’s environ- executives in small tourism companies are ment; the associated areas of sampling and cost. ● change in competitive offerings; Nevertheless, small companies in tourism ● changes in the organization’s customer should use simple methods of collecting base; and market information, such as marketing intel- ● reactions to new products/services or ligence systems, internal reports, customer product/service modiﬁcations. data-bank, and survey research.

Management’s need for information is ongoing and ever increasing. Marketing References and Further Reading research should be undertaken with a predetermined strategy in mind; it consists of Brunt, P. (1999) Market Research in Travel and planning for, obtaining, analysing and inter- Tourism. Butterworth-Heinemann, Oxford. preting all the facts necessary to make an Candill, M. (1993) Neural Networks Primer, 3rd intelligent decision concerning a particular edn. AI Expert/Miller Freeman, Inc., San problem. It involves systematically obtain- Francisco. Carroll, J.D., Green, P.E. and Schaffer, C.M. (1986) ing and analysing information about a Interpoint distance comparisons in corre- market, such as what tourists want, need, spondence analysis. Journal of Marketing think and feel. The need for solid marketing Research 23 (August), 271–280. information is ongoing for routine and daily Chisnall, P. (1996) Marketing Research, 5th edn. marketing operations in tourism. Objective, McGraw-Hill, Maidenhead, UK. and therefore very useful, information is Dillon, W.R. and Goldstein, M. (1984) Multivari- best obtained by following the marketing ate Analysis – Methods and Applications. research process, which involves following John Wiley, New York. seven steps: becoming familiar with the area Duncan, O.D. (1975) Introduction to Structural and specific definition of the research prob- Equation Models. Academic Press, New York. lem, developing testable hypotheses, Fesenmaier, D.R., O’Leary, J.T. and Uysal, M. determining the specific information that is (1996) Recent Advances in Tourism Market- needed to test the hypotheses, developing ing Research. The Haworth Press, the data collection instrument, acquiring the Binghampton, New York. data, analysing the data, and establishing Frechtling, D.C. (1996) Practical Tourism Fore- follow-up procedures. casting. Butterworth-Heinemann, Oxford. While the involvement in the marketing Hair, J.F., Jr, Anderson, R.E. and Tatham, R.L. research function varies from one tourism (1994) Multivariate Data Analysis, 2nd edn. company to another, practically all firms, of Macmillan, New York. any size, do some marketing research. Mar- Heise, D.R. (1975) Causal Analysis. Wiley, New York. keting research projects are conducted on a Hoffman, D.L. and Franke, G.R. (1986) Corre- broad array of topics by a variety of types spondence analysis: graphical and sizes of tourism organizations. There is representation of categorical data in market- a direct correlation between size of a touring research. Journal of Marketing Research ism company and the size of its marketing 23, 213–227. research department. Kachigan, S.K. (1982) Multivariate Statistical Size of the company, however, is not the Analysis. Radius Press, New York. only determinant. The overriding factor is Kinnear, T. and Taylor, J. (1996) Marketing the anticipated benefit associated with the Research: An Applied Approach, 5th edn. cost of the department; the more extensive McGraw-Hill, Maidenhead, UK. Mazanec, J. (1999) Simultaneous position and and frequent the marketing research analy- segmentation analysis with topologically ses required, the larger are the personnel ordered feature maps: A tour operator exam- and operating budgets. The size of the ple. Journal of Retailing and Consumer department also increases as its tasks Services 6(4) (October), 219–235. become more complex. The two major areas McDonagh, P., Moutinho, L., Evans, M. and Tit- in which doubt and uncertainty exist among terington, A. (1992) The effects of 120 L. Moutinho

environmentalism on the English, Scottish, Pizam, A. and Mansﬁeld, Y. (eds) (1999) Con- Welsh and Irish Hotel Industries. Journal of sumer Behaviour in Travel and Tourism. The Euromarketing 1(3). [This article contains Haworth Press, Binghampton, New York. the full research study from which the exam- Sheldon, P.J. (1993) Destination information sys- ple referred to in this chapter was tems. Annals of Tourism Research 4, extracted.] 633–649. Miles, R. and Snow, C. (1978) Organisational Sudman, S. and Blair, E. (1998) Marketing Strategy, Structure, and Process. McGraw- Research: A Problem-Solving Approach. Hill, New York. McGraw-Hill, Maidenhead, UK. Moutinho, L. and Evans, M. (1992) Applied Mar- Tacq, J. (1997) Multivariate Analysis Techniques keting Research. Addison-Wesley, London. in Social Science Research: From Problem to [Contains a wide coverage of applications of Analysis. Sage Publications, London. techniques and methodologies within the Tull, D.S. and Hawkins, D.I. (1993) Marketing marketing mix.] Research – Measurement and Method, 6th Moutinho, L., Goode, M. and Davies, F. (1998) edn. Macmillan Publishing Company, New Quantitative Analysis in Marketing Manage- York. ment. John Wiley, Chichester. Wasserman, P.D. (1989) Neural Computing: The- Phillips, P., Davies, F. and Moutinho, L. (1999) ory and Practice. Van Nostrand Reinhold, The interactive effects of strategic planning New York. [A good text on neural networks on hotel performance: a neural network anal- and applications, although now somewhat ysis. Management Decision 37(3), 279–288. dated.]

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 (substantially), 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- 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 Segmentation, Targeting, Positioning and Strategic Marketing 125

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: Segmentation, Targeting, Positioning and Strategic Marketing 127

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 psychographic 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 Segmentation, Targeting, Positioning and Strategic Marketing 129

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 questions 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. Segmentation, Targeting, Positioning and Strategic Marketing 131

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 comment’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 Segmentation, Targeting, Positioning and Strategic Marketing 133

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 Segmentation, Targeting, Positioning and Strategic Marketing 135

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 perceptual 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 market, 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 Segmentation, Targeting, Positioning and Strategic Marketing 137

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 generated 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 Segmentation, Targeting, Positioning and Strategic Marketing 139

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. Segmentation, Targeting, Positioning and Strategic Marketing 141

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. Segmentation, Targeting, Positioning and Strategic Marketing 143

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 effectively. 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 Segmentation, Targeting, Positioning and Strategic Marketing 145

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 Segmentation, Targeting, Positioning and Strategic Marketing 147

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 3. Perspectives of product strategies: 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 Segmentation, Targeting, Positioning and Strategic Marketing 149

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 coming 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 capital 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 9. Perspectives of product strategies: 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 differently 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 discrimination 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. Segmentation, Targeting, Positioning and Strategic Marketing 151

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 fixed costs: costs percentage for profit dependent on and fixed 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 profits 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 figure 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 difficult 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 fixed costs, high because of difficulty in fixed 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/flexibility 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 Segmentation, Targeting, Positioning and Strategic Marketing 153

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 profits in the sufficiently 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 difficult 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 profitability will be achieved. Skimming pricing Setting a particularly high Suitable when there is a It is very difficult 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 willing 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 consumer 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, Segmentation, Targeting, Positioning and Strategic Marketing 155

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 provides 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. Segmentation, Targeting, Positioning and Strategic Marketing 157

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) reinforcement 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. Segmentation, Targeting, Positioning and Strategic Marketing 159

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) understanding of the products/services Dimensions of promotion strategies 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 Segmentation, Targeting, Positioning and Strategic Marketing 161

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 packages 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, Segmentation, Targeting, Positioning and Strategic Marketing 163

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 capability, (d) sales promotion assistance, 1. Perspectives on distribution strategies: (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 3. Perspectives on distribution strategies: 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; Segmentation, Targeting, Positioning and Strategic Marketing 165

(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.

4. Perspectives on distribution strategies: References and Further Reading channel-modification strategy Definition: Introducing a change in the existing distribution arrangements on Alford, P. (1998) Positioning the destination product – can regional tourist boards learn from the basis of evaluation and critical private sector practice? Journal of Travel and review. Tourism Marketing 7(2), 53–68. Objective: To maintain an optimal dis- Arbel, A. and Woods, R.H. (1991) Inflation and tribution system given a changing hotels: the cost of following a faulty routine. environment. The Cornell Hotel and Restaurant Associa- Requirements: (i) Evaluation of tion Quarterly (February), 66–75. internal/external environmental shifts: Bennett, M. (1993) Information technology and (a) changes in consumer markets and travel agency. Tourism Management buying habits, (b) changes in the retail (August), 259–278. life cycle, (c) changes in the financial Calantone, R. and Mazanec, J. (1991) Marketing strength, and (d) changes in the product Management and Tourism, Annals of Tour- life cycle; (ii) continuous evaluation of ism Research 18, 101–119. existing channels; (iii) cost/benefit Coad, T. (1992) Distinguishing marks. Marketing analysis; (iv) consideration of the effect Business 14 (October), 12–15. of the modified channels on other Connell, J. (1994) Repositioning Forte hotels port- aspects of the marketing mix; (v) ability folio. English Tourist Board Insights of management to adapt to modified (March), C43–51. Cooper, C. (1994) Tourist product life cycle. In: plan. Witt, S.F. and Moutinho, L. (eds) Tourism Expected results: (i) Maintenance of an Marketing and Management Handbook, 2nd optimal distribution system given envi- edn. Prentice-Hall, Hemel Hempstead, pp. ronmental changes; (ii) disgruntled 341–345. customers (in the short run). Cosenza, R.M. and Davis, D.L. (1981) Family vacation decision making over the family life 5. Perspectives on distribution strategies: cycle: a decision and influence structure channel-control strategy analysis. Journal of Travel Research 2(2), Definition: Takeover by a member of the 17–23. channel structure in order to establish Cravens, D.W. (1982) Strategic Marketing. control of the channel and provide a Richard D. Irwin Inc., Homewood, Illinois, centrally organized effort to achieve pp. 178–181. common goals. Cravens, D.W., Hills, G.E. and Woodruff, R.B. Objectives: (i) To increase control; (ii) to (1980) Marketing Decision Making: Concepts correct inefficiencies; (iii) to realize and Strategy. Richard D. Irwin Inc., Home- cost-effectiveness through experience wood, Illinois. Crouch, G.I. (1994) Promotion and demand in curves; (iv) to gain efficiencies of scale. international tourism. Journal of Travel and Requirements: Commitment and Tourism Marketing 3(3), 109–125. resources to fulfil leadership obliga- Davidson, J.H. (1987) Offensive Marketing or How tions. Typically, although not always, To Make Your Competitors Followers, 2nd the channel controller is a large firm edn. Penguin, Harmondsworth, UK. with market leadership/influence. Dunn, K.D. and Brooks, D.E. (1990) Profit analy- Expected results (vertical marketing sis: beyond yield management. The Cornell system): (i) Increased control; (ii) pro- Hotel and Restaurant Association Quarterly fessional management; (iii) central (November), 80–90. 166 L. Moutinho

Gartner, W.C. and Bachri, T. (1994) Tour opera- Region. Croom Helm, London, pp. tors’ role in the tourism distribution system: 133–160. an Indonesian case study, Journal of Inter- Okoroafo, S.O. (1994) Branding. In: Witt, S.F. and national Consumer Marketing 6(3/4), Moutinho, L. (eds) Tourism Marketing and 161–179. Management Handbook, 2nd edn. Prentice- Hair, J.F., Anderson, R.E., Tatham, R.L. and Black, Hall, Hemel Hempstead, pp. 346–349. W.C. (1995) Multivariate Data Analysis, 4th Pine, B. Joseph II (1993) Mass Customization, The edn. Prentice-Hall, Englewood-Cliffs, New New Frontier in Business Competition. Har- Jersey. vard Business School Press, Boston, Harris, L. (1996) US travel agency automation Massachusetts. survey. Travel Weekly 65, 118–134. Porter, M.E. (1979). How competitive forces shape Hawkins, D.E. and Hudman, L.E. (1989) Tourism strategy. Harvard Business Review 57(2) in Contemporary Society: An Introductory (March–April), 137–145. Text. Prentice Hall, Englewood Cliffs, New Ryan, C. (1995) Researching Tourist Satisfaction: Jersey, 149–161. Issues, Concepts, Problems. Routledge, Lon- Jain, S.C. (1997) Marketing Planning and Strategy, don. 5th edn. South Western College Publishing, Schliessel, M.R. and Chasin, J. (1991) Pricing of Cincinnati, Ohio. services: an interdisciplinary review. The Jenkins, R.L. (1978) Family vacation decision Services Journal 11(3), 271–286. making. Journal of Travel Research 16(4), Sheldon, P.J. (1997) Tourism Information Tech- 2–7. nology. CAB International, Wallingford, Kotler, P., Bowen, B. and Makens, J. (1996) Mar- UK. keting for Hospitality and Tourism. Prentice Simon, V. (1991). When is outbound effective? Hall, Upper Saddle River, New Jersey. Target Marketing 14(11) (November), Lavery, P. (1992) The financing and organization 65–68. of National Tourist Offices. Travel & Tour- Smith, V.L. (1979) Women – the taste makers in ism Analyst 4, 84–101. tourism. Annals of Tourism Research 6(1), Lawson, R.W. (1994) Demographic segmentation. 49–60. In: Witt, S.F. and Moutinho, L. (eds) Tourism Todd, S. and Lawson, R.W. (1991) Family vaca- Marketing and Management Handbook, 2nd tion decision making in New Zealand. In: edn. Prentice-Hall, Hemel Hempstead, UK. Piercy, N. et al. (eds) Preparing Marketing for Lovelock, C.H. (1991) Services Marketing. the New Millenium, vol. 3. Marketing Educa- Prentice-Hall, Hemel Hempstead, UK. tion Group Annual Conference, Cardiff, UK. Lumsden, L. (1998) Tourism Marketing. Interna- Vavrik, U. and Mazanec, J. (1990) A priori and tional Thomson Business Press, London. posteriori market segmentation: tailoring McLellan, R.W. and Foushee, K.D. (1983). Neg- automatic interaction detection and cluster ative images of the United States as analysis for tourism marketing. Cahiers du expressed by tour operators from other coun- Tourisme, Serie C, no. 62. Centre des Hautes tries. Journal of Travel Research 22, 2–5. Etudes Touristiques, Aix-en-Provence. Meidan, A. (1994) Pricing. In: Witt, S.F. and Mou- Wearne, N. and Morrison, A. (1996) Hospitality tinho, L. (eds) Tourism Marketing and Marketing. Butterworth-Heinemann, Managing Handbook, 2nd edn. Prentice- Oxford. Hall, Hemel Hempstead, pp. 354–358. Wells, W.D. and Gubar, G. (1966) The life cycle Middleton, V.T.C. (1999) Marketing in Travel and conception marketing research. Journal of Tourism, 2nd edn. Butterworth-Heinemann, Marketing Research (November), 355–365. Oxford. Whipple, W. and Thach, V. (1988) Group tour Morrison, A. (1989) Hospitality and Travel Mar- management: does good service produce sat- keting. Delmar Publishers, Inc., Albany, New isfied customers? Journal of Travel Research York. 27(2), 16–21. Murphy, P.E. (1983) Perception of attitudes of Zeithaml, V. (1990) Delivering Quality Service: decision making groups in tourists center. In: Balancing Customer Perceptions and Expec- Stabler, M.J. (ed.) The Image of Destination tations. Free Press, New York.

Part Three Functional Management in Tourism

6 Human Resource Issues in Travel and Tourism

D. Nickson

Introduction held one’ (Coupland, 1993: 5). In a more academic vein the collection of essays by To compete with the best, we need to MacDonald and Sirianni (1996) also recog- ensure that . . . people, the industry’s most nizes the challenges of living and working in important resource, perform to the best of a service society which, according to them, their ability (Department of National is characterized by two kinds of service jobs: Heritage, 1996, foreword by Virginia large numbers of low-skill, low-pay jobs, Bottomley, then Secretary of State for and a smaller number of high-skill, high- National Heritage). income jobs, with few jobs being in the The importance of travel and tourism middle of these two extremes. Such a situa- employment in both developed and devel- tion leads labour analysts to ask what kinds oping countries is attested to by the World of jobs are being produced and who is filling Travel and Tourism Council (WTTC), who them. This point is also apparent within the suggest that travel and tourism related activ- travel and tourism industry and it is impor- ities account for 192.3 million jobs, or 8.2% tant at the outset of this chapter to add a of jobs worldwide (WTTC, 1999). However, caveat about the generalizability (or other- while the quantity of travel and tourism jobs wise) of the conditions of travel and tourism is unquestionable, the quality of many of employment throughout the world. Hence, these jobs is of great concern to academics Baum (1995: 151) reflecting the diversity of and policy-makers alike. Thus, despite the employment within the sector notes that: rhetoric of policy-makers and business leaders that people are the industry’s most important asset, many remain unconvinced In some geographical and subsector areas, that such a view is borne out by empirical tourism and hospitality provides an evidence (Price, 1994; Wood, 1997a; Scot- attractive, high-status working environment tish Tourism Research Unit (STRU), 1998). with competitive pay and conditions, For example, Douglas Coupland, the notable which is in high demand in the labour force cultural commentator, has for many cap- and benefits from low staff turnover . . . The other side of the coin is one of poor tured the Zeitgeist when he talks conditions, low pay, high staff turnover, pejoratively of ‘McJob’ which he describes problems in recruiting skills in a number of as ‘A low-pay, low-prestige, low-dignity, key areas, a high level of labour drawn from low-benefit, no-future job in the service sec- socially disadvantaged groups, poor status tor. Frequently considered a satisfying and the virtual absence of professionalism career choice by people who have never (and see also Wood, 1997a: 183–197). © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 169 170 D. Nickson

Clearly, then, organizations and managers in sectors of the travel and tourism industry the travel and tourism industry face real including accommodation, catering, crui- challenges in recruiting, developing and ses, entertainment, recreation, maintaining a committed, competent, well- transportation and other travel-related ser- managed, and well-motivated workforce vices – will seek to aggrandize and ‘talk-up’ which is focused on offering a high quality the numbers of people employed in the ‘product’ to the increasingly demanding and industry. They are seeking greater influence discerning customer. Consequently this over governmental decision-making which chapter will seek to address some of the key is likely to affect the industry, for example, human resource issues that have to be tack- the amount of regulation in the labour mar- led in order that organizations can maintain ket. Consequently these figures are used such an environment. To do so it will criti- advisedly and with some caution and with cally review some of the problems which the recognition that there are no wholly lead many to characterize travel and tourism definitive figures that are accepted by all as a employment as generally unrewarding and true representation of the number of those unappealing, before going on to look at some working in travel and tourism. examples of good practice, important policy For example, Wood (1997b), writing in responses, and models of human resource the context of tourism employment in Scot- management which may offer cause for land sees real difficulties in securing reliable greater optimism in the way people are man- statistical data on tourism employment. He aged within the travel and tourism industry. also notes the flawed interpretation of extant In particular, the chapter will be cognizant tourism employment statistics. Thus Wood of the seminal work of Baum (see especially questions the extent to which jobs can be 1993 and 1995) which, along with academic disaggregated as being created by touristic rigour, also has a clear policy orientation activities, particularly if a wholly inclusive with his advocating of what he terms a ‘new view of what connotes travel and tourism sustainable human resource paradigm’. The jobs is accepted. In that sense, Wood con- extent to which the travel and tourism cedes that there is broad agreement as to the industry is moving towards such an core travel and tourism industries, which approach will be a key theme throughout include: hotel trade; restaurants, cafes and this chapter, although we should begin by similar eating places; public houses and firstly acknowledging the sheer scale of bars; night-clubs and other licensed clubs; travel and tourism employment. other forms of tourist accommodation; tourist offices and similar services; and travel and related sectors, such as travel agencies The Quantity and Diversity of Travel and airport services. (In reality these sub- and Tourism Employment sectors, usually characterized generically as the hospitality industry, are likely to As has been noted it is increasingly widely account for the majority of tourism related acknowledged that travel and tourism is jobs, for example in the UK context the now the largest generator of jobs within the Department of National Heritage (1996) sug- world today and hugely important to both gests that the commercial hospitality developed and developing nations as they industry accounts for 70% of tourism reinvent themselves as service economies. employment.) A consequence of this is that For example, the WTTC (1998) suggested the bulk of academic work on human resour- that by 2000 over 200 million jobs will have ces issues in tourism focuses primarily on been generated by travel and tourism activ- the hospitality industry. ities and that over the course of the next More controversially, according to decade a further 98 million jobs are likely to Wood, other industries which are conven- be created. It is of course unsurprising that a tionally added are: libraries; theatres; body such as the WTTC – a global coalition museums; sport and related leisure provi- of nearly 90 chief executive officers from all sion; and the final and most controversial is Human Resource Issues in Travel and Tourism 171

a proportion of retail employment. Wood’s ● immigration and customs services; critique lies less in the acceptance that a ● local ground transportation; proportion of this employment is reliant on ● the hotel or apartment; touristic activity, and more in the actual ● tour services at the destination; number of jobs that are created by the travel ● companies and individuals selling a and tourism industry. It could of course be diversity of goods and services at the argued that this argument is merely seman- destination (retail, food and beverage, tics, but Wood (1997b: 7) is also concerned entertainment, cultural and heritage, to raise more substantive and searching financial, etc.); questions in his suggestion that: ● emergency services at the destination (medical, police, legal); and in a country like the UK where tourism has ● service providers on return (photogra- been frequently viewed as a panacea for phy processing, medical). employment decline in manufacturing, all- inclusive definitions of tourism and Baum characterizes all of these possible tourism potential raise unrealistic hopes intermediaries, and the interactions they that the quantity and quality of jobs in will have with the holiday-maker, as crucial tourism industries can, in the short-term, in ‘making or breaking the tourist experi- compensate across the economic board for erosion of the nation’s manufacturing base. ence’. Thus while the physical product is important, for most tourists the quality of This is clearly a controversial contention their experience is likely to be also reliant to and one that will be addressed throughout a large degree on the interactions they will this chapter. have with the variety of front-line staff in the At this juncture, however, the important travel and tourism industry. These so-called point remains that travel and tourism is a ‘moments of truth’ (Carlzon, 1987) are there- key source of employment in both devel- fore crucial for organizational effectiveness, oped and developing countries. Moreover, success, competitiveness and profitability. within the broad classification of travel and Indeed, within an industry that is charac- tourism, there is massive diversity in the terized by diversity and heterogeneity in types of jobs generated, in relation to their terms of the purpose, size, ownership and technical and skills demands, educational demands of the enterprise, the only real requirements, terms and conditions and the point of homogeneity is delivering service to type of person that is likely to be attracted to customers and the need to manage people in employment in them (Baum, 1993). To fur- such a way that they offer a quality service. ther illustrate this we should note Baum’s The corollary of this would be the belief that (1997a: 97–98) description of the range of such front-line staff would therefore be suf- people that a person buying a package holi- ficiently well paid, trained and motivated to day is likely to interact with (this also nicely offer outstanding service. The reality, how- illustrates a more inclusive view of tourism ever, is that often such staff have the lowest generated employment, i.e. both direct and status in the organization, are the least indirect tourism employment contra trained, and are the poorest paid employees Wood): of the company. To begin to assess the implications of such a situation we can now move ● the retail travel agent; on and examine the vexed question of the ● insurance companies; perceived quality of much travel and tour- ● ground transport to and from the air- ism employment. port; ● at least two sets of airport handling agents (outbound and return); ● airport services (shops, food and bev- The Quality of Tourism Employment erage outlets, bureaux de change) (outbound and return); As we have already noted there is consider- ● the airline on all legs of the journey; able diversity within both geographical and 172 D. Nickson

subsectoral aspects of travel and tourism that ‘the development of a tourism industry employment and in this sense the discus- creates new employment opportunities’, he sion contained here can only be thought of nonetheless goes on to recognize that ‘critics as a ‘snapshot’ of some key issues in the way of the industry contend that tourism pro- that organizations manage their human vides primarily low-paying, low-skilled jobs resources. Despite this we can contextualize which are demeaning’ (Choy, 1995: 129). As our debate by recognizing what Baum (1993: a result he is concerned to assess these 9–10) has termed a number of complex and issues within the milieu of Hawaii, which interrelated ‘universal themes’ in interna- may be particularly apposite as direct tional tourism which are of concern to both employment in the Hawaiian tourist indus- human resource professionals within the try accounts for approximately a quarter of industry and academics researching and total civilian employment. Accordingly, writing within this area. These themes are Choy seeks to investigate four commonly likely to be apparent to a greater or lesser held beliefs about tourism employment, extent according to the enterprise or destina- these being: tion context. 1. Tourism generates primarily low- ● Demography and the shrinking employ- skilled jobs. ment pool/labour shortages, 2. Tourism generates low-paying jobs. particularly in the developed countries 3. Tourism jobs do not offer high levels of in Western Europe, North America and job satisfaction. the so-called Asian ‘tiger economies’. 4. Tourism offers limited opportunities ● The tourism industry’s image as an for advancement for local residents. employer. To explore these issues Choy focused upon ● Cultural and traditional perceptions of the industry. three sectors of the travel and tourism industry, namely: air transportation, ● Rewards and benefits/compensation. ● Recruitment, retention and staff turno- hotels/lodging places and eating/drinking places. ver. ● Education and training, both within colleges and industry. Skill levels ● Skills shortages, especially at higher On the question of the skill levels of tourism technical and management levels. jobs, Choy argues that the predominance of ● Linking human resource concerns with hotels, and eating and drinking places tends service and product quality and espe- to drive the perception (and arguably the cially a limited recognition of the reality) of the tourism industry as relatively importance of human resource develop- low-skilled, although Choy does extrapolate ment in the provision of high quality figures from the Hawaii Department of Labor products and services. and Industrial Relations to suggest that ● Poor management and planning infor- around 30% of occupations in this category mation about human resource matters are supervisory and/or skilled occupations. in the tourism industry. Indeed, these figures reflect the work of ● The tendency to develop human Riley (1991) on the skills profile of the Brit- resource policies, initiatives and reme- ish hotel and catering industry, which also dial programmes that are reactive to has 30% supervisory and (skilled) craft jobs, what is currently happening rather than along with 6% managerial jobs; the remain- proactive to what is likely to occur. der are semi- or unskilled operative positions. However, Baum (1997b) offers an A number of these issues can be seen to alternative view of the nature of semi- and underpin the questions posed by Choy unskilled work within the hospitality indus- (1995) in his seminal work on the quality of tries of developing nations, and cogently tourism employment. Having firstly noted argues that subjective Eurocentric views of Human Resource Issues in Travel and Tourism 173

skill levels are inapplicable to developing consumer demand across large and countries, where most tourism employment small time periods. (and particularly that provided by multi- ● Cost pressures induced by competition. national companies) is likely to involve a ● A reliance on vulnerable and so-called relatively high level of ‘skill’, status and job ‘marginal’ (Wood, 1997a) workers. For security. Nonetheless, Riley (1993: 48) has example, drawing on sections of the suggested that generally a consequence of labour market who have little bargain- the predominance of semi- and unskilled ing power, such as young people, jobs, and the low entry barriers to employ- students, married women returning to ment that this creates, is that ‘tourism often work and ethnic minorities. finds itself awash with newcomers’. In addition, this means high levels of on-the-job Despite these fundamental features the pic- training are required which are costly to the ture is again one of diversity between organization, especially in tandem with regions and subsectors. For example, Choy high levels of labour turnover. Moreover, (1995) found that in the context of Hawaii Riley also suggests that a further effect of within air transportation the average annual this low skills base is a tendency for the wage was $29,621, in hotels it was $18,571, industry to be low paid, and these pressures and in eating and drinking places $11,092, for low pay are also exacerbated by several this is compared with an all-industry aver- fundamental structural features of the age, excluding government, of $22,235. industry, a point to which attention now Moreover, within other service sector occu- turns. pations, hotels came fifth out of thirteen occupations, while eating places would have been next to bottom, although Remuneration and reward strangely they were not included within The International Labour Office (1989) Choy’s figures. Similarly Baum (1995) has (cited in Baum, 1995) and Riley (1993) out- noted that within the travel sector there is line a number of structural features of the considerable disparity, with many airline tourism industry which are likely to have staff being reasonably well remunerated, downward pressure on wage levels, the and indeed arguably the highest paid oper- most important of these are: ative staff throughout the travel and tourism industry are flight crew staff. Equally, ● Small unit structure of the industry. The though, he recognizes that within travel industry in most countries is highly agencies and tour operators, the predom- fragmented and heterogeneous, being inately young female staff are poorly an amalgam of small to large businesses. remunerated, although to an extent this may However, the majority of businesses are be a quid pro quo for perceived additional small and medium sized enterprises benefits in relation to travel opportunities, (SMEs). For example, in the UK, busi- uniforms and a generally pleasant working nesses with 1–10 employees make up environment. 85% of hospitality establishments Baum (1995) does, however, concede that (HTF, 1999). These figures are repli- within hotels and catering levels of remu- cated throughout the European Union neration and reward are generally low and (EU), with Downes (1997) citing Euro- this is supported by a range of empirical stat – the European Commission’s evidence. For example, the UK’s Depart- statistical service – who estimate that ment of National Heritage (1996) suggested businesses with nine or fewer employ- that average gross earnings in the hospitality ees, so-called ‘micro-businesses’, industry in the UK are 40% lower than the account for 96% of accommodation and service sector average, and that gross earn- catering businesses in the EU. ings within retail, which shares common ● Fluctuations in levels of business activ- characteristics of having many low or ity. There is constant fluctuation in unskilled workers, were 20% higher than 174 D. Nickson

those in hospitality (and see STRU (1998: and retail operatives. Clearly, then, we are 94–111); and Wood (1997a: 46–62) for a ill-advised in seeking to portray a wholly more comprehensive review of these definitive view of remuneration levels issues). As low pay is often cited as the throughout the travel and tourism sector. primary reason for people leaving an However, on balance it would seem sensible employer in the hospitality industry, low to acknowledge that low pay does remain a levels of remuneration can be seen to play a major and enduring problem in a number of key role in high levels of labour turnover. subsectors and regions throughout the This has a range of attendant costs to the world and plays a key role in sustaining a organization, such as lost productivity, loss generally negative view of many areas of of customer service skills, time taken to train tourism employment. and inculcate new members of staff to the organizational culture and the possible loss Levels of job satisfaction of repeat business, as regular customers like The third area which Choy (1995) sought to to see familiar faces. address was the level of satisfaction within There is an interesting issue which arises tourism industry jobs. To do this he utilized from this discussion of remuneration within a state-wide tourism impact core survey, the travel and tourism industry and relates which was undertaken in 1988 to collect back to the point raised by Wood (1997b) residents’ perceptions and attitudes towards about the classification of tourism-related tourism. Of the respondents to the survey, employment and in particular a possible 824 indicated that their primary jobs were in disjuncture between hospitality and tour- the tourism industry and Choy reported that ism employment in terms of its level of ‘the large majority, 88%, of tourism industry ‘glamour’. Part of Wood’s concern lies in the workers were satisfied with their jobs’ perception that non-hospitality-related (Choy, 1995: 134). However, there is little tourism employment may be perceived as detail as to why these workers were sat- having a more positive image than hotel and isfied, although we could infer that catering employment (Wood, 1996) and satisfaction implies that workers were prima facie this would appear to be true happy with both extrinsic and intrinsic from the foregoing discussion on levels of aspects of their jobs. We have already briefly pay. However Baum (1996: 1–2) refutes this discussed the most important extrinsic argument with his contention that: aspect of tourism employment, i.e. remuneration, so we should now examine some intrinsic elements of tourism employment . . . it is simplistic to suggest that all work in the hotel and catering area suffers from that could conceivably engender a sense of negative perceptions and reality, while all satisfaction in employees. Indeed, a key part work in tourism is glamorous and devoid of of Baum’s (1995) sustainable human problems with respect to remuneration and resource paradigm is a belief in the super- related matters . . . Tourism also includes iority of intrinsic over extrinsic motivation much work that is low paid and in the workplace. exploitative in character, factors both of the The Department of National Heritage small business environment of much (1996) suggested that in order to pursue a activity and of . . . the weak internal labour ‘virtuous circle’ organizations need to have a market characteristics of the sector. long-term commitment to excellence and customer satisfaction, and their employees To exemplify this point Baum outlines a are the key to success within this process. range of non-hospitality travel and tourism Thus, having recognized that excellent jobs which are likely to suffer from low pay employers will pay above the industry aver- and poor conditions such as: beach vendors, age wage, and provide other benefits such as deck chair hands, tour operator representa- pension schemes, Save As You Earn tives at resort destinations, time-share schemes, employee discounts, etc., the salespersons, bingo hall callers, entertainers report goes on to suggest a number of other Human Resource Issues in Travel and Tourism 175

employment practices (which are currently and share responsibilities, resources seen in a range of travel and tourism organi- and expertise in areas such as training zations including BAA plc, British Airways, and career development. Center Parcs, Granada plc/Forte Hotels, ● Recognizing the key role of the unit McDonald’s, Novotel, The Tussauds Group manager, so excellent organizations put and Whitbread) that recognize the impor- particular emphasis on managerial tance of intrinsic rewards. These are recruitment, training and development (Department of National Heritage, 1996: in order that a manager can have the 19–21): confidence to run their unit autono- mously and act as an ‘intrapreneur’ in ● Motivating and involving the staff in the running their ‘business within a busi- business and communicating with ness’. them, for example, ‘away days’ to discuss key issues: one employer entrusted Implicit within many of these suggestions is his staff with developing an organiza- the notion that the organizations to which tional mission statement, paying staff to these approaches are most applicable are sample products offered by other com- likely to be large organizations. This reflects panies, and empowering staff to have an enduring strand to the debate about the the confidence to contribute to the run- adoption of progressive human resource ning of the organization and the management techniques by travel and tour- willingness to take decisions (and see ism organizations. In particular, due to the Lashley, 1997). very fragmented nature of the industry and ● Recognition and the need for positive the preponderance of small firms, there are a feedback, for example, passing on pos- number of difficulties in addressing prob- itive feedback from customers to lems such as recruitment difficulties, employees and also having a well- shortages of skilled and qualified staff, rela- designed appraisal system which can be tively low pay and high staff turnover. Thus, useful in building trust between the much of the work which reports on good employee and the organization. practice is often reported in relation to larger ● Making jobs more interesting by the use organizations and less so in SMEs (see, for of techniques such as job rotation, job example Price, 1994). Furthermore Lucas swap days: one company lets front-line (1996) opines that proprietors and partner- staff swap with head office staff to avoid ships, which make up a significant number an ‘us and them’ situation – and multi- of hospitality and tourism organizations skilling to create greater interest and throughout the EU, are the least likely to be variety for staff, and greater labour flex- aware of both national and supranational ibility for the organization. legal standards that are seeking to proscribe ● Understanding the importance of team- unscrupulous employment practices and working, for example, formally also more proactively encourage the devel- assigning workers to a team can encour- opment of good practice. age a sense of belonging for employees Clearly, there is the potential for a dichot- and increase feelings of loyalty within omous approach to the development of the team. human resource capital between large and ● Turning jobs into careers and, although small organizations particularly in the sense this is easier for larger organizations that many smaller firms will not have the which can encourage a strong internal means to develop their employees or to sus- labour market by promoting from tain a progressive approach to human within, it is also something which resource management; although, impor- smaller firms can address. For example, tantly, good practice does still exist within STRU (1998) notes that within a number small firms (STRU, 1998). However, while of countries an effective response from the employment experience of those work- small businesses is to seek collaboration ing in a major airline, international hotel 176 D. Nickson

group, theme park or large heritage organiza- a localization strategy, lies at the heart of Go tion may be characterized as being and Pine’s impressive review of the global qualitatively different, the multinationality hotel industry. of many of these organizations might in In summary, we have reviewed a number itself pose a range of entirely different prob- of key areas within travel and tourism lems and this is the issue that concerns Choy employment to assess the question of (1995) in his ﬁnal theme concerning the whether the quality of this employment is, advancement of local residents. in simple and rather value-laden terms, ‘good’ or ‘bad’. As we have already noted Advancement opportunities for local there can be no universal truths about residents human resource management within the The key point arising from Choy’s discus- travel and tourism industry and instances of sion of the possibilities for advancement for both good and bad practices abound. Not- local residents is the recognition that with withstanding that, the balance of academic the globalization of the travel and tourism evidence suggests that there are still major industry there is an increasingly major role and signiﬁcant issues to be faced by the played by multinational companies (MNCs). travel and tourism industry and we can now The corollary of this is that as they locate turn our attention to policy responses which themselves throughout the world, MNCs have sought to develop innovative strategies face choices in their utilization of parent to address some of these issues. country nationals (PCNs), host country nationals (HCNs) or third country nationals (TCNs). Within the Hawaiian context Choy Responding to the Issues: the Policy found that despite the increasing number of Dimension foreign owned MNCs operating within Hawaii the opportunities for advancement for local residents remained encouraging. Policy responses to the diversity of human Thus, within both the airline and hotel resource issues in travel and tourism are industries, which are more likely to have most effectively presented through illustra- international organizations operating tions of existing approaches and practices, within these sectors, Choy found that over and Baum (1993: 17–20) provides a frame- 50% of managerial/administrative staff work (and examples) which delineates were local residents. Obviously we cannot responses at the level of the individual busi- generalize on the basis of these results, and ness and also within local, national and the situation elsewhere may be wholly dif- regional (i.e. transnational) frameworks ferent as MNCs may be over-reliant on the (readers are also directed to the WTTC’s use of expatriate labour. Nonetheless good series, Steps to Success, which reports on practice would support the development of The World Travel and Tourism Human local residents by travel and tourism MNCs Resource Centre’s global database of good as far as this can reasonably be achieved. For practice in travel and tourism human example, a declaration from the Organiza- resource development, and see Boxes 6.1 tion for Economic Co-operation and and 6.2). We can assess these in turn by Development (OECD) on how multination- examining some recent initiatives that have als should develop their industrial relations emanated from both public and private sec- strategy in host countries’ states ‘that MNCs tor sources. should, to the greatest extent practicable, utilize, train and prepare for upgrading, Individual business members of the local labour force’ (cited in Baum suggests a variety of initiatives which Go and Pine, 1995: 218). Indeed, the need for individual enterprises may adopt. These MNCs to respond to particular socio- include: cultural, economic and environmental needs at the local level, via the pursuance of ● Localized recruitment campaigns, tar- Human Resource Issues in Travel and Tourism 177

Box 6.1. Case example: Re-engineering from the bottom up.

This case reports on how Sofitel (the luxury hotel brand of Accor) North America sought to reengineer their hotels in the United States to place greater emphasis on customer satisfaction. In seeking improvements in quality, service, profitability and employee satisfaction, senior management realized that employee support was crucial to the process of re-engineering. To encourage trust, Sofitel asked for volunteers for the programme, ‘reasoning that staff who were eager to make improvements could act as ‘‘ambassadors’’, and bring new thought processes and procedures to their peers’ (p. 21). This process of volunteerism and allowing employees to speak their mind meant that the group was able to evaluate a number of systems and procedures in the hotels and how these could be improved. Consequently, over a 3-year period employees were encouraged to, among other things, analyse problems, develop options and modify employee behaviour so they felt empowered to make decisions that would benefit the guests. Moreover as the suggestions for how to improve customer responsiveness originated from employee level, peer resistance within departments was low. The report details how over the 3-year period Sofitel saw its customer satisfaction grow, from an average of 82 to over 90%. This growth in customer satisfaction was also mirrored in increased employee satisfaction, with labour turnover decreasing from 58 to 39%, which is well below the industry average for the USA. A further spin-off of creating this high trust, no limit for what can be done for the customer environment, was increased morale and a large number of employees receiving promotions. As the WTTHRC comments, at the heart of the success of this re-engineering process was management’s realization that front line employees needed to believe in themselves and the company’s commitment. This was encouraged by allowing employees to feel ‘they had a stake in the redesign process which created an atmosphere in which training could be implemented successfully’ (p. 22).

Source: WTTHRC (1998, pp. 21–22).

geted at speciﬁc groups of potential ment of a dedicated training centre to meet employees, for example, married the skills needs of new theme parks near women. Paris by AFPA, the French adult training ● Local transport, accommodation and agency. Welch (1996) also reports on agi- child-care schemes so as to attract tation in the UK by the Joint Hospitality employees who may, otherwise, be Industry Congress (JHIC) – an umbrella body unable to work for the company. for the industry’s leading trade and profes- ● Flexible rosters and shifts in order to sional associations – to encourage greater meet employee needs. local cooperation between smaller and ● Enhanced beneﬁt packages. larger organizations, for example, allocating ● Changes in product, designed to reduce places to people from small family-run labour costs, often involving reducing enterprises on larger companies’ training service levels and de-skilling, a process courses at a reduced or affordable cost. now commonly characterized as McDo- naldization (Ritzer, 1996). National initiatives ● The use of technology as part of labour- These are apparent within an organiza- saving initiatives. tional, industry and political/legislative ● Enhanced in-house training pro- context. At an organizational level Baum grammes. notes the emergence of large corporate training facilities that seek to address the Local initiatives national, and increasingly international Baum notes various examples such as col- human resource needs of travel and tourism lective employer action or the provision of MNCs such as McDonald’s and Disney. public monies that resulted in the establish- Accor, the French travel and tourism trans- 178 D. Nickson

Box 6.2. Case example: Competency models for employee hiring and management skill transfer.

This case reports on how Miami-based Royal Caribbean International, the world’s largest brand cruise line, sought to improve skill transfer at management level. As cruising is a relatively new industry, most Royal Caribbean International managers have acquired skills from a variety of other industry-related training. By working together the human resource personnel and successful managers were able to develop management competency models which are now used for skill assessment, skill development, and to communicate expectations at the management level. To further aid in skill development, key success factors were identified which are considered essential for the future. Within this framework the company introduced The Wilson Learning Success Skills 2000 programme, which allowed for an assessment of individual manager knowledge and skills in relation to their job. Furthermore the Leadership Practices Inventory was then applied to evaluate individual leadership practices. As the report notes ‘By comparing working skill sets with current leadership practices, it was possible to define areas where managers might improve their ability to transfer skills to employees’ (p. 27). To encourage ongoing learning Royal Caribbean has expanded its management-training programme by offering skill-training sessions throughout the year. This action- learning model, called Foundations for Success, focuses on management skill development, and is targeted at four levels of management: the new supervisor; the experienced supervisor; the new manager; and the experienced manager. The success of this process is evaluated after a full year, again using the Wilson Learning Success Skills 2000 assessment process. This process of evaluation has shown significant increases in skill development at the management level with the company. The success of managers is recognized with certificates of achievement and a once a year company- wide celebration acknowledging all programme participants. The basic underpinning of this model is the belief that by sharing personal leadership experiences which have been successful within Royal Caribbean and drawing on accepted good practice outside the company, Foundations of Success allows for the development of a variety of perspectives, which the company considers necessary for success. As WTTHRC comments ‘What tourism businesses can gain from Royal Caribbean’s example is the joint partnership developed between department heads and human resources. Establishing goals that meet the organization’s objectives ensures that accurate skill sets and competency models can be developed’ (p.27).

Source: WTTHRC (1999, pp. 26–27).

national, have also established the managers to meet each other; to exchange impressive Accor Academy. This self-styled management techniques and ideas; to pre- ‘School of Service’ offers training in man- pare for the group’s future; and to promote agement techniques, service marketing, the concept of a chain (Accor Press Pack, quality management, administration and 1996). new techniques and each year the Academy At the industry level, concern over skills trains over 15,000 Accor employees. Partic- shortages in the UK tourism and hospitality ularly noteworthy is the ‘Vive en Accor’ industry has led to a new campaign to attract seminar which is targeted at newly pro- the brightest school leavers into the indus- moted and newly hired Accor managers. try. Called ‘Let’s Make it First Choice’, the The seminar introduces managers to the campaign seeks to address what it considers Accor Group and fosters adherence to its ‘myths’ about low pay and long hours and corporate values, and encourages managers instead presents a more upbeat view of the to keep ‘l’esprit Accor’ alive in their teams. tourism and hospitality industry as offering Also the ‘Accor Summer Academy’ seeks to ‘exciting’ career prospects. This will involve engender a longer-term and more proactive senior managers in the industry visiting the approach in bringing together 200 managers top 400 schools in the UK three or four times from around the world to explore strategic a year to talk about careers in tourism and management issues. Thus the ‘Summer hospitality in the hope of encouraging tal- Academy’ has four key objectives: to enable ented young people into the industry as a Human Resource Issues in Travel and Tourism 179

first choice and not as a last resort (Shrimp- dence from the USA and EU remains mixed ton, 1996). in relation to the effects of minimum wage A further noteworthy national initiative legislation on tourism and hospitality (which has been successfully disseminated employment. For example, STRU (1998: internationally as good practice) is the Cana- 104), in their review of best practice training dian hospitality programme ‘SuperHost’, and education for tourism, note that despite which was introduced in British Columbia the existence of a federal minimum wage ‘a in 1985 to support the growth of tourism vast number of qualitative studies of hotel around the World Expo in Vancouver. The and catering employment in the USA sug- programme’s excellence is recognized inter- gest that far from being service-oriented, nationally, and tourist agencies in England, ‘‘happy’’ workers, most workers view their Wales, Scotland, New Zealand, Australia, jobs as degrading, stressful and poorly Alaska, Ontario, New Brunswick, Nova Sco- paid’. tia, Prince Edward Island and In relation to the EU, the existence of Newfoundland all have licence rights for either a government sponsored statutory SuperHost. For example, The English Tour- minimum wage, or a de facto minimum ist Board (ETB) became involved in 1992 wage fixed by collective bargaining mecha- and has subsequently added three more ele- nisms, means all other EU countries have ments to the initial Welcome Host which minimum wage protection (IDS, 1998). sought to enhance customer care within Allied with what Wood (1997a: 186) calls travel and tourism organizations by improv- ‘high levels of cultural acceptability’ of touring interpersonal communication ism and hospitality employment across techniques and customer service skills. Europe (especially in countries like France, These new varieties are Welcome Host Inter- Germany and the Scandinavian countries), national which is more oriented towards the high relative value of pay within a num- overseas visitors, Welcome Management ber of EU countries arguably means a more which trains managers in the best use of meaningful employment experience for their front-line staff and finally Welcome All those working within the tourism sector. which was launched in November 1996 and Rather less controversially governments focuses on the needs of disabled and special have the ability to substantially influence needs customers. the provision of support for in-company In the legislative context an interesting training. In this way in a number of coun- example is the enactment, for the first time, tries a range of training initiatives has been of statutory minimum wage legislation by developed and widely promoted in order to the UK government. The government argues encourage greater commitment to training that the legislation will have a major bene- and staff development and improved skill ficial effect on pay levels and morale within levels. For example, within the UK context, the UK tourism and hospitality industry. such initiatives have been particularly use- Although there is much concern within the ful within the tourism industry due to the UK tourism industry about the possible existing low skills base, and include the effects on the competitiveness of the indus- National Vocational Qualification (NVQ, try and the potential for job losses with the S(cottish) VQ north of the border), a introduction of the minimum wage, Chris workplace-based accredited qualification Smith, the Secretary for Culture, Media and which ranges from the level one foundation Sport (previously known as the Heritage course to senior management level, which is Secretary), has argued that the opposite is level five. A further initiative is Investors in likely to be true, with the minimum wage People (IIP) which attempts to link staff enhancing Britain’s competitive position development with development of the busi- and encouraging more people to work ness and which has enjoyed a reasonably within the tourism industry (Caterer and high take up rate within the hospitality Hotelkeeper, 1997). It remains to be seen industry (Goldsmith et al., 1997: 86–90). whether this will be the case, although evi- Tourism Training Scotland (1996: 4) repor- 180 D. Nickson

Box 6.3. Case example: The German dual system.

The German dual system represents a partnership between all stakeholders in tourism towards meeting its skills needs. It is a model which applies across the economy. While the education and training system in Germany has a number of facets, of interest here is provision within the Berufsschule. Germany’s much acclaimed dual system of education and training for tourism is an active partnership between the state at federal and Land (state) level, the tourism industry (but predominantly the hospitality sector), representatives of employee groups and the vocation education system. In the words of the government, the purpose of this model of vocational training is to provide the basic skills for a field of employment and, through career-oriented specialized training, the specialist skills and knowledge required for competence in an occupation. It is a system which combines training with academic development. Research evidence points to considerably enhanced productivity within the German sector when direct comparisons are made with the British context although the labour cost structure also acts as a clear incentive for efficient and productive human resource management. In Germany, the two levels of the state (federal and Länder) provide the institutional and legal framework for skills education and training but pass over operational responsibility to local chambers of commerce and the private sector. The German experience points to the feasibility of achieving high levels of productivity despite operating within a high wage, socially regulated labour market economy. There is considerable evidence which points to greater productivity of German tourism employees over their British counterparts. One report concluded that Germany’s high productivity and service levels are due to the wider use of qualified manpower trained through the partnership arrangements for the dual system. This study notes that craft qualifications were held by 2.5 times as many employees in Germany compared with the UK. Another study concludes that Germany’s education and training system is geared to produce a much higher proportion of qualified staff for the tourism industry. A conclusion to be drawn is that the dual system within which German employees for tourism are trained ‘embeds’ commitment to the sector to a much greater degree than elsewhere and this, combined with high levels of reward, contributes to a greater sense of professionalism and productivity.

Source: Scottish Tourism Research Unit (1998).

ted a survey of 35 Scottish tourism ‘universities’ often seek to play a key role in companies which suggested that several creating common human resource policies benefits were attributable to the achieve- and transferable training programmes. Ini- ment of IIP, these were: tiatives emanating from the EU also exemplify an attempt to create a convergent ● improved business performance; level playing field of employment rights, ● improved customer satisfaction; both legally and voluntarily based, which ● better employee performance; and will underpin a putatively economically ● reduced labour turnover. integrated and successful EU. Lucas (1996), Many commentators point to the fact that in reviewing the impact of European social the rash of recent initiatives in the UK are, in policy on the tourism and hospitality indus- effect, attempts to ‘catch up’ with the more try, is sceptical of its overall effect in the UK, developed training provision in much of the while at the same time acknowledging that EU – most notably Sweden and Germany – several measures have influenced the way and Japan, for example (Beardwell and Hol- that organizations approach areas such as den, 1998; and see Box 6.3). equality, pensions and health and safety. For example, the 48 Hour Working Time Regional or transnational initiatives Directive, introduced as a health and safety These show a degree of overlap with measure, looks set to have major implica- national responses while transcending tions for tourism and hospitality national boundaries. Thus within the pri- organizations including the ending of coerc- vate sector the aforementioned corporate ing employees to work more than 48 h and Human Resource Issues in Travel and Tourism 181

an entitlement to four weeks’ paid holiday This model is inspired by Baum’s novel (and see Goldsmith et al., 1997: 128–129). and innovative use of the notion of sustain- Moreover, the agreement of the Labour Gov- ability and in human resource terms denotes ernment to opt-in to the Social Chapter of an attempt to move away from ‘old’ and the Maastricht Treaty will mean travel and outdated reactive personnel policies which tourism organizations within the UK will have often characterized travel and tourism have to consider the implementation of employment. Key to this new approach is directives on European Works Councils, the recognition that it involves a Rous- parental leave and a wide-ranging directive seauean social contract which suggests the on part-time work (IRS, 1998). acceptance of certain responsibilities, thus: It can be appreciated that even from such a superficial review of possible policy res- The theme of sustainability within the ponses there are a variety of agendas that can management of human resources is be followed in formulating and operational- underpinned by assumptions about managerial, corporate and governmental izing policy. Further to this, the possibly responsibility, depending on which level disparate interests of a range of public and the sustainable model is applied. Indeed, it private sector organizations complicate an draws in essence upon the notion of a already complex picture and thus these social contract between on the one hand issues are likely to be influenced and medi- business and an industry sector, and on the ated by a large number of interested parties other community in which they operate (for example, Brewton and Withiam, 1998, and the people that they employ (Baum, estimate that there are more than 180 inter- 1995: 14). national non-governmental and inter- governmental organizations seeking to Baum’s support for such a sustainable influence national tourism policies around approach is based on a multiplicity of rea- the world), including the following (Baum, sons that reflect both ethical and business 1993: 12): considerations, and these can be encapsulated in the simple sentiment that people ● the various industry sectors, through respond positively to good management and their representative bodies as well as at negatively to bad management with the individual company level; result that a happier workforce is more ● national (state) education providers; likely to be a productive workforce. ● private educational institutions; ● specialist training agencies; ● national employment, labour or man- Conclusions and Discussion power agencies; ● a range of government departments; This chapter has sought to review a range of ● social partner organizations, especially human resource issues within travel and trade unions; and tourism and in doing so has described some- ● national, regional or local tourist agen- thing of a polarized view of the nature of the cies. employment experience for those working Clearly, then, there is unlikely to ever be a in travel and tourism. On the one hand what wholly definitive policy response which Baum (1995) calls the ‘upbeat perspective’ is will gain universal approval from all of the promulgated by bodies such as the WTTC above bodies. Nonetheless, Baum (1995) has who claim that travel and tourism generates outlined what he terms a ‘new sustainable jobs across the employment spectrum from human resource paradigm’, which repre- high-tech managerial posts to limited-skill sents an attempt to develop an overarching entry level and ‘shop floor’ jobs, with wages model of best practice that offers a more that are equal to or above the industrial optimistic view to which the travel and tour- norm and career potential and training exist- ism industry can aspire in the future (see ing at most levels. The basic premise Table 6.1). underlying this is that all jobs are valuable 182 D. Nickson

Table 6.1. Traditional and sustainable human resource (HR) practices.

Old HR practice New sustainable HR paradigm

Recruitment and staff turnover Recruitment undertaken without reference to local Recruitment based on careful analysis of local community/labour market community and its labour market Ad hoc, unplanned recruitment to meet immediate Recruitment of staff based on long-term HR needs planning Staff recruited on basis of immediate skills needs Staff recruited on basis of potential development Recruitment/‘poaching’ of staff from other Staff recruited locally from schools/colleges/ companies university Expatriate staff recruited on long-term basis Expatriate staff only employed to meet short-term needs and to develop local staff High staff turnover seen as inevitable/desirable High staff turnover seen as problematic/undesirable No measures to reduce staff turnover Active company policies designed to minimize staff turnover No interest in why staff leave Exit interview policy Continuing high staff turnover Relatively low staff turnover

Promotion and career development Few opportunities for promotion/development Career planning/tracking within company within company No career ladder/unclear criteria for promotion Clearly deﬁned career ladder/accessible criteria for promotion Promotion to ‘plug gaps’/no preparatory training Planned promotion with preparatory training programme Key staff ‘imported’ from outside/abroad Key staff ‘grown’/developed within company/ locality Part-time or seasonal staff excluded from training/ Part-time or seasonal staff integrated into training/ development/promotion opportunities development/promotion system No long-term commitment to seasonal staff Long-term commitment to key seasonal staff Career mobility seen as disloyal/disruptive Career mobility recognized as beneﬁcial to the individual Opportunities limited for women, ethnic minorities, Genuine equal opportunities in employment disabled

Rewards and benefits Company offers minimum rewards and benefits Company offers competitive rewards and benefits Conditions to suit employer needs Conditions reflect local/individual circumstances and needs Flexibility demanded to suit employer requirements Flexibility seen as employer–employee partnership with mutual benefits Staff attitude to company a matter of indifference Fostering of commitment and feeling of belonging among employees

Education, training and development Training and development not planned Planned training and development policies and strategies Training compartmentalized with specialist Training recognized as the responsibility of all department supervisors/management No senior management commitment to training Full commitment to training from CEO down Training operates in isolation from other HR Training linked to opportunities for promotion practices Human Resource Issues in Travel and Tourism 183

Table 6.1. continued

Old HR practice New sustainable HR paradigm

Gap between industry and education system Partnership between industry and education system Education programmes with little industry relevance Education programmes based on industry research/ identiﬁed needs Education/training programmes terminal and not Education/training courses provide for further integrated development and progression Industry-developed skills not recognized by Industry-developed skills recognized and certiﬁed education by education

Management culture Staff seen as short-term expedient Staff seen as key resource Staff perceived as a cost Staff perceived as an asset Authoritarian, remote management culture Democratic, participative management culture Authority vested in management alone Responsibility delegated to all levels of staff: ‘empowerment’ Staff remote from decision-making Staff consulted/involved with decisions affecting their area of responsibility Inﬂexible imposition of corporate culture Corporate culture responds ﬂexibly to local culture and needs

National HR planning for tourism Fragmentation of HR planning for tourism Integrated approach to HR planning for tourism HR considerations not recognized in tourism policy HR considerations to the fore in tourism planning planning Quality in tourism seen in exclusively physical Human resource contribution to quality recognized product terms and nurtured Local population detached from/hostile to tourism Local population helped and encouraged to recognize their role in tourism

Source: Baum (1995: 12–13).

in times of high unemployment and partic- from employers and contempt from custom- ularly where they offer opportunities and a ers. As we noted earlier there are likely to be place for most members of society. Thus wide variations both within and across sec- travel and tourism offers an unparalleled toral and geographical areas and therefore number of entry-level jobs for the young, both scenarios contain elements of truth. women and people disadvantaged on the Nonetheless the weight of academic evi- basis of race, immigrant status or physical dence suggests that for too many people the disability. Moreover, travel and tourism latter is more likely to be the reality and this stimulates jobs within SMEs and a high pro- will lead to continuing questions and portion of export-related trade, elements debates about the quality of much travel and which are the backbone of a competitive tourism employment. Increasingly though market economy. there is a recognition that the long-term On the other hand, however, is what costs of a self-perpetuating vicious circle of Baum (1995) characterizes as a ‘picture of recruitment difﬁculties, shortage of skilled drudgery’ which suggests that once in those and qualiﬁed staff, relatively low pay, high jobs many employees suffer from low pay, staff turnover and a relatively unattractive anti-social conditions, limited or no train- image as an employing sector are unsustain- ing, a lack of job security, poor treatment able. Consequently there is much talk about 184 D. Nickson

the need to move towards a virtuous circle Baum, T. (1993) Human resources in tourism: an approach of high quality products and ser- introduction. In Baum, T. (ed.) Human vices, high training standards, good terms Resources in International Tourism. and conditions of employment, high skills Butterworth-Heinemann, Oxford, pp. 3–21. and low labour turnover, as exemplified by Baum, T. (1995) Managing Human Resources in the European Hospitality and Tourism Baum’s (1995) sustainable paradigm. Industry – A Strategic Approach. Chapman A key theme of Baum’s progressive sus- and Hall, London. tainable approach is that it will not be either Baum, T. (1996) Human resource issues in inter- an easy or cheap process and requires real national tourism and hospitality – localised commitment and a strategic approach to or general concerns? Paper presented to elec- human resource management within local, tronic conference Hospitality Management: regional and national tourism policy frame- The State of the Art (http://www.mcb.co.uk/ works and the concomitant need for an services/conferen/apr96/hospitality/baum/ increasingly consistent, coordinated and baum.htm). integrated response from industry, govern- Baum, T. (1997a) Making or breaking the tourist ment and educational institutions. experience: the role of human resource man- However, such commitment seems crucial if agement. In: Ryan, C. (ed.) The Tourist travel and tourism is to take up its putative Experience: A New Introduction. Cassell, London, pp. 92–111. position as one of the new superservice Baum, T. (1997b) Unskilled work in the hospital- industries for the 21st century. This notion ity industry: myth or reality? International was suggested by the futurist and author of Journal of Contemporary Hospitality Man- the Megatrends series of books, John Nais- agement 15(3), 207–209. bitt, who has recently argued that ‘the global Beardwell, I. and Holden, L. (1998) Human economy of the 21st century will be driven Resource Management – A Contemporary by three superservice industries – Telecom- Perspective, 2nd edn. Pitman, London. munications, Information Technology and Brewton, C. and Withiam, G. (1998) United States Travel and Tourism’ (cited in Kelley, 1997: tourism policy. Cornell, Hotel and Restau- 2). As travel and tourism is now widely rant Administration Quarterly 39(1), 50–59. acknowledged as the largest employer in the Carlzon, J. (1987) Moments of Truth. Ballinger, world it is increasingly imperative that Cambridge, Massachusetts. regions, nations, organizations and man- Caterer and Hotelkeeper (1997) Smith slams industry conditions. Caterer and Hotel- agers address the problems of poor human keeper 3 July 1997, 16. resource management practices, if the new Choy, D. (1995) The quality of tourism employ- ‘superservice’ industry is to offer a signifi- ment. Tourism Management 16(2), cant proportion of the world’s population a 129–137. positive employment experience. Arguably Coupland, D. (1993) Generation X: Tales for an then the procurement and management of Accelerated Culture. Abacus, London. quality personnel is the most important Department of National Heritage (1996) Tourism challenge facing the travel and tourism Competing with the Best, No. 3, People industry today. Thus, human resource man- Working in Tourism and Hospitality. Depart- agement can be seen to play a key strategic ment of National Heritage, London. role within attempts to enhance the quality Downes, J. (1997) European Union progress on a of the tourism ‘product’ and market pos- common tourism policy. Travel and Tourism itioning of tourism at the level of Analyst 1, 74–79. Go, F. and Pine, R. (1995) Globalization Strategy organizations, specific destinations, regions in the Hotel Industry. Routledge, London. within countries or whole nations. Goldsmith, A., Nickson, D., Sloan, D. and Wood, R. (1997) Human Resource Management for References Hospitality Services. International Thomson Business Press, London. Accor Press Pack (1996) Accor – A World of Travel HTF (Hospitality Training Foundation) (1999) Tourism and Services. Paris: Accor Corpo- Key Facts and Figures. HTF, London. rate Communications. IDS (Income Data Services) (1998) Labour flex- Human Resource Issues in Travel and Tourism 185

ibility OK – but we’re doing it our way. STRU (Scottish Tourism Research Unit) (1998) Employment Europe 434 (February), 11–18. International Benchmarking and Best Prac- IRS (Industrial Relations Service) (1998) Towards tice Study of Training and Education for a one speed Europe. IRS Employment Trends Tourism. STRU, Glasgow. 679, 16–19. Shrimpton, D. (1996) Industry drive to lure young International Labour Ofﬁce (1989) Conditions of stars. Caterer and Hotelkeeper 8 August, 7. Work in the Hotel and Catering and Tourism Tourism Training Scotland (1996) Annual Report Sector, such as Hours of Work, Methods of 1996. Tourism Training Scotland, Glasgow. Remuneration, Security of Employment. Welch, J. (1996) Hotels told to improve image. Hotel, Catering and Tourism Committee of People Management 25 July, 10–11. the ILO, Geneva. Wood, R.C. (1996) Employment in the hospitality Kelley, R. (1997) To create jobs, summiteers industry. Paper presented to electronic con- should take a breath of Rocky mountain air ference Hospitality Management: The State and promote tourism. WTTC press release of the Art (http://www.mcb.co.uk/services/ (http:www.wttc.org/WTTCGATE.MSF/ conferen/apr96/hospitality/wood/roywood. 35fac30c2231d81c8025639d0054id0a/b56). htm). Lashley, C. (1997) Empowering Service Excel- Wood, R.C. (1997a) Working in Hotels and Cater- lence – Beyond the Quick Fix. Cassell, ing, 2nd edn. International Thomson London. Business Press, London. Lucas, R. (1996) Social policy. In: Thomas, R. (ed.) Wood, R.C. (1997b) Tourism employment in Scot- The Hospitality Industry, Tourism and land, Mimeograph. Scottish Hotel School, Europe: Perspectives on Policy. Cassell, Lon- Glasgow. don, pp. 135–165. WTTC (World Travel and Tourism Centre) (1998) MacDonald, C. and Sirianni, C. (eds) (1996) Work- The Economic Impact of Travel and Tourism ing in the Service Society. Temple University Development in the APEC Region. WTTC, Press, Philadelphia. London. Price, L. (1994) Poor personnel practice in the WTTC (World Travel and Tourism Centre) (1999) hotel and catering industry: does it matter? Travel and Tourism’s Economic Impact. Human Resource Management Journal 4(4), WTTC, London. 44–62. WTTHRC (World Travel and Tourism Human Riley, M. (1991) Human Resource Management: A Resource Centre) (1998) Steps to Success – Guide to Personnel Practice in the Hotel and Global Good Practice in Travel and Tourism Catering Industry. Butterworth-Heinemann, Human Resource Development, Vol. 2, No. 1, Oxford. WTTHRC, Vancouver. Riley, M. (1993) Labour markets and vocational WTTHRC (World Travel and Tourism Human education. In: Baum, T. (ed.) Human Resource Centre) (1999) Steps to Success – Resources in International Tourism. Global Good Practice in Travel and Tourism Butterworth-Heinemann, Oxford, pp. Human Resource Development, Vol. 2, No. 2, 47–59. WTTHRC, Vancouver. Ritzer, G. (1996) The McDonaldization of Society, revised edition. Pine Forge Press, Thousand Oaks, California.

7 Financial Management in Tourism

J. Bridge and L. Moutinho

Background advantage and synergy. The scope component of a strategy specifies the present and Financial management is particularly planned interactions between the organiza- important in organizations which have to tion and its environment, in order to achieve make a profit in order to survive but, even in a strategic fit. The strategy should include an non-profit making organizations or in busi- outline of the business’s projected resource nesses which give priority to goals other deployment: how it will distribute its than profit, financial planning systems are resources across various areas. Resources always needed to ensure that activities are need to be allocated towards successful financially feasible in terms of their require- products/services and away from less suc- ments for fixed and working capital. The cessful ones. The strategy should specify the performance of the organization must be competitive advantages that result from the monitored against its plans in order to deter- scope of the business and its pattern of mine where modification is necessary in the resource deployment. Strategy should also light of changing circumstances. This is the take into account the synergy expected to control function of management and its effi- result from decisions about scope, resource cacy determines how responsive the deployment and competitive advantages. organization will be to both opportunities This allocation must take place in such a and threats. Moreover, in a changing world, way that the performance overall – across it is often too late to take appropriate correc- the whole product/service range – can be tive action once a problem has actually been optimized. Each strategy can serve as a experienced, so that forecasting has an framework for developing specific action important part to play in both planning and plans and for specifying associated pro- control. grammes, expenditures and risks.

Strategic Planning Budgeting and Control

The ultimate purpose of the strategic plan- All organizations have to operate within ning process is the identiﬁcation of ﬁnancial constraints and maintain control opportunities and the allocation of resour- over costs. Decisions have to be taken about ces towards strategies. A well-conceived how resources are to be allocated between strategy includes four basic components: competing uses, and the budgeting process scope, resource deployment, competitive is an essential element of this activity, since © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 187 188 J. Bridge and L. Moutinho

it establishes what is feasible, and sets out utilize capacity fully, with a view to dispos- agreed expenditure patterns. Budgeting ing of stocks when demand increases, a involves expressing a set of planned activ- hotel will lose revenue every time a night ities for specified time periods in passes with beds unoccupied. One of the quantitative and monetary terms. Because of reasons why European hotels were among their quantitative nature, they provide yard- the least profitable in the world in the mid- sticks for measuring performance and 1990s was that room occupancy (at 62.5% in facilitate comparisons from one time period 1994) was 4% below the world average to another. In particular, budgets serve four (1994 data from Horwath International cited primary purposes. in The Times, 1995). Likewise when an aircraft takes off with empty seats, it has lost 1. They help managers to coordinate the revenues and profits on those seats for all resources and projects. time. 2. They help define the standards needed Of course, one can try to avoid spare in all control systems. capacity by ensuring that as many beds or 3. They provide clear and unambiguous seats are sold as possible; if necessary by guidelines about the organization’s disposing of some of them at a smaller profit resources and expectations. contribution, this is one of the principles of 4. They facilitate performance evaluations yield management which is discussed more of managers and units. fully below. Because of the occupancy prob- Budgeting is the linchpin of the financial lem, all calculations from the initial planning and control system. The related investment appraisal through to the revenue function of costing is essential to budgeting and profitability assessment of current activ- since the financial consequences of planned ities must include this as a key factor. An activities have to be determined as precisely unrealistic opening assumption about occu- as possible if the budget is to be achievable. pancy can lead to a misallocation of The monitoring of costs (cost control) is an resources and, in the worst case, an expen- important part of the overall resource man- sive capital project may be initiated which agement process in demonstrating where can never realistically offer a worthwhile costs have been exceeded, and why. An return. important aspect of both costing and budgeting is the reporting and analysis of such unfavourable variances, but of course when Capital Budgeting favourable variances occur it is equally important to find out the underlying causes Fixed and working capital with the aim of replicating the conditions Fundamental to the strategy of any business leading to resource savings. is the determination of the need for long- term capital and its availability from various sources. The need will reflect the number of Occupancy projects which are found to be necessary or desirable, and the capital requirements of Most of the above sections have been con- each. The balancing of need and availability cerned with concepts which apply to all implies a capital budgeting mechanism. kinds of organization. However, the tourism The total capital employed by a business industry has many distinguishing character- comprises both its fixed assets, and the istics which have to be explicitly considered working capital used to finance raw material in the formulation of any plan or budget. purchases, wages and other expenses incur- One of the most important of these is occu- red in the day-to-day running of the pancy, particularly in hotel management business. Before a business is started, it is and in the airlines business. Whereas a man- necessary to determine the expected profita- ufacturer often has the option of producing bility on the capital to be invested. for stock if there are insufficient orders to Thereafter, every time a decision is to be Financial Management in Tourism 189

taken about new projects, management must more heavily to the earlier years of the assess the total capital requirements and asset’s life as a way of reducing the tax bur- view these against the finance available and den, and thus acting as an investment the cost of capital. The capital budgeting incentive in certain countries and regions. process requires a mechanism for allocating The main drawback to using profit net of resources among alternative projects, and in depreciation as a measure of a business’s its simplest form amounts to ‘picking the financial position is that it does not demon- winners’ on an accept or reject basis. strate the flows of cash in and out of the Although simple rules of thumb are often business at the time of their occurrence. The used in practice to determine viability on latter is a vital consideration in DCF, and if the basis of a ‘payback period’ or an ‘average an appraisal has been worked out on the rate of return’, the advocated methodology is basis of accounting profit after tax, it is nec- discounted cash flow (DCF). essary to add back in the amount allowed for In many ways, it is actually easier to use depreciation in order to give a measure of DCF than the ‘simple’ rules of thumb, prima- cash flow. Viewing investments from the rily because the computational difficulties perspective of cash flow also makes sense in of DCF have been taken care of in the spread- ensuring that the capital invested is not dou- sheet software through which most ble counted. There is always the danger that investment appraisals will be conducted this may happen if the outflow is depre- nowadays. The difficult parts of the ciated year by year, rather than taken on appraisal are in the forecasting, costing, board once as an initial capital outflow. budgeting and occupancy calculations which lie behind the quantification of the Discounted cash flow flows of cash entailed in the investment, In this section we shall demonstrate the gen- rather than in the discounting of those flows. eral principles of discounted cash flow Nevertheless, having gone to the trouble of (DCF), and consider their application to making realistic cash flow estimates, it is tourism projects. essential that the appraisal is completed with the aid of a technically correct meth- Net present value odology. The net present value (NPV) of an investment project is defined as the present value Revenues, costs, profit and cashflow of the stream of net cash flows from the Before explaining how investment apprais- project minus the project’s net investment. als are conducted through DCF in the The cash flows are discounted at the rate of following section, it is necessary to under- return required by owners or shareholders, stand how profit and cash flow are related to that is, its cost of capital. A firm’s cost of each other. Both concepts measure the dif- capital is defined as its minimum acceptable ference between incoming revenues from rate of return for investments of typical risk the sale of goods and services, and outgoing for the kind of business in which the firm expenditures. However, calculations of operates. It is an ‘opportunity cost’ concept profit designed to provide a measure of since it explicitly poses the question: ‘what financial health to investors follow the prac- is the best return which investors could tice of smoothing out the large outflows of obtain elsewhere, in a similar business cash associated with capital projects by which is subject to the same risk?’ depreciating the asset over its expected life. The time value of money can be demon- This has the advantage of recognizing that strated through the process of fixed capital is not consumed in the period compounding, after which the inverse con- of its purchase, but retains a residual value cept of discounting should be more easily which decreases year by year. understood. If £1000 were invested now and Corporate taxation also assumes that cap- investors required a real return of at least ital assets gradually lose their value, 10% to compensate for waiting and risk although depreciation may be weighted bearing, a single inflation adjusted payment 190 J. Bridge and L. Moutinho

of £1100 would be just sufficient as a reward (inflows are positive) are given at yearly in one year’s time, compounding at 10%. If intervals, starting with £36,000 in a year’s investors had to wait for two years, an extra time. These would be stated in real (adjusted £110 interest would be due, totalling £1210. to remove the effects of inflation) terms Alternatively, the latter result could be since it is usual to state the cost of capital in expressed by stating that the present value real terms. This business requires a return of of £1210 receivable in two years time is 10% over and above inflation, so this is the £1000, discounting at 10%. It follows that appropriate discount rate to employ. the present value of £1 receivable in two We evaluate the project using NPV, not- years time is £1/1.21 or £0.826, discounting ing the equation: at 10%. NPV ϭ PVNCF Ϫ NINV In general, The PVNCF may be found by calculating, or ● £1 now has a future value of £(1+k)n using discount tables to reveal that the pres- compounding for n years at an interest ent values of each pound receivable after 1, rate k. 2, 3, 4 and 5 years, have present values of ● £1 in the future has a present value of £0.9091, £0.8264, £0.7513, £0.6830 and £1/(1+k)n discounting for n years at a £0.6209, respectively. These are obtained rate k. from the expression: present value ϭ As an example, with a discount rate of 20%, £1/(1+k)n discounting for n years at a rate k. and a time interval of 3 years, each £1 would Where n takes on the value 1, 2, 3, 4 or 5, have a present value of: £1/(1+0.2)3 or while k is set at 10% or 0.1. £1/1.23 which works out as £0.579. While For the £36,000 anticipated after one ן receivable in 3 years time would have year, the present value will be 36,000 £1000 a present value of £579 discounting at £0.9091, which is £32,727. The total PVNCF 20%. is £180,000, found by adding the £36,364, The net present value of a new develop- £46,852, etc. to this figure. The NINV of ment project may be expressed as follows: £60,000 is then subtracted to leave an acceptable NPV of £120,000. The remaining NPV ϭ PVNCF Ϫ NINV information in Table 7.1 will be discussed where NPV is the net present value; PVNCF, below. the present value of the net cash flows; and NINV is the net investment. Assuming a cost Many tourism projects, particularly those of capital, k, the net present value for a which involve aircraft and hotel buildings, project with a 5-year expected life and cash will have expected lives which stretch over flows A1, A2, ... A5 would be the following: periods of 10, 20 or more years, but the principles are the same. With longer time A1 A2 A3 A4 NPV ϭ + + + periods, one must recognize the need for (1+k) (1+k)2 (1+k)3 (1+k)4 periodic injections of capital for replacement or renovation, but these will simply A5 + Ϫ NINV reduce the net inflow in the years of occur- (1+k)5 rence and are easily accommodated within the appraisal procedure. Projects with pos- A5 may be assumed to include any salvage itive NPVs are to be accepted, those with value remaining at the end of the project’s negative NPVs are to be rejected. When dis- life. counting at the firm’s required rate of return, that is, its cost of capital, a zero NPV indi- EXAMPLE. In row 4 of a spreadsheet set out cates that while the investors will not add to as in Table 7.1, a project requiring an initial their wealth by accepting the project, they outlay of £60,000 (cash outflows carry a neg- will be no worse off. They would be indif- ative sign) is evaluated. The cashflows ferent, in that instance, between acceptance which are forecast to benefit the business and rejection. Financial Management in Tourism 191

Table 7.1. Investment appraisal calculations.

ABCDEF GHI

1. Year 0 12345NPV at IRR Proﬁtability 10% Index

4. -60,000.00 36,000.00 44,000.00 62,000.00 62,000.00 35,400.00 120,000.00 68.65% 2.00

9. PV factors 0.9091 0.8264 0.7513 0.6803 0.6209

10.

11. PVNCF® 32,727.27 36,363.64 46,581.52 42,346.83 21,980.61 120,000 ¬NPV

The NPV approach is superior to tradi- fied as acceptable. Many studies have tional simplistic methods such as payback, indicated a preference among managers for or the average rate of return because it con- IRR – probably because it is expressed as a siders both the magnitude and the timing of percentage, in common with other business cash flows over a project’s entire expected measures of profitability – and managers life. may feel more comfortable with it than with NPV (expressed in pounds, dollars, etc.). Internal rate of return An alternative DCF approach favoured by Capital rationing using the profitability many practitioners is the internal rate of index return (IRR). It is related to the NPV in the Despite the relative popularity of IRR, it is following way. Suppose, as with the project from the NPV concept that the criterion for exhibited in Table 7.1, that at a discount rate dealing with capital rationing situations is of 10% a project comfortably offers a pos- developed. When funds for investment are itive NPV, to the extent that even when limited, one is no longer accepting or reject- discounting at a rate of 68% it still broke ing projects which have positive NPVs even. The result at this limiting discount without limit, but in the context of this anal- rate could then be written: ysis, the approach is to invest the funds that are available in that set of new tourist prod- 0 ϭ NPV ϭ PVNCF Ϫ NINV uct projects with the highest total net The discount rate (68.65% as identified in present value. That is, the goal is to maxi- the spreadsheet-derived table, and com- mize the net present value of the entire puted therein) at which this result occurs is current investment. defined as the internal rate of return (IRR) The principle of budgeting, which and generally speaking, when the IRR applies in this context, and in any other exceeds the company’s cost of capital, the situation where a limiting factor is in opera- NPV will be positive and the project identi- tion, is that priorities should be established 192 J. Bridge and L. Moutinho

Table 7.2. The capital rationing problem.

Project Initial outlay (£) Net present value @ 10% (£)

A 50,000 70,000 B 90,000 120,000 C 60,000 120,000 D 100,000 10,000 E 250,000 150,000 F 80,000 20,000 G 40,000 40,000

according to performance per pound (or dol- projects are not mutually exclusive; and (iii) lar, etc.) of the limiting factor. Thus NPV per the cash flows of the projects are not inter- pound of available finance is the appropriate dependent: ranking criterion in the capital rationing sit- ● We can rank the projects in order of uation. Of course, if none of the tourism desirability on the basis of the profitabil- company’s investments provides a rate of ity index (see Table 7.3). return at least equal to the cost of capital so ● If the hotel has a limited capital budget as to generate a positive NPV, there is no of £550,000, we can then determine need for a ranking criterion, since the pro- which new tourism projects it should jects should be rejected and the tourism choose. company would do better by investing (lending) its funds in the market. No invest- According to Table 7.3, the note 1 should ment that is inferior to such market adopt C, A, B, G and E. This requires an opportunities should be accepted. initial outlay of £490,000 which is less than The NPV per pound of initial investment the £550,000 that is available. To test the requirement is referred to as the profitability reader’s understanding of these principles, index and this implements the limiting fac- the following modification should be tor principle of budgeting. Once the projects worked through: have been ranked on the basis of the profita- The data for project D are revised as fol- bility index, one selects those investments lows: in descending order until the budget is ● Initial outlay: £100,000 exhausted. This procedure selects for adop- ● NPV: £55,000 tion the combination of investments within the budget constraint that has the highest Now rank the projects using the new profita- total net present value. The profitability bility indices and choose which projects to index may be demonstrated in the case adopt. (Answer at the end of the chapter.) study which follows. Financial functions in spreadsheets EXAMPLE. The Commodore Hotel in Scot- Although the discounting formulae have land has seven new tourism projects to been stated in the section dealing with NPV, evaluate (see Table 7.2). The NPV calcula- and the manual solution set out as an exam- tions shown in the table would have ple, in practice a computer solution will be required a full assessment of the cash flows preferred. In fact if the IRR criterion were anticipated in each case; for example Project being applied, the manual solution would C is the one set out fully in the spreadsheet typically involve a tedious trial and error which appears as Table 7.1. Assuming: (i) process and it is much easier to let the com- the initial outlay is the only cash outflow for puter do the hard work. Financial functions each new tourist product project; (ii) the for both NPV and IRR are available in LOTUS Financial Management in Tourism 193

Table 7.3. Use of the proﬁtability index (Pi).

Project Initial outlay (£) NPV (£) Pi

C 60,000 120,000 2.00 A 50,000 70,000 1.40 B 90,000 120,000 1.33 G 40,000 40,000 1.00 E 250,000 150,000 0.60 F 80,000 20,000 0.25 D 100,000 10,000 0.10

1-2-3, QUATTRO-PRO and EXCEL. These may entered in cell I4: ϩG4/ϪA4 which would be called up, and applied to any set of cash display the number 2.00 as shown. flows within the spreadsheet by identifying Rather more complex, but again facili- the specific acronym NPV or IRR. In the case tated by the spreadsheet, is the problem of of EXCEL these are entered after ‘ϭ’ but with multiperiod capital rationing. This arises LOTUS and QUATTRO spreadsheets these are when spending limits affect several time- prefixed by the @ character; thus @NPV or periods instead of just one. While the @IRR are the relevant functions: profitability index is fine for dealing with a single limiting factor, it cannot cope with EXAMPLE. In Table 7.1, the net inflows are multiple limits, since one could easily have set out in LOTUS 1-2-3 spreadsheet cells B4 to a series of conflicting rankings. Instead, the F4, while the initial outlay appears in cell technique of linear programming must be A4. If we were to type @NPV(0.1, B4..F4), a employed; again while manual solutions are result of 180,000 would appear; in effect long and tedious, most spreadsheets contain @NPV in the spreadsheet gives us PVNCF optimization facilities, of which linear pro- rather than NPV. Accordingly, we should gramming is the most frequently used. type into cell G4 the entry: @NPV(0.1, B4..F4)+A4 in order to take care of the NINV The investment decision: the case of small which requires the initial flow of Ϫ£60,000 tourism companies to be incorporated. The first number inside So far, we have argued that the technically the bracket is the discount rate, which is sound principles of DCF should be used in 10% in this example). evaluating capital projects. Although the The IRR in cell H4 uses the financial actual calculation of the cash flows requires function, whose form in this instance is: careful forecasting of the relevant revenues @IRR(0.5, A4..F4). The first number inside and costs, the microcomputer spreadsheet the bracket is an initial ‘guess’ at the IRR, can facilitate these computations and then and the range A4..F4 embraces the full range apply the required financial functions of of flows from the beginning to the end of the NPV or IRR as shown above. However, the project. The result of 68.65% appears in cell gap between the normative approach of the H4 after formatting that cell to indicate per- textbook and the practice of small busines- centages with two decimal places. ses in the tourist industry has been revealed In applying the profitability index, all in a study by Hankinson (1992). Indeed in that is required is to divide the NPV, com- the smaller hotels which featured in the puted as shown above, by the initial capital study, investment decisions were domi- outlay. This involves dividing the contents nated by the ‘necessity’ criterion, i.e. only of one spreadsheet cell by another, which is undertake new projects when there is an one of the simplest arithmetic operations to identifiable specific need, which is so obvi- be performed. In this instance, the formula ous as to require no appraisal. 194 J. Bridge and L. Moutinho

As Hankinson reports: attempts to calculate cash flows. Although capital budgeting, therefore, was only prac- There was little evidence of positive tised on a narrow front in this sector, investment thinking, and very few of the budgeting in its widest sense appeared to be smaller hotels admitted to planning ahead the most popular management technique. beyond 12 months. The majority merely The study also investigated the financing invested when the ‘necessity criterion’ of investment, which had been provided for dictated. In short, most investment appeared to be non-strategic, piecemeal, almost equally by the hotels’ own funds, and non-anticipatory, and geared to survival bank credit. Many respondents seemed only. Whilst there could be little doubt that reluctant to take advantage of external a recessionary economic situation affected finance facilities, and 90% of the hotels had the decision to invest, it was equally clear not been concerned in any attempt to obtain that other, and perhaps more basic, factors investment finance through facilities were relevant. (Hankinson, 1992: 34–35) beyond the local bank, some indicating that external credit was a threat to their inde- A relationship appeared to exist between pendence. There was also a lack of investment and past profit, rather than awareness of external sources. Even where anticipated returns in the future, but this government incentives were available, few could have reflected the availability of UK hotels had taken advantage of them. retained earnings rather than a backward- Studies such as this suggest that tech- looking approach to capital spending. niques directed at goal optimization may not However, Hankinson described the find this sector to be fertile territory for their observed behaviour as ‘non-visionary capi- application. There are some lessons to be tal spending’ by some 80% of the sample. learned for the theoretician in this, since it Thus only 20% of the hotels had been appears that forecasting is a difficult process engaged in ‘visionary investment’. Indeed, in tourism and that financing may reflect a very few of the hotels used leading or future move from crisis to crisis, by necessity, indicators as influences on their investment rather than planned change. However, the decisions, and most considered that no reli- fact that sophisticated techniques are to be able indicators existed. The main found among larger tourism businesses, conclusion to this part of the study was coupled with the increasing use of micro- that: computers at all levels, suggests that it is only a matter of time before analytical tech- investment was determined mainly by niques become better known and easier to necessity or crisis which rendered capital use. spending imperative, provided that hotel’s own funds were available. The cost of borrowing, credit availability, and government investment incentives were Hotel Marketing Budgeting revealed to be mere influences rather than determinants of investment. ERC (efficiency-risk coefficient) A strategic problem in determining the mar- The main investment appraisal methods keting budget is not merely the matter of used by the hotels were the traditional, non- how much to invest in marketing as a whole, discounting techniques. No hotel in the nor in determining each element of the mar- study was totally familiar with DCF keting mix, but how much to spend in although some claimed to be aware of the relation to the hotel total resources budget technique. Practically no hotel had been available. The proportion spent on market- influenced by the literature on the subject, ing will affect the degree of risk to which the or by courses offered at local colleges, or by budget is exposed. Suppose, for example, the advice of consultants. Forecasting of that the hotel has a total advertising budget cash flows was not evident and 31% used no which may be spent in different media, with method at all, while only 12% made different coverage and response rates and Financial Management in Tourism 195

assuming the risk to be uniform, a compar- and other hotel characteristics. The hotel ative efficiency-risk coefficient (ERC) can be marketing mix requires a number of deci- established to compare the effectiveness and sions and the budgeting of marketing risk of each medium. This would be calcu- activities does not mean a guesswork alloca- lated by multiplying the IPC factor (income tion of sums between various marketing generated as a percentage of cost) by the total activities. Budgeting involves forecasting, budget (B) available and dividing by the selection of priority customer-generating campaign cost (C): markets, and the planned manipulation of all the variables that determine the hotel’s B/C ן ERC ϭ IPC performance in an effort to arrive at some This will give an order of preference in preferred market position in the future. which to allocate the hotel marketing The profit from a given marketing-mix resources to the media available, in order to strategy can be calculated from the equa- combine the highest return for the outlay tion: with the least risk in regard to the total resources available. Of course, the income Z ϭ Q(P Ϫ D Ϫ c) Ϫ F Ϫ M generated is not the same as profit generated. where: For instance, the profit on the £800,000 of income generated by a TV campaign will Z ϭ total profits; probably not be sufficient to cover the Q ϭ quantity of units sold; £200,000 cost of the campaign. Hence, it P ϭ hotel list room rate; will be useful, not merely to establish an D ϭ discount, trade allowance or com- order of preference in the relative expendi- mission; ture on the different media, but also to find a c ϭ service production variable cost, cut-off point below which the expected such as labour; return for expenditure in the next medium F ϭ fixed costs, such as property tax and proposed is quite simply unprofitable. managerial salaries; M ϭ marketing costs associated with the strategy in question; Marketing mix and profitability (P Ϫ D Ϫ c) is the gross contribution margin The importance of the hotel marketing budg- per unit; and eting process should be seen within the Q(P Ϫ D Ϫ c) is the gross contribution avail- development of hotel marketing plans: in able to cover fixed costs, discretionary particular, regarding its role as a planning marketing expenditures, and to provide for tool, its interrelationship with forecasting profit. procedures, its linkage with the definition of hotel marketing objectives and alternative The implications of this equation will be marketing strategies, its crucial role in terms more fully developed below, in the section of the allocation of financial resources to which deals with cost-volume-profit analy- marketing mix programmes, and in terms of sis. In the present context of the marketing being seen as a monitoring device within a budget, it should be clear that the attainment marketing control system. of target sales and profit can be planned and The hotel should seek to create a differ- controlled by setting up a marketing budget ential advantage (DA), the set of unique which utilizes these relationships between features in a hotel’s marketing programme activity, revenues, costs and profit. One that attracts customers and causes them to problem which may remain, however, is patronize the hotel and not its competitors. that the total amount to be spent is often Without a DA, a hotel adopts a ‘me-too’ determined by a simple-rule-of-thumb philosophy and offers the customer no rea- method, such as percentage of annual expec- sons to select its offerings over a ted sales or last year’s budget plus an competitor’s. A DA can be achieved through assumed growth percentage. More appro- a distinctive image, new products/services priate, however, is a method which takes no or features, quality of services, low rates, such precedent for granted, and which 196 J. Bridge and L. Moutinho

Table 7.4. Illustration of zero-base marketing budgeting.

Budget (M) Summary of the marketing plan Sales forecast (Q)

£1,050,000 Maintain sales and market share in the short term by 60,000 service units concentrating sales effort on business travellers, advertising only in magazines, newspapers and direct mail, sponsoring two promotions a year, and carrying on only limited marketing research £1,500,000 Implement a coordinated effort to expand market share 70,000 service units by contacting 80% of all tour operators and travel agents, adding magazine advertising, adding point-of- purchase displays, and sponsoring three promotions during the year. £1,950,000 Seek to expand market size and share by adding two 90,000 service units new hotel products, enlarging the sales staff, increasing marketing research, and expanding the advertising budget

assesses the impact of setting the expendi- that this expenditure will yield more favour- ture level on the achievement of business able results than spending the same amount objectives. in another way. Hence, one needs some caution when applying this concept. For Zero-base marketing budgeting example, a hotel that relies on a reservation The planning technique called zero-base system, should see this feature as a ‘core’ or budgeting (ZBB) continually assesses and vital element which at the minimum must questions existing programmes. It also facil- be maintained at a certain level. One itates the development of new programmes. approach is to subdivide the budget into the The hotel manager can formulate a market- ‘vital core’ and an ‘all other category’, and ing plan for each target market (TM) and only apply the ZBB concept to the ‘all other’ estimate sales, for example, at three levels of category. marketing expenditure, such as 30% below For the TM illustrated in Table 7.4, the the normal level, the normal level and 30% prospect of operating at the zero-base loses above the normal level. An example is 10,000 service units as compared with the shown in Table 7.4, outlining what a hotel ‘normal’ £1,500,000 budget level. If the pos- manager would do with each budget level sibility exists for re-allocating £450,000 to a and the estimate of sales volume (the sales- TM’s marketing budget, which would gen- response function). Then management erate more service units than this potential reviews this response function against those loss, the implications are clear. of other hotel products/services with differ- From a practical standpoint, the hotel ent TMs and gives serious consideration to marketing budgeting process involves four shifting funds from TMs with low marginal distinctive stages: (i) target profit planning; responses to TMs with higher marginal sales (ii) implementation of the right combination responses. of the marketing mix elements; (iii) applica- The application of a broad budgeting con- tion of suitable and effective budgeting cept will help the hotel manager to prioritize techniques; and (iv) monitoring of action where he or she wants to spend his or her programmes. Budgeting facilitates effective limited resources. The ZBB concept states control to enable the manager to monitor that no expenditure is justified just because marketing operations and pinpoint problem it was spent last year. Every expense is re- areas. While budgeting facilitates coordina- analysed and justified each year on the basis tion and communication between target Financial Management in Tourism 197

Fig. 7.1. Break-even chart for dinner dance. hotel departments, it can only lead to opti- origin because there are fixed costs which mal results if the overall budget and its still have to be borne when output is zero. allocation is carefully thought through. Ana- The constant slope of the total cost function lytical approaches, such as ZBB, can help to is dependent on the unit variable cost establish the budget on rational principles. remaining unchanged. The profit function is deduced from the other two functions, and is the difference Cost-Volume-Profit Analysis* between total revenue and total cost. When output is zero, profit will be negative by an The break-even chart amount equal to the fixed costs, and there- A convenient device for gauging profitabil- after it will rise by an amount (PϪc) for every ity at various production or service levels is unit produced, where P and c are the unit the break-even chart (Fig. 7.1). The analysis selling price and variable cost, respectively. of the cost, revenue, and profit functions The magnitude (PϪc) is the contribution to goes beyond the determination of the break- profit. Initially, the contribution from each even point, which occurs where the cost and unit helps to offset the fixed costs, and no revenue functions intersect, and where the profit overall is made until the break-even profit line cuts the output axis. It encom- output is reached: where total cost equals passes an examination of the relationships, total revenue and profit is zero. Marketing at all levels, between a changing volume of costs discussed in the section on marketing production or service delivery, costs, sales- mix and profitability, can be handled within revenue and profits, and the subject is this framework, but for present purposes let normally called ‘cost-volume-profit’ (CVP) us treat these as if they were included in the analysis. fixed costs. In Fig. 7.1, cost, revenue and profit are all If we let f ϭ fixed cost and Q ϭ output, we linear functions of output. Each service unit can write: provided is sold at a common price which Total cost ϭ f ϩ Qc dictates the slope of the revenue function. The total cost line does not pass through the (the sum of fixed and variable costs) and

* Much of this section originally appeared in Bridge (1989) and is reproduced here with the permission of the publishers. 198 J. Bridge and L. Moutinho

Total revenue ϭ QP Table 7.5. Cost-volume-proﬁt analysis. The break-even output occurs where: Number of f ϩ Qc ϭ QP tickets Cost Revenue Proﬁt from which it can be deduced that: 0 1800 0 (1800) f 50 2100 750 (1350) Q (break-even) ϭ 100 2400 1500 (900) (P Ϫ c) 150 2700 2250 (450) 200 3000 3000 0 For example, suppose that a dinner-dance is 250 3300 3750 450 planned at your hotel for which the ticket 300 3600 4500 900 price is set at £15. If the average variable cost 350 3900 5250 1350 for the food and wine is expected to be £6 400 4200 6000 1800 the contribution would be £9. Fixed costs 450 4500 6750 2250 for the event, including the cost of staff, 500 4800 7500 2700 orchestra, and other entertainments are 550 5100 8250 3150 600 5400 9000 3600 thought to be around £1800 (see Table 7.5), so substituting in the formula above:

1800 Fixed costs (£) 1800 Break-even quantity ϭ Variable costs (£) 6 (15 Ϫ 6) Selling price (£) 15 ϭ 200 tickets Contribution (£) 9 Break-even quantity 200 If the hotel is expected to sell 350 tickets for Break-even sales (£) 3000 the function, this gives a ‘margin-of-safety’ Estimated sales 350 of 150, or £2250 expressed in sales revenue. Margin-of-safety 150 These latter ﬁgures show how far the ticket Or (£) 2250 sales would have to fall below the estimated Or (%) 42.9 level before losses emerged, and the corre- Proﬁt-volume ratio (%) 60 sponding fall in sales revenue. Expressed as a percentage, the margin of safety is:

(350Ϫ200) ϭ 42.86% will be accompanied by an increase in profit 350 of £60. All the ratios and margin-of-safety figures were computed using a microcom- Another attribute which may be measured puter spreadsheet which was used to through CVP analysis is the ‘profit-volume generate Table 7.5. ratio’, which is the contribution expressed On the face of it, there would be consider- as a proportion of sales revenue. On a single able benefits to be gained if the price could unit sold: be raised. In Fig. 7.2, the event now breaks even at a lower level of ticket sales, and (P Ϫ c) achieves greater profits at all sales levels, as profit-volume ratio ϭ P a result of raising the price from £15 to £18. It enjoys a larger profit-volume ratio, and (15 Ϫ 6) margin-of-safety. It is likely, however, that a ϭ 15 price increase would reduce the quantity demanded, so an understanding of the price ϭ 60% elasticity of demand for the tickets would This ratio will apply for the range of sales for seem essential before the CVP analysis which P and c remain constant. In this could make further progress in assessing range, every £100 increase in ticket sales whether a price increase (or reduction) Financial Management in Tourism 199

Fig. 7.2. Break-even chart: effect of price increase.

would be beneficial to the firm. The need for determination. Marginal cost is the change demand considerations to be made explicit in cost brought about by a unit change in is something which not only affects CVP output. Since fixed costs are insensitive to analysis, but all the issues tackled in this output changes, by definition, it is the chapter from capital budgeting through to behaviour of variable cost which is relevant yield management which is discussed in the in the application of marginal analysis. One next section. could equally define marginal cost as the It is apparent from the previous para- change in variable cost brought about by a graph that total revenue will frequently not unit change in output. Marginal revenue is be a linear function, since price adjustments defined similarly as the change in total reve- will generally be required to dispose of addi- nue brought about by a unit change in tional services: hotel beds, excursions, output. The marginal functions show the tickets for events, and so on, unless the tour- slope of their respective total functions at ism business operates in a perfect market. each possible output. Furthermore, total costs may not be a linear function of output, either because unit varia- Profit maximization in competitive ble costs are not constant, or because there conditions are costs of a semi-fixed/semi-variable In the micro-economic models of the firm, nature (e.g. wages of supervisory staff), the profit maximizing output is located which cause a sudden jump in the cost func- where marginal cost is equal to marginal tion when a critical output is reached. Once revenue. Under conditions of perfect com- the revenue and cost curves cease to be lin- petition, each firm is a price taker, with price ear, there is the possibility of additional being determined impersonally by the inter- break-even points (a second appears in Fig. action of market supply and demand. The 7.3), with a position of profit maximization firm’s marginal revenue is then constant and occurring somewhere between the break- equal to the market price. Instead of the even points. usual economist’s diagram, based on the marginal functions, we can use the CVP CVP and economic theory: marginal analysis chart (Fig. 7.3) to illustrate the profit- Economic theory relies heavily on marginal maximizing output in the short run. The analysis in the treatment of output and price linear revenue function is still used if a con- 200 J. Bridge and L. Moutinho

Fig. 7.3. Cost curve with two break-even points (taken from Bridge (1989) with the permission of the publishers). stant selling price prevails in the market. successive units will fall. In place of the However, if marginal cost is not constant, single break-even point, with ever- but rising, the total cost function will show increasing profit beyond, there are two an increasing slope. break-even points shown, with a profit- One possible factor which could cause maximizing output lying somewhere rising marginal cost is ‘diminishing returns’ between the two. This latter output may be (often explained in terms of the proverb ‘too located through marginal analysis by find- many cooks spoil the broth’), in which the ing where marginal cost is equal to marginal linear total cost function will be replaced by revenue (ϭ market price, under perfect a curve as shown in Fig. 7.3. While linear competition). cost functions will often be satisfactory for many practical purposes, it is important that Pricing in less competitive conditions any service business which permits consid- At the other extreme from perfect competi- erable variation in the mix of inputs (the tion lies the market form known as ratio of ‘cooks’ to ‘broth’ ingredients), is monopoly. This is unlikely to be found in aware of possible falls in marginal product, tourism markets, despite the fact that mer- and rises in marginal cost, if diminishing gers between hotel groups, tour operators returns set in. and airlines in the UK may be referred to the The main lesson of CVP analysis is that Competition Commission. These are more profits will improve with an expansion of properly seen as examples of oligopoly, output, so long as there is a positive con- although this market form can behave in a tribution (P Ϫ c). In Fig. 7.3, marginal cost manner detrimental to the consumer, hence rises unit by unit, and the contribution from possible intervention according to competi- Financial Management in Tourism 201

Fig. 7.4. Maximum of sales and profit (taken from Bridge (1989) with the permission of the publishers). tion law. The monopolist can select an tion has been chosen to be: appropriate price and quantity, but must Q ϭ 80 Ϫ 2P (as tabulated in Table 7.6) ensure that these are consistent (with market demand). In economic theory it is normally In this case, the business adjusts its price assumed that the choice will be made so as (average revenue) according to the output to maximize profit. which it tries to sell. Disposal of 60 units per So long as we restrict our attention to period requires a price of £10, while 40 units those situations where there is some discre- per period could be cleared at a price of tion over price and output, the analysis may £20. be loosely extended to cover big-business Traditional economic theory proposes a situations other than monopoly, although profit-maximizing solution, which will there is no accommodation of interdepend- occur at a quantity of 32 units and a price of ence in what is exhibited here, and so this £24. This may be read from Table 7.6 (or facet of oligopoly is not adequately repre- computed by the spreadsheet). The peak of sented. In the CVP chart drawn in Fig. 7.4, a the profit curve can also be identified from linear cost function is adopted once again Fig. 7.4, which directly confirms the output for simplicity, with fixed costs of £24 and decision. Alternatively the business may unit variable costs of £8 (see Table 7.6). pursue sales-revenue maximization accord- However, a new sales revenue function is ing to the ‘managerial’ sales-revenue- introduced. The slope of this function grad- maximizing (SRM) model of the firm pro- ually falls until the curve flattens at its peak, posed by Baumol (1959). In this instance, beyond which the slope is negative. This the peak of the sales revenue curve would be sales revenue behaviour is characteristic of a located at an output of 40 units and price of linear demand function for the service £20. The sales-revenue maximizer would (product or brand). In this example the equa- therefore produce a greater quantity and sell 202 J. Bridge and L. Moutinho

Table 7.6. Maximization of proﬁts and sales (taken from Bridge (1989) with the permission of the publishers).

Intercept 80 Fixed cost 24 Slope -2 Variable cost 8 Quantity Av. revenue Sales Cost Proﬁt

80 0 0 664 Ϫ664 78 1 78 648 Ϫ570 76 2 152 632 Ϫ480 74 3 222 616 Ϫ394 72 4 288 600 Ϫ312 70 5 350 584 Ϫ234 68 6 408 568 Ϫ160 66 7 462 552 Ϫ90 64 8 512 536 Ϫ24 62 9 558 520 38 60 10 600 504 96 58 11 638 488 150 56 12 672 472 200 54 13 702 456 246 52 14 728 440 288 50 15 750 424 326 48 16 768 408 360 46 17 782 392 390 44 18 792 376 416 42 19 798 360 438 40 20 800 344 456 38 21 798 328 470 36 22 792 312 480 34 23 782 296 486 32 24 768 280 488 30 25 750 264 486 28 26 728 248 480 26 27 702 232 470 24 28 672 216 456 22 29 638 200 438 20 30 600 184 416 18 31 558 168 390 16 32 512 152 360 14 33 462 136 326 12 34 408 120 288 10 35 350 104 246 8 36 288 88 200 6 37 222 72 150 4 38 152 56 96 239784038 040024Ϫ24

at a lower price than its profit-maximizing reconcile it with SRM, by arguing that SRM counterpart. is a short-run objective consistent with long- Economists anxious to defend the profit- run profit maximization. This is a plausible maximizing assumption have attempted to reconciliation based on the view that a busi- Financial Management in Tourism 203

Fig. 7.5. Alternative revenue assumptions (taken from Bridge (1989) with the permission of the publishers). ness may try to build up market share with a be to produce at 38 units and enjoy a sales competitive price, with the intention of revenue of £798. If the profit requirement reaping larger profits in the future. Although were set as low as £230, the constraint Baumol’s reasoning will not be explored in would not be binding on the SRM firm, since detail here, he cites other reasons for SRM absolute sales maximization would comfort- based on the fulfilment of managerial objec- ably exceed this figure. tives. For example, size as measured by sales To summarize, we have: volume, may confer salary benefits, as well Profit as the satisfaction of being associated with a maximization: price £24, output 32 units powerful business, more effectively than SRM: price £20, output 40 units profitability. SRM as a managerial objective Constrained in pricing could then be at odds with share- SRM: price £21, output 38 units holders’ interests. An intermediate position, which is nei- The form of the sales revenue curve used in ther profit- nor sales-maximizing in an this example may be reconciled with the absolute sense, arises if sales revenue is conventional CVP chart as shown in Fig. 7.5. maximized subject to a profit constraint. The line marked rev 1 is the total revenue Thus an absolute sales maximizer would line which would be drawn for a selling reach the peak of the sales curve in Fig. 7.4 price of £20. With the demand function: achieving revenue of £800 at an output of 40 Q ϭ 80 Ϫ 2P units. The profit at this output is below the maximum (£456 as against £488). In trying in operation, it is found that 40 units can be to achieve the highest sales level possible sold at this price. With the line marked rev 2, without dipping below a profit of £470 (con- a price of £15 is taken, at which 50 units may straint line in Fig. 7.4), the solution would be sold. Finally, rev 3 corresponds to a sell- 204 J. Bridge and L. Moutinho

ing price of £10, at which 60 units are rate of £50 is a complex choice which demanded. The shape of the sales function requires appropriate information and an begins to emerge when these outputs of 40, analytical approach. 50 and 60 are marked on to their respective In theory, prices can be set by determin- revenue lines as shown in Fig. 7.5. It is only ing the demand curves and relevant when the CVP analysis is extended to elasticities of different market segments, e.g. include demand analysis, that the implica- package tours as against business users. tions of profit or sales-revenue While complete knowledge of these is not maximization objectives for price and out- generally available in practice, management put (activity) decisions can be determined. does form judgements, which can be refined by examining patterns over time, as to how one expects to allocate available capacity Efficiency in Capacity Utilization among different market segments at a specific point in time. ‘Selective sell’ targets can After a business has determined and imple- be assigned to advertising and sales person- mented its long-run investment strategy, it nel, reflecting these expectations. To assist needs to ensure that its viability as deter- in monitoring performance and to enable mined by the forecasts of cash flow is selective sell targets to be more clearly actually realized. Of course, in an industry focused, an index of asset revenue generat- where short-run fixed costs tend to be high, ing efficiency (ARGE) may be employed. As break-even points become difficult to ach- we shall see, a similar concept relating ieve when there is a reduction in activity actual to potential revenue, proposed by due to economic conditions, and a flexible Orkin (1988), is discussed in the context of approach in managing the capacity is essen- yield management below, but the value of tial. We shall examine first of all how a hotel, the ARGE approach to performance meas- or other tourism business, might measure its urement is that it forces explicit recognition performance in using its capacity. of the opportunity cost of accepting business from one segment when another might sub- ARGE: asset revenue generating efficiency sequently yield a higher rate. Some capacity-constrained service organi- ARGE is determined as the product of the zations use percentage of capacity sold as a percentage occupancy and the average unit measure of operational efficiency. Hotels price efficiency rate. For example, a frequently speak of ‘occupancy rates’, 400-room hotel adopts a maximum posted expressed as percentage figures, but these room-rate of £50. If only one-half of its tell us little of the relative profitability of the rooms are occupied on a given night, with business attracted, given that high utiliza- 100 rooms sold at £50 and another 100 at tion rates may be generated by offering £30, then the average unit price efficiency substantial discounts on normal rates, leav- rate is 0.8 and the occupancy is 50%, there- .ϭ 40% (0.8 ן ing little profit to be gained from the fore ARGE is (50% additional turnover. Alternatively, the ARGE may be calculated What is needed is a measure of the by dividing total revenues received (£8000) revenue-generating potential of the hotel’s by the maximum potential revenues that assets. This must take into account a com- could have been obtained, i.e. by selling all parison between the average price actually rooms at the highest price (£20,000). obtained per unit of service and the max- There is a trade-off between the two imum price that might have been charged, terms in the ARGE equation. The percentage what is termed the ‘unit price efficiency occupancy might be improved by taking on rate’. Whether a hotel should accept an more low-margin business, but at the cost of advance booking from a tour group of 400 lowering the unit price efficiency rate. Any room-nights at £30 each or hold out in hope decision to accept or reject business should that the same facilities might be in demand include a realistic estimate of the probabili- later to business travellers at the full room ties of alternative business becoming Financial Management in Tourism 205

available, together with a recognition of any pied multiplied by the contribution to profit incremental costs involved. Incremental less the probability of it not being occupied revenues should always be greater than multiplied by the carrying costs. There will incremental costs, unless the hotel service is be a positive contribution so long as Pn to be marketed as a ‘loss leader’ or the action (rϪsϪc) exceeds (1 Ϫ Pn)c programme is part of a pre-specified market- The critical probability that at least n ing strategy. rooms will be demanded on a given night is written as p*n and this is given by the CRM: critical ratio method ratio: The concept of probability raised in the pre- c vious paragraph is related to frequency and p*n ϭ (crm equation 1) occupancy, in so far as a room which is (rϪs) typically occupied for half of the nights in the year, has a probability of being occupied At this critical ratio, there will be zero con- averaging 0.5. Of course, because of varia- tribution, but when the probability (or tions in demand throughout the year, this frequency of occupancy) exceeds this ratio, probability will not be static, and it is the there will be a positive contribution responsibility of management to maintain (rϪsϪc) data which will enable accurate computa- 1 Ϫ p*n ϭ (crm equation 2) tions of probability to be performed. To (rϪs) assist in determining the desirability of attracting additional guests, hotel busines- As an example, suppose that for the nth ses may utilize the critical ratio method. room of a hotel, the occupancy-variable rev- This technique is based on the expected enues (r) per occupied room-night are £75 contribution of an incremental available and that its occupancy-variable costs (s) per room. A room will generate a positive con- occupied room-night are £30. If the hotel’s tribution if it is occupied. The expected capacity-variable costs (c) per available contribution of an incremental available room-night are £15, one can find the critical room can be seen as: ratio as: 15/(75 – 30) = 1/3, or 0.33 which means that the nth room need only be uti- C ϭ r Ϫ (s ϩ c) lized for one-third of the nights in the year to where: C ϭ the expected contribution of an break even; any greater frequency of occu- incremental available room; r ϭ the pancy will yield a positive contribution. occupancy-variable revenues; s ϭ the The second equation gives the demand occupancy-variable (servicing) costs; and c level equivalent to the probability that ϭ the capacity-variable (carrying) costs. capacity will exceed demand and so the nth Then the hotel manager can calculate the room will not be occupied. expected contribution of the nth room of a (75 Ϫ 30 Ϫ 15) contemplated capacity of n rooms as fol- 1 Ϫ p*n ϭ ϭ 0.67 (the lows. Let: (75 Ϫ 30) ECn ϭ expected contribution of the nth same as 1 Ϫ 0.33) room of a contemplated capacity of so that as long as the probability of excess n rooms capacity is less than two-thirds, a positive Pn probability that at least n rooms will contribution will be enjoyed. be demanded on a given night (or As with the ARGE measure discussed the frequency with which demand previously, it is important to examine the will reach this level) trade-offs implied in the ratio. Once again, a Then: balance must be struck between having additional capacity standing idle and the ECn ϭ Pn (rϪsϪc) Ϫ (1 Ϫ Pn)c acceptance of a lower contribution. Thus, in i.e. the probability of the room being occu- the example just given, suppose that the nth 206 J. Bridge and L. Moutinho

room were made available at the discounted potential revenue is £40,000 then the yield ϭ 62.5%. The 100% ן rate of £60 instead of the usual £75. The percentage is 25/40 critical ratio would rise to: same result would arise from 300 rooms at £83.33 average rate or 400 rooms at £62.50 15 average rate. ϭ 0.5 (60 Ϫ 30) In hotels, as with airlines, yield management will attempt to balance between which means that one would need to be supply and demand by constant small confident that the lower rate would enhance adjustments in price. Hotel guests may be the probability of occupancy from one-third divided into two sectors, business and lei- (as originally determined), to one-half. sure, each with their own characteristics. As in the airline business, the leisure client will Yield management systems be likely to book well in advance with price Yield management is a concept which is being the major deciding factor. On the other well established in the airline industry and hand, business clients will be likely to book which has been adapted to the needs of hotel only a few days prior to their visit and analy- management. It brings together many of the sis has shown that they are generally willing analytical methods of financial management to pay more for accommodation. The prob- and the associated aspects of economics, lem for hotel management is that the statistics and information systems dis- demand for discounted rooms tends to pre- cussed elsewhere in this chapter. As we cede the demand for higher rated rooms. If have seen, the sound application of strategic the demands were exhibited in the reverse management and investment appraisal tech- sequence, one could sell all the expensive niques may still leave decision-makers with rooms first and then dispose of the spare capacity management problems in the short capacity at a discounted rate. It should be run, particularly when fixed costs are high apparent, furthermore, that if demand in the and demand is fluctuating. market as a whole contracts or intensifies, The focal point of yield management sys- the prices will need to be recalculated to tems is the equation: reflect the new position of the demand and revenue curves. Revenue realized With these economic principles in mind, 100% ן Yield ϭ % Revenue potential yield management was developed and began to mature in the 1990s in the hotel Example: If a hotel sells 270 rooms out of industry, as a means of adjusting prices to 360 available, at an average rate of £68 as improve revenue yields. It reflects a need to against a posted rate of £85, the percentage lower prices when demand is sluggish and -ϭ raise them when it is buoyant, and to bal (85 ן 360)/(68 ן 270) ן yield is 100% ϭ 60%. The ARGE ance the demand from the business and 18360/30600 ן 100% measure would give the same answer, but as leisure sectors. The airlines have shown, a product of the percentage occupancy and with the aid of computers, that revenue the average unit price efficiency rate ϭ 75% yield can be greatly improved in this way. It -ϭ 60%. has become a practical proposition to fore 68/85 ן Yield management combines room cast future occupancy of hotels, allowing for inventory management with pricing. Room seasonal and other influential factors. inventory management determines how Most hotel companies that employ a many rooms are allocated to each market yield management system base it on the segment, and then the price, or room rate, ‘threshold approach’, which uses the con- quoted to each segment must be set concept of upper and lower thresholds for sistently. A given percentage yield could forecast demand, with which actual demand result from several different combinations of may be compared. If actual demand does not room rates and occupancy. Thus: 250 rooms fall within the threshold values, manage- at £100 average rate yields £25,000, and if ment is alerted. If strong demand is shown, Financial Management in Tourism 207

then the price of rooms can be raised. If yields, and there may be an inconsistency demand is lower than expected then dis- between revenue and profit maximization. counts can be offered. Indeed, a distinction can be drawn between In balancing the use of capacity, Sawh- yield management systems which are profit ney and Lewis (1992: 11) point to the focused, and those which are revenue problem of overselling discounted rooms, focused. which results in lost revenue known as ‘spill As we have seen with the application of or high rate spill’. Spill may be minimized capital budgeting, the availability of com- by accurate forecasting of later higher rated puters enables the business to carry out transient demand, and this is fundamental complex calculations and keep track of all to successful yield management. The same the important factors and data, in a manner point is emphasized by another author who which was not previously possible. The refers to the ‘elasticity’ concept. Relihan Times (1997) reported how enquiries at big (1989: 42–43) states that, ‘Judging whether chains such as Hyatt will result in a the late booking, price-inelastic demand computer-generated room rate quotation, will materialise is yield management’s pri- around which there may be little scope for mary function.’ negotiation. The same article, however, There are numerous examples of the reports that there are still many hotels in the application of yield management which UK which have not installed yield manage- have been cited in both academic journals ment systems. and the trade press. However, differences Donaghy et al. (1995) reported on the use may exist between the perceived effective- of advanced technology: involving artificial ness by management and the claims of yield intelligence and expert systems to assist management experts. There have been some managers in yield management. Despite the studies which have cast doubt on its univer- advances which such technology undoubt- sal effectiveness (see for example Sawhney edly permits, these authors, in their review and Lewis, 1992), but there does appear to article, record an open verdict on yield man- be industry-wide acceptance of the value of agement and conclude: ‘Practitioners in the yield management as a tool for increasing industry would find it particularly helpful revenue and improving efficiency, at least to have some tangible quantitative evidence among many of the large hotel chains. For of the impact of yield management on hotel example, Orkin (1988: 3), an expert who has performance’ (1995: 149). developed such systems and installed them in many businesses states that, ‘Yield management works. Hotels adopting the systems Conclusion and techniques have reported record increases in revenue. In a recent test by Hilton Financial management is a vital element in Hotels, every hotel employing a yield man- any tourism business in fulfilling its revenue agement system experienced record high and profitability objectives. The latter parts revenues.’ of this chapter have focused on the need to If effective, yield management should utilize capacity effectively through such assist the hotel to improve its revenues and techniques as yield management and cost- long-term profitability. This is accompli- volume-profit analysis, but the main thrust shed by attempting to combine the largest of the earlier sections was the need to engage number of guests possible and the highest in strategic planning and capital budgeting rate from each guest, subject to the provision to ensure that an appropriate level of capac- of a predetermined level of quality of serv- ity is planned in the first place. Capital ice. The concept of aiming to maximize budgeting concepts can assist both large and revenue is well established in theory and small businesses within the tourism indus- practice, but increased intensity of competi- try, not only in determining fixed capital tion in the hotel industry, accompanied by requirements but in deciding which market- market segmentation, has lowered potential ing strategies and marketing mix tools will 208 J. Bridge and L. Moutinho

exploit an investment to its potential in gen- Brown, D.O. and Kwansol, F.A. (1999) Using IRR erating the desired return or net present and NPV models to evaluate societal costs of value. tourism projects in developing countries. Complex computer systems involving International Journal of Hospitality Manage- artificial intelligence and expert systems ment 18(1), 31–43. have been adopted in some yield manage- Coltman, M. (1994) Hospitality Management Accounting, 5th edn. Van Nostrand Rein- ment applications. Large hotel groups hold, New York (especially Chapters 6, 9 and employing such systems will already have 10). the necessary hardware and appropriate Donaghy, K., McMahon, U. and McDowell, D. software, as well as a wealth of data on (1995) Yield management: an overview. patterns of demand. Together, these can International Journal of Hospitality Manage- assist in budgeting, forecasting and strategic ment 14(2), 139–150. planning in addition to the short-term man- Drury, C.(1997) Management and Cost Account- agement of capacity. For small businesses ing for Business Decisions. International such sophistication is not always necessary Thomson Business Press, London. or desirable, but microcomputer spread- Hankinson, A. (1992) The small hotel and the sheets can assist in fostering a more investment necessity criterion. Horae 3(2), systematic decision-making process by pro- 31–39. viding a more rigorous basis for financial Harris, P.J. (1992) Hospitality profit planning in modelling, budgeting and control. the practical environment: integrating cost- volume-profit analysis and spreadsheet management. International Journal of Con- temporary Hospitality Management 4(4), Answer to Exercise on Page 192 24–32. Harris, P.J. and Brown, J.B. (1998) Research and With the new figures, D has a profitability development in hospitality accounting and index of 0.55 (£55,000/£100,000). The new financial management. International Journal ranking is C, A, B, G, E, D and F. The hotel of Hospitality Management 1(2), 161–181. should adopt C, A, B, E and D; this requires a Kotas, R. and Conlan, M. (1997) Hospitality total initial outlay of £550,000 and has a Accounting, 5 edn. International Thomson total net present value greater than that of Business Press, London. the former allocation which comprised: C, Orkin, E.B. (1988) Yield Management – What, A, B, G and E. The inclusion of D ahead of G How and Why, CKC Report. Chervenak Keane and Company, New York. arises from G’s failure to use all of the main- Orkin, E.B. (1990) Strategies for managing tran- ing capital budget despite its more sient rates. Cornell Hotel and Restaurant favourable profitability index. Administration Quarterly 30(4), 35–39. Owen, G. (1998) Accounting for Hospitality, Tour- ism and Leisure, 2 edn. Longman, Harlow, References and Further Reading UK. Relihan, W.J. (1989) The yield management Atkinson, H., Berry, A. and Jarvis, R. (1995) Busi- approach to hotel room pricing. Cornell ness Accounting for Hospitality and Hotel and Restaurant Administration Quar- Tourism. International Thomson Business terly 30(1), 40–45. Press, London. Sawhney, S. and Lewis, R.C. (1992) Hotel yield Baumol, W.J. (1959) Business Behavior Value and management in practice: a case analysis. Growth. Macmillan, New York. Journal of Hospitality and Leisure Marketing Bridge, J. (1989) Managerial Decisions with the 1(2), 7–25. Microcomputer. Philip Allan, Hemel Hemp- The Times (1995) UK hotels cost more, Travel stead, UK (especially Chapters 3 and 6). News, 14 September 1995, p. 40. Financial Management in Tourism 209

The Times (1997) Room manoeuvres, Travel Sec- (especially Parts II and III). tion, 22 June 1997, p. 3. Wood, F. and Lightowlers, P. (1991) Accounting Witt, S.F. and Moutinho, L. (eds) (1994) Tourism in the Hotel and Catering Industry, 6th Marketing and Management Handbook, 2nd impression. Longman, Harlow, UK (espe- edn. Prentice Hall, Hemel Hempstead, UK cially Chapter 37).

8 Operations Management

G. Southern

What is Operations Management? one is more easily applied to an artefact than to a service. Specifying measurable para- Operations management is concerned with meters for artefacts is easier than specifying the design and control of transformation sys- them for services. Artefacts have shape and tems to deliver the services, including size and can be seen and touched by custom- products, of an organization at the right qual- ers, frequently before purchase. Services are ity, at the right place and at the right time. more concerned with changes in the state of It should be noted that this definition takes a feelings of customers and as such are intan- systems viewpoint of operations. It should gible to the highest degree. also be noted that the ‘right quality’ is intan- This is particularly so with tourism, gible, particularly in the case of tourism, where the expectations of customers will be although the price and times are tangibles positioned in terms of continuums such as which are specified at the time of booking a tranquillity to excitement, known to holiday or journey in this sector. Quality is unknown, programmed activities to free- determined by the expectations and per- dom, simple to complex, and will cover the ceived delivery level for each of a bundle of whole range of human feelings. (The three factors for each customer. It has been periods of highest stress in human life are defined as: said to be marriage, moving house and going on holiday.) Defining quality in service orga- ● ‘the totality of features and character- nizations is, therefore, no simple matter, istics of a product or service that bear on particularly for tourism where the product is its ability to satisfy stated or implied bought unseen except in the case of repeat needs’ (ISO 8042, 1989); purchases, and even here the ambience of a ● ‘the total composite product and service location or mode of transport can change characteristics of marketing, engineer- year by year. Tourist locations can, in the ing, manufacture, and maintenance world of mass communication, become pop- through which the product or service in ular overnight and with little development use will meet the expectation by the control builders can move almost as customer’ (Feigenbaum, 1983); and quickly. ● ‘fitness for purpose or use’ (Juran and Video and TV can let you see a place, but Gryna, 1980). travel consists of smells, noises, tastes and The first of these definitions leaves one feelings which sight alone can only hint at. with the feeling that the word ‘service’ was Each holiday or journey booked can be con- added as an afterthought, and even the last sidered as an individual legally binding © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 211 212 G. Southern

Box 8.1. BBC and Cosmos Tours.

In a programme broadcast on 16 May, 1997 complaints about poor service, food provision and children’s play facilities provided to ‘no money’ holiday-makers were aired on BBC (UK) TV in a programme called Weekend Watchdog. The holidays involved package tours to Rhodes. ‘No money’ is a concept where holiday-makers pay all cash needed on a holiday before going, including that to cover food, leisure activities, and drink to loosely speciﬁed standards: the implementation of the concept is described in an earlier case by Voss et al. (1985). In the BBC programme it was apparent that the perception of poor quality was enhanced by the fact that all the facilities were shared with half-board tourists, who paid for bed and breakfast up-front, but on a cash basis for anything additional to that. From the evidence presented in the programme it was obvious that the two sets of holiday-makers were treated differently: the no-money people were ‘given’ drinks in plastic containers from a poorly equipped, unﬁnished bar and given low quality food with little variety, the half-board people were sold drinks in good glasses from a well-established and well-equipped bar and sold food in good quality restaurants. (It was pointed out that the ‘second class’ citizens were mainly British, and the better served holiday-makers were German.) It was, however, agreed that the hotel rooms and the pool facilities had been reasonable. The company offered £25 compensation to each adult from the complainants. The BBC invited viewers to join a telephone survey, voting for whether the holiday-makers should receive £24, £250 or a full refund of £600. The vote was about 5%, 35% and 60%, respectively. The image of the company was damaged.

contract with a vaguely specified product (or system is: ‘A set of components that do ‘promise’ in legal terms). In fact complaints something; if any component is taken away concerning quality are more likely to surface it changes the system; the system is of inter- in the popular press or on broadcast con- est’ (Open University, Managing sumer affair programmes (see Box 8.1) than Development and Change, 1994). in law courts, as changes in the state of a But different people will see the same customer’s happiness are much more diffi- system in different ways, and that the sys- cult to argue. When this happens the tems may contain subsystems. For example, tourism company is given very little oppor- within a tourist company an employee will tunity to respond, and even if it takes see the company as a work provision sys- reasonable steps to address the problem its tem, the owners as a profit generating image is already irrevocably damaged. Serv- system, and the customer as a recreation ice quality aspects will be discussed in provision system. Each of these individuals greater detail in the next chapter on Service will place the emphasis of their interest in Quality Management, although tangible the way specified, and each would define a measures will be considered later in this different boundary for the system. At the one. same time systems can be structurally very complex, and may need to be considered in The systems view terms of an interconnected set of subsys- Operations management owes much to systems, or components, related to the tems thinking, which is central to the functions they fulfil in order to make man- concepts of managing change. Interest in agement possible. We need to take a holistic managing change arose in the late 1970s and view of the total system, and relationships 1980s, when a rapidly changing working within it, and it is therefore necessary to environment led to a change in the role of have some way of representing systems. A managers. It is associated with a number of systems map fulfils this purpose. developments in management styles and in The systems map for a typical tour oper- the socioeconomic and technological envi- ating company is shown in Fig. 8.1. Senior ronment in which management is practised. managers of the organization will draw their The Open University (UK) definition of a system boundary as shown here, or perhaps Operations Management 213

Fig. 8.1. Systems map of a tour operating company. a little wider if their influence reaches that view of their system, and set their system far. Junior managers will tend to draw their boundary as shown, but more competent system boundaries at the limit of their sec- managers will take a higher-level view tion or department. However, the more which considers the cross-boundary inter- senior the manager, and the nearer to policy actions. decision-making they are, the greater the It is possible to convert a systems map need to take a higher level, more holistic into another diagram which represents view of the system. The ability to take what influences between subsystems by adding is known in the jargon as a helicopter view is arrows representing these influences. For of great benefit to a manager, and is repre- instance in our systems map the forecasting sented in Fig. 8.2. All managers will take the part of the coordinating subsystem will 214 G. Southern

Fig. 8.2. The helicopter view of systems and systems boundaries. influence the strategic planning subsystem, outputs required and with the inputs neces- which will in turn influence activities in the sary to deliver them. The transformation marketing and resource provision subsys- itself can for the moment be considered as a tems. The resulting influence diagram is ‘black box’. another useful tool in gaining an apprecia- An input/output diagram for the tour tion of the operating systems of an operating company displayed in Fig. 8.1 is organization. The systems view of the tour shown in Fig. 8.3. Note that inputs to the operating company shown in Fig. 8.1 is transformation system consist of tangible closely related to the operations manage- items (hotels, travel means and timetables, ment analysis framework which will be etc.) and knowledge of these. Output con- introduced later in the chapter, where the sists of feelings and perceptions created in subsystems representing resource provi- customers, i.e. intangibles. If we now con- sion, customer care and coordination will be sider the transformation process and its of particular relevance. relationship to systems thinking in more detail, we can see that outputs from one Representing system transformations subsystem usually become inputs to another Returning to our definition of operations subsystem. Referring back to Fig. 8.1, for management: ‘Operations Management is example, the outputs from the resource pro- concerned with the design and control of vision subsystem of our tour operating transformation systems to deliver the ser- company become inputs to our customer vices, including products, of an care subsystem, and will provide informa- organization at the right quality, at the right tion inputs into our marketing and sales price, and at the right time’, we see that subsystems. Using this principle it is possi- operations management is concerned with a ble to build elaborate models of the transformation process involving inputs relationships between systems and subsys- and outputs. This is common to the defini- tems which lead to both a broad and a deep tion of a system. The transformation process understanding of how operating systems can be displayed by using an input/output function. This concept has been developed diagram which allows us to begin an analy- into computerized system (or process) mod- sis of the transformation. Here we are not elling tools such as the IDEF0 modelling particularly concerned with the transforma- system (Peppard and Rowland, 1995). Such tion mechanism itself, but only with the tools are proving valuable in the analysis of Operations Management 215

Fig. 8.3. Input/output diagram for a tour/holiday provision system. material and information flow in organiza- outlet taking the order, handing over food, tions to ensure that the services and and paying are the only value adding points, products of an organization are delivered at all others, such as queuing detract from the the right quality, at the right price, at the perceived value of the service. right time, either by incremental improve- Activity sequence diagrams concentrate ment (i.e. total quality management) or by on the series of activities involved in deliv- radical redesign (business process re- ering the product or service, and are of engineering) (Hammer and Champy, 1993). greater value in the service delivery situa- If we now wish to document the trans- tion. An activity sequence diagram for the formation mechanism of the system, or more sales subsystem of a typical holiday retail probably a subsystem in detail, the most outlet (see Fig. 8.1) is shown in Fig. 8.4. This useful techniques we have are process flow plots the activities which a customer goes diagrams and activity sequence diagrams. through when selecting and booking a holi- Process flow diagrams are used to chart the day. Process flow and activity sequence flow of customers through a service delivery diagrams are particularly useful for identify- process, such as a restaurant. In this case the ing where value is added in the product or entire experience of the customer will be service delivery process, and where cost or charted, from arrival at the door until the effort is expended with little or no value departure at the end of the meal. Process added. Such activities should be eliminated flow diagrams use five symbols to represent if possible, or combined with value adding move, store (planned storage, not very activities if not. An example of this is the appropriate to flow of customers), delay, trend to eliminate inspection activities by inspect and ‘operate’ activities. The only redesigning the value delivery process to type of activity which adds value to the eliminate the possibility of defective serv- product or customer are the operational ice, and by placing responsibility for quality activities, and in the case of a customer flow with the server. This trend correlates closely chart moves and particularly delays are per- with a general trend to worker empower- ceived as points of low quality in the service ment and job enrichment. delivery system. For example, in a fast food In a service situation such as tourism, 216 G. Southern

Fig. 8.4. Activity sequence diagram, holiday sales. process ﬂow and activity sequence dia- or wait. In this case attempts must be made grams are particularly useful in identifying to eliminate or decrease the number and points at which perception of poor quality is length of these delays, usually by careful created by expecting the customer to queue manipulation of capacity; the techniques for Operations Management 217

Box 8.2. The Chicago Pizza Pie Company.

In the case of a London restaurant, the Chicago Pizza Pie Company (Voss et al., 1985), documented in a London Business School case study, long queues were considered an asset in indicating the fashionability and popularity of the establishment and attracting customers. However, to ameliorate the frustration of customers the owners erected an automatic sign indicating expected queuing time, encouraged buskers to entertain the queue, and sometimes handed out garlic bread to queuing customers. doing this will be described later. Where Perishability this is not possible attempts should be made ‘A service is perishable, i.e. it cannot be kept to convert passive waits to active waits (see in inventory, but is consumed in produc- Box 8.2). Passive waits can be deﬁned as tion’ (criterion 3). For example, consider a those where the customer is delayed and hotel room. What is sold here is the comfort feels no progress or action are being taken, or of the room for the night, so if it is not sold is given no information to justify the delay. on a particular night the potential to sell that Providing information to delayed customers room for that night is lost forever. This con- is important to avoid frustration. It is possi- cept is even more transparent in the case of ble to convert passive waits into active waits an aircraft seat where the opportunity to by providing activities for the customer, transport someone is lost if it is empty dur- preferably useful ones, such as browsing ing a journey. through brochures in the case described in Consideration of perishability is partic- our earlier activity sequence diagram. It is ularly appropriate in tourism where, apart also advisable to keep the customer advised from the two cases already cited, tour opera- of progress; for example, in the case of holi- tors tend to buy or take options on travel and day bookings (Fig. 8.4) we should let the accommodation which if not sold on to cus- customer see our computer screen if we are tomers lead to losses, hence the resulting making our computer checks and bookings. sale of short notice holidays at large price discounts.

Tourism: a Service Industry Heterogeneity ‘Services produce variable, non-standard Many of the classic concepts and techniques output’ (criterion 2). As a result services of operations management have been cannot be mass produced (criterion 7), and derived and developed for use in the manu- pricing options tend to be more elaborate facturing sector. However, tourism is placed (criterion 13). As a further result of criteria 7 firmly in the service sector, and there are and 3, quality control is primarily limited to fundamental differences between the two control of the delivery process itself, i.e. which indicate that we must be selective, process control (criterion 12). An indication adaptive and inventive in applying them. of heterogeneity in tourism is found in the The underlying reasons for the differences plethora of retail outlets selling a wide range are concerned with customer expectations of tour packages, and even tailored holidays, and resulting perception of value and qual- in each location. ity, and with the ability to store the ‘value’ delivered. Murdick et al. (1990) list 13 cri- Simultaneity teria for identifying types of service in ‘The customer participates in the process of contrast to manufacturing situations. These providing the service’ (criterion 5). As corol- criteria can be classified under the generic laries to this there is high customer contact headings of perishability, heterogeneity, throughout the service process (criterion 4), simultaneity, and intangibility, although all skills (or knowledge) are sold directly to the the generic factors and identification criteria customer (criterion 6), and high personal are interrelated. judgement is employed by the individuals 218 G. Southern

performing the service (criterion 8). Obvi- name eight factors on which organizations ously because of this service firms tend to be compete. These are considered below in the labour intensive (criterion 9), and decen- context of tourism under the generic head- tralized facilities are located near the ings of cost, quality, time and flexibility. customers (criterion 10). It is obvious in the case of tourism that the service, or any ele- Cost ments of it such as travel, residence, food or 1. Low cost operations, in the case of tour- recreation consumption, cannot be pro- ism this means low cost tours (travel vided without the presence and and accommodation). participation of the customer. The examples Quality given for heterogeneity also support this 2. High performance design, in this case aspect. perhaps the prestige or fashion level is equivalent to technical quality. Intangibility 3. Consistent quality, in this the holiday ‘Services produce intangible output’ (criter- always reaches the specification agreed ion 1). The quality of the deliverable can with the customer, although percep- only be gauged by the opinion of the cus- tions may vary. (Consider the different tomer. This facet is closely linked to both specifications in the no-money holiday that of heterogeneity and simultaneity. In case considered earlier.) the case of tourism this is self-evident and Time was discussed at some length earlier in the 4. Fast delivery time, this is probably section dealing with the definition of opera- equivalent to availability here. tions management, and quality within it. 5. On-time delivery, meeting the times and dates of travel and accommodation agreed. Strategic Positioning and Operating 6. Development speed, the ability to System Design deliver new holiday destinations and ideas (recreation, styles) quickly to the Although tourism as a business sector tends market. to lie at the service end of the Flexibility manufacturing–service continuum, there 7. Customization, or tailoring to the cus- are certain elements of it which are tomer’s wishes. delivered using philosophies and techni- 8. Volume flexibility, the ability to change ques which are more akin to those of the supply of specific packages with manufacture. Standard package tours, for demand. example, can be considered as products which are sold to customers as mass pro- The design of the operating system of any duced goods rather than tailored items. Even organization will depend on the competitive where a tour is tailored to a customer’s indi- position taken on these factors. It will be vidual wishes it is still likely to consist of placed on a continuum ranging from the elements such as travel and accommoda- case where the design of the holiday or tour tion, which are readily available ‘off the is part of the delivery process and each tour peg’, and it is in the combining of these will be tailored to the wishes of each cus- where the true service element is created. tomer, to the case where packages are Any organization working in the tourist standardized and the customer chooses one industry will thus be a blend of individual with no variation. The first extreme of this service and ‘mass manufactured’ service ele- continuum is traditionally known as a proc- ments. The blend of offerings will be related ess focused delivery system, or job shop, to the competitive position taken by the and the other extreme is known as a product organization in the market place, which will focused delivery system, or mass delivery. in turn affect the operating systems of the The competitive position adopted by a com- organization. Krajewski and Ritzman (1996) pany leads to consideration of a number of Operations Management 219

alternatives in the detailed design of the be said that the transaction is programma- delivery system. ble. If they are not predictable then the transaction is not programmable. If the Backroom versus front office activities transaction, or parts of it are programmable What should the back room to front office then there are opportunities to create stand- mix be? Back room activities are those in ard procedures and in effect automate the which the customer is not involved, such as process. If we consider the activity sequence preparation of standardized items, calcula- diagram for holiday sales (Fig. 8.4), we can tion of bills, issue of tickets, etc. Such see that it is possible to replace the server in activities are placed at the mass delivery end many places with a questionnaire, or even of the design continuum and are usually better with a computerized questionnaire. ‘qualifying factors’ in the creation of per- The reservation system also represents a ceived quality. They must be done to a programmable procedure. However, this is certain level of competence or poor quality only the case when dealing with a computer is perceived, but surpassing that standard literate and confident customer, so if we does not please the customer further. For wish to apply a common system to all cus- example, receiving tickets for a business trip tomers there is an initial branch to either self three days before departure is acceptable, (computer) service or face to face personal one day before and the customer becomes service to be added. concerned, but seven days in advance does not improve the quality of the travel com- Technical and interactive skills pany in the traveller’s eyes. Front office What mix of technical and interactive skills activities are performed in collaboration are needed in the operating system? In a job with the customer. They are usually person- shop tourism organization there is a greater alized transactions which require skills in need for technical skills to interrogate travel communication with the customer, and in and accommodation alternatives than in the offering guidance to help the customer to mass delivery organization. Figure 8.5 illus- make decisions and are usually at the job trates the relationship between these shop end of the design continuum. They factors. enhance perceived value in proportion to the skills offered and doing them well wins customers, even when taking corrective action. The Importance of Good Operating Systems in Tourism Physical items versus service elements What is the relative importance of physical From the above discussion it is obvious that items to service elements? Physical items the design of operating systems is not simple are the tangibles involved in the delivery and straightforward. The inherent variety of process, for example the food served in a choices to be made indicate the importance restaurant. Service elements are the intan- of carefully and continuously considering gibles, the help received in choosing from the design of a system. The operating envi- the menu, the appropriateness of the back- ronment will change, possibly requiring a ground music, the attention offered by the strategic repositioning within the compet- servers, etc. Service elements are of greater itive priority factors, and thus a importance in job shop systems. repositioning of the operating system on the job shop–mass delivery continuum. Programmable versus non-programmable The diagramming techniques described services so far enable the system designer to take a Which aspects of the service are program- holistic view of the organization, to consider mable, and which are not programmable? the division of the organization into value When a sequence of activities which a cus- adding subsystems, and to take an overview tomer undergoes is predictable, then it can of the transformation mechanism within 220 G. Southern

Fig. 8.5. Factors involved in the design of service operations (after Armistead, from Voss et al., 1985).

each subsystem. There is a need to ensure goods and services (in the case of tourism that the entire system, and each of the sub- primarily services) to the customer. Linda systems, deliver outputs efﬁciently. The Sprague proposes a ﬁve point framework for remainder of this chapter will concentrate the analysis of operating systems based on on the design of operating systems at a micro consideration of capacity, standards, sched- level. uling, inventory and control (Devanna and Collins, 1990).

A Framework for Analysis and 1. Capacity: perhaps better titled capa- Improvement of Operating Systems bility, is the ability to yield output. At a strategic level it is usually measured in The complexity and degree of choice in the the number of units of product or serv- design of operating systems is reﬂected in an ice which can be delivered in a speciﬁc abundance of techniques and methodolo- time unit. However, at an operational gies used in operations management. This level, where resources are likely to be diversity sometimes overshadows the sim- shared between different products or ple, central purpose of the topic, to deliver services, capacity is usually measured Operations Management 221

in terms of process (plant or equipment) made associated with each aspect, and or human resource hours. which are particularly relevant in tourism, 2. Standards: consist of work standards will be described. and product or service quality standards. Work standards are measures of effort, usually specified in terms of time Operations Management Decisions taken at a reasonable level of work performance, to do a specific task. If the Decisions to be made in operations manage- number of tasks to be done is known, ment consist of two types: then these times can be aggregated to ● Those concerned with the design of the check whether the capacity is available delivery system; the service quality lev- to do them, and this information can els to be delivered, the level of also be used to schedule the order of capability (or capacity) needed to activities. Work standards therefore deliver these levels; and the way mate- constitute the data needed to plan the rial is managed, i.e. with standards, level of capacity needed and the sched- capacity and inventory. uling of the capacity we have. Service ● Those concerned with the shorter term quality standards have already been utilization of resources, in other words discussed. with scheduling and control decisions. 3. Scheduling: the planning of the use of resources (or capacity) on a time base to In order to make these decisions, and to plan produce a service delivery plan. Sched- operations, we need to know what tasks uling has two objectives: to deliver need to be done and in what order, how specific products or services at a time many times each task has to be done, and agreed with the customer, and to deliver how long each task will take. The process all products and services at a low cost flow charts and activity sequence diagrams by full utilization of resources. These already described are useful techniques for objectives are not always compatible. analysing tasks and the sequence in which 4. Inventory: the management of flow and they are done. Forecasting techniques storage of physical items necessary to described elsewhere in this text will tell us deliver the product or services to the how many times each task has to be done. customer. This is of lesser importance Work standards provide the final informa- in tourism where the cost of materials is tion needed for operational relatively lower than in manufacture. decision-making. They therefore make an Service industries tend to be labour appropriate starting point in applying the intensive, and it is here and in capital operations management framework to the (travel and accommodation) equipment tourism sector. where most costs are incurred. 5. Control: measuring the performance of the system to the capacity and schedul- Work Standards ing plans described above, and the process of replanning remedial A work standard is the time for a trained actions. worker, or team of trained workers, to perform a task following a prescribed method This framework is outlined in Fig. 8.6. It with normal effort and skill. Frequently the provides a useful systematic approach to the time to perform a task is influenced or even analysis of operating systems and will be dictated by the pace of equipment, for exam- applied to the tourism sector in the remain- ple the speed of response of a computer der of this chapter. General conceptual booking system when making reservations, issues concerned with each aspect will first or by legal limitations such as speed limits be considered, and then quantitative tech- for public service vehicles. In other cases the niques which support the decisions to be time to perform a task will be influenced by 222 G. Southern

Fig. 8.6. A framework for operations management (after Sprague, from Devanna and Collins, 1990). the customer, for example when waiting ● realistic, in that they can be achieved table the meal completion time is inﬂuenced repeatedly by a competent worker or by both the food preparation and serving team. team in delivering the food, and by the cus- In effect these conditions will lead to a tomer in consuming it. It is therefore wider distribution of completion times for important, particularly in a service environ- most tasks undertaken, particularly in the ment where the conditions of both service sector where most tasks involve heterogeneity and simultaneity apply, to dealing with people, rather than materials ensure that work standards are: and equipment. So although work standards ● appropriate, in that they are directly are used to determine the number of under the control of the worker or team employees needed to operate a service sys- of workers; and tem, and thus indirectly specify work rates, Operations Management 223

Fig. 8.7. Uses of works standards.

their use for direct payment is of minimal ● spot wipe windows and mirrors value. However, knowledge of service task ● vacuum the ﬂoor time distributions is of paramount impor- ● clean the bathroom (may be divided tance in the simulation of queuing situations further) which are frequently met in tourism. This ● replace bath linen and bathroom acces- will be described later. sories So work standards are important as the ● replenish minibar basic data used in evaluating the perform- ● clean away tea crockery, replace and ance of a system, or of the components of a replenish system. They are also of fundamental impor- ● dust surfaces tance in planning the level of resources required and in the scheduling of resources These tasks may be combined in any order, within a system. Figure 8.7 indicates where or omitted when cleaning a room. The work standards are most useful. underlying principles of three such approaches are described in Table 8.1, and applied to the room cleaning example. Sources of work standards Such techniques may be of value in many Work standards are speciﬁed by simple situations in tourism: checking in at recep- measurement. Many tasks are repeated tion areas, checking in at airports, serving in many times in the course of a working day, bars and restaurants, etc. However, it should and many jobs may be broken down into be stressed that any work measurement such tasks. In a hotel, for example, the job of exercises undertaken are not to be used for cleaning a room may be divided into: payment purposes. They should be aimed at ● change the bedding gaining information for resource planning 224 G. Southern

Table 8.1. Work measurement methods.

Simple time study Sampled manual timing of simple In the case of hotel room cleaning the work study practitioner repetitive tasks. The person timing the might measure the time taken to clean the hotel room several tasks is trained to estimate a ‘work rate times to ﬁnd the average. However, the work standard would factor’ which is incorporates the only apply to that room, or perhaps a set of identical (or very competence and effort of the worker similar) rooms (compared with reasonable levels). This factor is multiplied by the task time resulting in a work standard

Elemental standard time data Work is broken down into elemental The work study practitioner would divide the job of room increments and the elements are timed. cleaning into a list of elemental tasks such as that listed in the These times are recorded and text. The elemental times would then be aggregated as subsequently aggregated to give task appropriate to give times for cleaning a series of rooms by a series times of cleaning regimes. Some elements, for example vacuuming or spot wiping windows may be timed on a ‘per area’ basis for universal application later. The resulting work standards could be used across a series or chain of hotels

Work sampling These consist of sampling systems to The work study practitioner might use this technique to determine estimate the proportion of time spent on the time spent by the room cleaner not actually cleaning the activities. Sampling must be random room. It would cover activities such as awaiting instructions or obtaining cleaning materials. It would result in a percentage allowance being added to the base time for room cleaning to give a practical work standard

only, in other works to calculate the neces- will result, at least partially, from a bundle sary staffing levels at various times. Again of tangible factors. We can set quality stan- this is paramount when the heterogeneous, dards for these tangible factors which will simultaneous and non-repetitive nature of be an integral part of the design of our oper- the tasks is considered, and in many situa- ating system. In service situations, because tions it could be argued that in such of the heterogeneity and simultaneity circumstances the ‘analytical estimate’ of a involved, these factors are frequently related skilled tradesman may be both accurate and to service availability and customer waiting as useful, but only if not used for aggregate times, and can readily be associated with the planning purposes. Repetitive work is com- Krajewski and Ritzman competitive factors mon in manufacture, but less common in which were identified earlier. In fact any tourism because of the heterogeneous and quality standards specified in an organiza- simultaneous nature of the tasks them- tion should be directed by the competitive selves, so the ‘predetermined data’ approach stance adopted by the organization. They is appropriate. should also be considered in terms of the concept of order qualifying versus order winning criteria related to that stance. This was discussed earlier in the context of back Quality Standards to front room operations, and in the flight ticket delivery example. While the perception of quality in service Methods of measuring performance to delivery, and that of an organization, is quality standards are also important. Qual- intangible, the creation of that perception ity factors can be considered as variables or Operations Management 225

Table 8.2. Customer service measures related to competitive priority factors.

Customer service measure Examples Related competitive factors

% of customers we can satisfy Specific requirements may be: Volume flexibility with their requirement journey departure time and means of transport, holiday in specific hotel, brand of drink in a bar, meal in a restaurant Degree of choice offered Number of people we can satisfy Customization, high performance with an acceptable alternative to design, design/development the above speed Time to be acknowledged At retail shop counter, hotel Fast delivery time reception, bar, restaurant reception Time waiting until start of Taking details at hotel reception, Fast delivery service delivery details or order in retail shop or bar, seated at table in restaurant Time to be served Until total service transaction is On-time delivery complete

attributes. Variables can be measured on a (order winning) in satisfying the customer. continuous scale so that a ‘degree of error’ Examples of tangible measures of quality can be stated, while attributes can be performance and the related competitive quickly and simply counted. As explained factor, which are appropriate in tourism and earlier, quality in the service sector is cre- in the hospitality sector, are given in Table ated and measured in the process of 8.2. As an organization we must attempt to delivery, and is often associated with com- define an acceptable service level for each of petent completion of the tasks involved in a set of such criteria. The levels will be that process. Quality standards, therefore, related to the expectations of the market, need to be identified in terms of these tasks, and if we reach that expectation then we which are related to work standards. In will qualify to compete in the market. If we terms of our hotel room cleaning example, exceed that expectation for order winning the act of cleaning the room before the entry criteria we will in all probability win more (or return) of a customer might be consid- than our fair share of customers. However, ered as an attribute. The time between room the ability to reach the levels we set depend cleaning (or checking) would be a variable. on the capacity, in terms of skills and capital Both of these would probably be considered resources, which we have available at any qualifying quality criteria. At a more specific time, which in turn will greatly detailed level the acts of changing the bed- influence the cost of provision and price we ding and dusting surfaces will be attributes must charge the customer: the final com- and probably qualifying quality criteria, but petitive factor from our previous discussion. the number of spot marks not wiped from a This is the crux of operations management, mirror could be considered a variable and an and is discussed in the next section on order winning criterion. capacity management. The customer service level which we are Intangible factors of service quality can seeking to define can only be quantified in only be delivered by people. Any organiza- terms of tangible quality criteria, and we tion playing must therefore pay careful must seek to identify such factors which are attention to selection and training of people, paramount (qualifying), and important and to motivating them. This, and the sys- 226 G. Southern

tems of statistical process control to monitor tourism equipment and labour availability, performance to identified tangible quality and how appropriate they may be. standards are covered in the next chapter. Subcontracting Subcontracting can be used to vary the avail- Capacity Management ability of both labour and equipment. It may be employed to add to resources when cus- Capacity is the ability to yield output. At a tomer activity cannot be satisfied with strategic level it is usually measured in the in-company resources or to eliminate the number of units of product or service which need to hold certain resources at all. In the can be delivered in a specific time unit. tourism sector both road and air transport However, this section will concentrate on provide examples where subcontracting is capacity management at an operational extensively employed. Many tour compa- level, where resources are likely to be shared nies will have their own transport vehicles between different products or services. Here but will hire additional vehicles at partic- capacity, or capability, is usually measured ularly busy times, sometimes with operating in terms of process (associated with equip- staff included. In dealing with departing ment) hours, or in terms of human resource passengers at airports a similar mix occurs. hours. Larger airlines will have their own reception Most major decisions to be made in staff and ‘top up’ with personnel from a operations management are concerned with specialist service company (e.g. Service Air) ensuring that sufficient resources are avail- when necessary; companies who use an air- able when needed to deliver the level of port less frequently will only use the customer service which is agreed, formally specialist service company, thus in effect or informally, with the customer. The value sharing the resource with a number of other of forecasting to find the level of customer- airlines. Unit costs of subcontracting are related activity, and of work standards to naturally higher than those of in-house pro- convert this into levels of operational activ- vision in the short term, and the difference ity, for example number of servers required must be optimized against the long-term at any time, have already been considered. costs of holding excess resources at quiet Demand for resources is directly propor- periods. tional to customer-related activity, and in the tourism industry this varies on a cyclic Reschedule activities (related to the economy), seasonal and daily Opportunities to reschedule activities in basis. This is true of all service situations, service industries, and particularly in tour- but the variation is higher in tourism than in ism, are limited. Once again this is because most others. The aim of capacity manage- of the heterogeneous and simultaneous ment is to deal with this variation as cost nature of the service delivery process. How- effectively as possible. ever, there is scope to reschedule activities There are two extremes of strategy for related to the maintenance of plant and dealing with variation in demand: adjust the equipment. Major overhauls of equipment capacity available, and eliminate the need to can be delayed until the next quiet period, adjust the capacity available. Very few orga- for example at airports and hotels, although nizations will use either of these extreme in the transport sector such delays are lim- policies, and most organizations will find ited more by health and safety legal cost-effective solutions by using a mixture of requirements. techniques associated with the extremes. Change workforce size Methods of adjusting capacity The workforce size can be changed by The following sections describe the generic employing more staff or increasing hours means of adjusting capacity, in the case of worked. When a long-term underlying trend Operations Management 227

Box 8.3. Stakis Hotels.

In a paper to the annual conference of the Operations Management Association (UK) in 1989, Nick Paterson (1989) described some of the approaches to resource management adopted by the Stakis organization. At the time Stakis hotels were positioned in the three to four star market, and were acquiring hotels of 60 plus rooms to get greater economies of scale. Hotels in the group were classed into resort and commercial categories so that senior management could compare like with like, and advise accordingly. They were attempting to become ‘leaner’ by placing management responsibility at the hotel itself, and their headquarters activities were being scaled down. Hotel workers were classed into three categories: ● Stable or core workers consisting of functional department heads, and including a large percentage of female workers whose husbands worked locally and who found the working hours convenient for social reasons. For example, room maids worked from 9.00 to 3.00, school hours, and evening shifts in restaurants coincided with the time that husbands were at home to baby sit. ● Transient workers were technically competent, young, and with few social attachments. They were geographically flexible, tending to spend summers in resort hotels and wintering in commercial or perhaps ski resort hotels. ● Casual or part-time workers were local people who worked on demand, usually at functions or to meet peak demand. Comments on resource planning: ● Stakis managers used forecasts of activity and work standards to devise manpower resource plans on a monthly basis for one year ahead. The profitability of the plan was assessed before the plan was finalized. This plan would concentrate on core and transient worker requirements. ● Changes in resource availability in the medium term were made possible by the transient workforce and the mix of resort (summer) and commercial (and winter resort) ‘product’. ● Capacity management in the medium to long term was also aided by linking it to various training programmes to ensure a pipeline of necessary skills and flexible workers. These covered all levels of staff and ranged from a group training school to in-house training internally, and from using external specialist courses (e.g. health and safety, fitness programmes) to general purpose training in accommodation and catering. ● Although not explicitly stated, core and transient workers would almost certainly be scheduled into a duty roster by a mixture of fixed schedule on a daily basis, and rotating schedule on a weekly basis. The mixture for each worker would depend on the type of work. ● Efforts to cope with short-term variation in demand for unforeseen peak periods and functions were greatly helped by calling on casual labour from a large ‘pool’ at short notice. In summary, in any particular hotel there is a need for volume flexibility in the workforce to support activity levels up to the bed capacity of the hotel, and above that for special functions. To meet this challenge a wide range of quantitative techniques and qualitative approaches are used to plan and manage resources. Flexibility of labour in both skill and availability is a central component in the application of these techniques and approaches.

in customer activity is recognized, then the workers on a part-time basis as working permanent workforce size can be changed as hours are often more easily changed than necessary. This can be done in retrospect when a total full-time workforce is following an increase or decrease in activity, employed (see Stakis case study in Box or in anticipation if a change in activity is 8.3). forecast. When the change in activity is short term, then the hours worked by perma- Means of eliminating the need to adjust nent staff can be temporarily changed, or capacity temporary workers can be employed if activ- The following sections describe the generic ity increases. There is value in employing means of eliminating the need to adjust 228 G. Southern

capacity, and how appropriate they may be the service so this policy is practically in tourism. always used in collaboration with that of accepting a loss of customers. Much work Maintain excess capacity has been done on mathematical modelling An organization may hold capacity which is of queuing situations to derive the times a above that required at all times by custom- customer will have to queue in a specific ers, although in most cases the cost of this queuing system. These will be described policy, which will have to be passed on to later, but in essence the outcomes must then customers, will be prohibitive. It is still a be compared with the appropriate service useful principle to consider applying to the levels set by the organization, which in turn core competencies of any business, in other are related to the expectations of the mar- words the skills or service elements which ket. very few other organizations can provide. Excess capacity held in these core compet- Altering demand encies, combined with judicious use of Alter the demand pattern by pricing or subcontracting and queuing can create a advertising where the demand pattern competitive advantage in the marketplace. varies greatly. An example of this in tourism is in the price of city centre hotel rooms, Accept loss of customers which are lower at weekends when there is Plan to operate at a known level of activity, little demand from the business community. and accept a loss of customers above this Here the concept of weekend city breaks at level. This is closely related in most cases to ‘bargain’ prices has been introduced and the degree of prestige which the service an aggressively marketed. Further examples organization offers has in the market. If the are in the price of flight tickets and the use of service an organization offers is specialized standby systems (also includes queuing) in or unique, and is in demand for these rea- airlines, and in the relatively high price of sons, then the prestige can be further holidays during school holiday periods. The enhanced by rarity. The organization can objective of this policy is to level demand so then plan to operate at a specific level for a that changes in capacity requirement levels longer period rather than increase the avail- are fewer. ability of the service; for example, a successful theatrical production may wish Useful quantitative techniques in capacity to remain in a smaller theatre and extend the management run, rather than increase availability by An organization will use a mixture of tech- moving to a larger venue or duplicating the niques when attempting to optimize the cost production in another venue. Obviously an of holding capacity against the customer organization applying this policy will service level required. There are a number of expect customers to queue or wait for the quantitative techniques which are available service. The policy will also affect the pric- to support the decision on which techniques ing policy adopted for the service. to use, and the degree to which each is used. The decision is in two stages. First the level Queuing or waiting of activity and the probable utilization of Require customers to queue or wait either in resources in terms of likely performance lev- the form of a physical queue or some kind of els must be estimated or forecast. This booking system for the service. Again refer- information can then be used in models ence must be made here to the customer which simulate delivery systems and allow service levels discussed earlier. In the case the necessary levels of resource needed to be of a queue the possibility of customers calculated. The two stages therefore involve reneging, and the cost of this to the business, forecasting and modelling, and there are a must be considered. Obviously some cus- number of approaches possible at each tomers will not be willing to wait at all for stage. Operations Management 229

Forecasting decline, so a process or piece of equipment Techniques of forecasting required rates of also has a life cycle. The failure rate, or time business activity, time series analysis, out of use (‘down-time’) is plotted for the life regression, Delphi techniques, market of the process. It is found that there is an research and the concept of a product life ‘infant failure’ stage where inherent faults or cycle, are described in Chapter 12, dealing weak elements in the process or system are with market forecasting. corrected. The process then settles into a We will concentrate here on forecasting steady state until more parts of the process the output we can expect from a unit of begin to fail of old age and the process begins resource. In fact many of the techniques to wear out until it is replaced when the listed above can also be employed to fore- repair costs become greater than the income cast the performance of resources, for earned. If, instead of the failure rate, the example time series techniques can be used mean time between failures is plotted, the to forecast any continuous improvement graph is inverted and becomes similar to the resulting from total quality management classic product life cycle curve. Again this programmes, and the Delphi technique can relationship is well established and has be used to forecast any resulting improve- been recorded for many situations where ments resulting from technology advances new investments are made. These can be in the field of information technology or researched and used to predict performance transport. In addition, much of the informa- curves for any similar new equipment or tion needed for decision-making in capacity systems. They may also be used in the management comes in the form of work design of equipment replacement policy, standards derived from work measurement, and depreciation systems in the finance and many of the techniques associated with function. this have been described earlier in this chapter. Modelling In addition to these forecasting techni- Having sourced the data necessary to make ques, there are several behaviour patterns in capacity decisions there are a number of the performance of resources which are of modelling techniques which will help us to value to organizations. These include learn- optimize cost of provision to meet the cus- ing curves and process life cycles. Learning tomer service levels we wish to reach for curves are concerned with the implementa- specified quality criteria. tion of a new approach to working, or a new operating system. This may involve the LINEAR PROGRAMMING. This consists of a set training of workers or introduction of some of methods for deciding how to meet some new aspect of equipment, for example a new desired objective (i.e. minimizing cost, max- hardware and/or software computer system. imizing profit) subject to constraints on The performance of the new operating sys- commodities required or resources avail- tem will grow exponentially until reaching a able. Developed under the auspices of steady state situation. This situation will operational research, the generic approach represent the system operating in terms of is to specify a mathematical model which standard performance; in terms of the new represents the limitations imposed by the computer system, the average time per trans- constraints, and which calculates the costs action reported, or the number of of system operations and possibly identifies transactions dealt with per hour. Such areas of greatest potential cost saving. (The curves are well established and recorded for model often takes the form of a set of simul- various systems implementations and must taneous equations which are difficult to be taken into consideration when a change solve manually.) Any feasible solution, in is made to an operating system. other words one which satisfies the con- Process life cycles are concerned with the straints but not necessarily meeting the life of a process. Just as products have a objective, is then used iteratively to improve natural life cycle of growth, steady state and performance against the objective until no 230 G. Southern

further improvement results from the itera- queue? This is usually expressed as the tion process. It is at this point that the model distribution of time between arrivals. has been optimized and the resulting solu- ● What is the nature of service times, tion is the best available. One practical again expressed as a distribution? example in tourism is in routing transport With this information it is possible to model between locations to maximize the number the situation, and again there are computer of passengers carried, which is synonymous software packages to help us. From the with the number of locations reached, and to model the following outputs will help us minimize the distance travelled, which is decide whether the system is acceptable in synonymous with cost. In fact this example terms of customer service levels: is synonymous with a classic linear programming technique known colloquially as ● The server efficiency, for economic rea- ‘the travelling salesman problem’. There are sons. other such techniques in the operations ● The customer service level in terms of research repertoire which, while they may probability of a queue forming, the aver- not offer immediate solutions, are a useful age length of queue, the longest queue starting point for solving complex problems formed and the average time spent of this sort. Computer programs are now queuing. available to solve complex sets of simultane- With this information we can decide to ous equations, but the problem still has to be change the operating system, perhaps in the defined in the first instance. service mechanism, or even by adding or taking away server stations. QUEUING THEORY. This is concerned with mathematical modelling, using probability SIMULATION PACKAGES. These are computer theory, of queuing situations which exist in software packages which enable the user to life, for example at airport check-ins, restau- model a set of interconnecting queues. As rants for tables, self-service restaurants and such they are valuable in modelling very fast food outlets. Such models can be used to complex flow patterns in organizations, of design the operating system and answer materials primarily in manufacturing situa- questions related to the level of customer tions and, of particular relevance here, of service such as: Can we deliver the service people primarily in service situations. They in a time which it is reasonable to expect the are invaluable in modelling the interaction customer to queue or wait? It is not neces- of flow of different people and materials sary to enunciate the mathematics of the with each other and with the utilization of models in detail, but managers should be what are likely to be shared and limited aware of the nature of the technique, and the resources for processing them through the inputs to, and outputs from the model, and system. An example of where they may be of the alternative choices to be made in the applied in tourism is in an airport. In this design of the system itself. Questions which case arrivals into the system will be: need to be considered in the model (i.e. inputs) are: ● Departing passengers arriving at the airport who are separated from their ● What is the service mechanism, e.g. sin- luggage (queue), may then proceed to a gle queue for multiple identical servers, general departure lounge through emi- specific queue for each identical server, gration and security checks (queues), etc? How many servers? then to a departure area specific to their ● What is the queue discipline, e.g. first flight (queue), and finally to the aircraft. come first served, last come first served, The luggage, separated from the pas- shortest operation next (e.g. hand lug- sengers, will go to a sorting area (queue), gage only for flights), specified priorities to a vehicle designated to go to the own- (e.g. by class for flights), etc.? er’s flight (queue), and then to be loaded ● What is the nature of arrivals in the on to the flight. Operations Management 231

● Arriving passengers who will go to pass- around the scheduled arrivals on a time port control (international passengers, base. There will also be an element of uncer- queue), then baggage collection (queue, tainty here, for example late aircraft arrivals, the baggage will have been unloaded which may also have to be considered. and delivered to this area, another Outputs from a simulation run using the queue), then to customs control (queue), model will consist of performance indica- and finally they leave the system. tors for each process in the system in terms ● Arriving aircraft, which may have to of utilization of resources and passenger queue for a landing slot on the runway, waiting times. These will indicate points of then for a disembarking station. They inefficiency and passenger frustration. The will then interact with the passenger simulation run will also give indications of disembarking/embarking systems, and the performance of the entire system, prob- with the fuelling and provisioning sys- ably in terms of passenger throughput and tems before joining another queue for a aircraft turn around times. While the use of take-off slot. this technique has been described in terms of an airport, its value in other facets of Modelling a situation such as this is obvi- tourism, for example in the modelling of a ously complex, particularly if the boundary leisure park such as Disneyworld, is self- of the system is widened even more to evident. Here activities are not scheduled include the supporting infrastructure of and the circumstances of visitors reneging ancillary service provision (shops and com- on arrival at a long queue must be con- fort provision), public transport, and airport sidered, but the process of modelling the servicing systems such as fuel and provi- situation to indicate the need for increase in sions. Arrivals of passengers and aircraft particular resource availability is still will be a complex mix of scheduled activ- appropriate. ities with ‘fixed’ times and probabilistic arrival distributions. However, the entire Evaluation of capacity plans: financial system can be modelled by: modelling Financial modelling is a tool which must be ● dividing the system into a set of inter- used to evaluate any resource provision plan connecting queues (or subsystems), or we may propose to deliver the required serv- in the language of simulation proces- ice level to the customer. It enables the ses; outcomes from the resource (capacity) and ● defining the people or materials (termed service level implications resulting from the entities) which flow through the system modelling techniques described above to be and the paths they will take, including considered on a cost/benefit basis. In linear where they diverge or combine to programming the costs of provision will become a single entity (for example the usually be incorporated into the model interrelating paths of passengers, lug- directly, and when applying queuing and gage and even aircraft); simulation techniques the costs of resource ● defining the service mechanisms and provision will be calculated for the entire service time distributions for each system model and compared with the level entity at each process, and any inter- of service provision delivered so that rela- ruptions such as mechanical tively objective management decisions can breakdown or sickness of staff which be made. may be expected (i.e. elements of uncer- At a more strategic level financial model- tainty) must also be incorporated. ling allows us to evaluate alternative capacity plans comprising a mix of changing The above are used in the software package capacity (subcontracting, rescheduling to model the airport operating system before activities, changing workforce size), and simulating the combination of scheduled eliminating the need to change (carrying arrivals and ‘bursts’ of arrival distributions excess, queuing, differential pricing), to 232 G. Southern

Box 8.4. Bicycle provision.

Consider two cases: 1. A bicycle hire shop must decide how many bicycles to have available for holiday-makers in a country area. Demand is seasonal, although an indication of underlying trends is available from previous seasons. It also varies on a day-of-the-week basis, is greater at weekends than during the week, and with the weather. The shop can carry the same number of bicycles all the time and accept that some customers will be disappointed, or can carry more bicycles at busier periods, having more satisfied customers and increasing turnover but incurring acquisition costs for the bicycles. If the shop carries more bicycles at busier periods it may wish to integrate this policy with a replacement policy, selling older bicycles as the season ends and buying more as the season begins. Numbers will depend on the depreciation rule followed, and is related to accounting procedures adopted. The shop can also offer a differential pricing policy at less busy periods, or when the weather is poor, to stimulate custom. All of these factors can be built into a financial model based on predicted demand for the year. For each week, for example, the costs of providing the bicycles (interest, maintenance, storage) will be deducted from the predicted income, resulting in a profit prediction for each week. The cost of lost sales can also be predicted. The number of satisfied customers (service level) for each week will be included in all consideration of costs. There are implications of dissatisfied customers in terms of numbers of return customers, and for the reputation of the bicycle supplier and the holiday centre. 2. A country holiday park supplies bicycles ‘free’ for its customers (guests) to use. The bicycles are left in racks and guests use them on a needs basis, returning them to a rack when finished, similar to supermarket trolleys. Here detailed forecasts can come from the booking system which makes the task a little easier. However, although the basic decisions of whether to change capacity or not are the same there are subtle differences in customer expectations and the implications of not meeting these. While there may not be an immediate loss of a potential sale, consideration of return customers will be more important, and word about any lack of bicycle provision will spread quickly and lose us potential new customers (i.e. become an order loser). However, guests may not expect such a new bicycle, as long as it is a safe one, so perhaps the replacement policy is not so important. In both cases the financial model will be similar. However, the shop will represent a profit centre and profit and cash flow will be considered immediate and paramount, lost sales will be considered a direct lost-opportunity cost, and the customer service level delivering the best financial return will be accepted. The holiday park, on the other hand, will consider the provision of bicycles as purely a cost centre. Here the minimum acceptable level of customer service, taking long-term considerations into account, will be predetermined and the aim will then be to provide this at minimum cost. So although the models will be similar, their use will be subtly different.

meet daily or seasonal changes in demand. Inventory Management An example of this technique is given in the ‘Bicycle Provision’ case study (see Box 8.4). The management of inventory is far less While the bicycle provision example con- important in tourism than the management siders a single resource, the same arguments of equipment or labour, as is the case for could be made in the consideration of the most service industries. In tourism inven- airport case considered in the section on tory consists of materials which are simulation, above. If the airport is regional consumed in the delivery of the service, and and caters for a large number of vacation there is no equivalent of work in progress as travellers then the problems described in the required in the manufacturing sector. Mate- bicycle case arise here also, and are possibly rial is less important in tourism because: replicated for every facet of airport provision. ● the percentage of total operating cost Operations Management 233

which can be attributed to materials is purpose of managing them is in terms of the very small when compared with the dependency of demand. Materials may be share taken by labour, property and cap- subject to independent or dependent ital equipment; demand. ● much inventory in tourism has a limited Independent demand for an item occurs shelf-life, for example that of food, when demand is influenced purely by the which is very short to medium term, market, and can be said to be independent of drink, and brochures, which is usually the demand for other items. An example of one year or season. this is the demand for brochures in a holiday shop. Dependent demand for an item occurs As a result of these factors there are fewer when the demand is dependent on the savings to be made in improving the man- demand for another item or service activity. agement of materials in tourism except, For example when a seat is booked on a perhaps, in ensuring the correct amounts are flight then that reserved seat generates the obtained, than in improving the manage- need for meals and drinks, which in turn ment of labour and capital equipment. generate the need for the constituent parts of However, shortage of inventory will, in the meals and drinks. many cases, result in near catastrophic perception of quality, for example consider a Independent demand restaurant without a basic foodstuff or a In an independent demand situation costs of travel agent without popular brochures. inventory come from two sources: the cost of Absence of certain materials at the point of acquiring it and the cost of holding it. Acqui- service must therefore be considered as sition costs may include the cost of order sensitive (or loosing) criteria, and is preparing to produce and the cost of deliv- worthy of consideration. ery. Holding costs may include the cost of When designing systems to manage mate- storage, insurance, and the lost opportunity rial it is worth considering the relative cost of money tied up. Using the holiday bro- of different materials to the organization, chure again to illustrate this, acquisition and to concentrate on managing the most costs would include the cost of preparing for costly materials, for obvious reasons. The a new print run and delivery. Holding costs most frequently used technique for doing in this case would mainly result from lost this is called the Paretto, or more usually the opportunity cost. (In addition to these ABC, analysis. It plots the cumulative value inventory costs there would an individual (or cost) of material held by variety from brochure cost to cover material, labour and highest value items to lowest value items. overheads of production, and to recover the When such an analysis is undertaken it is cost of preparing artwork at the start of the frequently found that about 20% of the vari- season and possible obsolescence at the ety of materials, the category A items, are end.) responsible for 80% of the cost, and it is Studies of these cost relationships have important to manage these materials well as shown that if considered on a time basis, say greater savings are possible. It is also found cost per day, the acquisition cost is inversely that about 50% of the variety of materials, proportional to the quantity of stock the category C materials, are responsible for obtained per delivery, while the holding less than 10% of the cost and much less cost is directly proportional to the quantity significant savings are to be had by tighter obtained. The total cost per day is the sum of control here. The B category items, of these two elements, and it therefore follows course, fall between the two. that there is a minimum, or optimum cost which occurs at a specific quantity which Dependency of demand we shall call the economic batch quantity Materials can also be generically differen- (EBQ) (also known as the economic order tiated in terms of demand for them, and one quantity or economic lot size). This relation- useful way of classifying materials for the ship is shown in Fig. 8.8. When this theory 234 G. Southern

Fig. 8.8. Inventory cost curves (economic batch quantity). in put into practice the time to deliver the requirements by means of a bill of material stock, known as lead time, must be con- (BOM). This may consist of cascading needs sidered, and the demand during this lead through several layers of material as demon- time, which will vary, must be estimated. strated in the reserved seat example above. It This leads to the calculation of a re-order is then possible to indicate to suppliers a point which triggers the placement of a delivery schedule for material. Such meth- replenishment order, and the operation of a ods of material management are termed re-order point (ROP) inventory system. Such materials requirement planning (MRP), and a system demands that stock levels are con- they were initially developed in the manu- stantly monitored. facturing sector where BOMs consist of In practice it is usually found that the many more layers than in service industries cost is relatively insensitive to variation in because of the complexity of product and quantity obtained in the region of the EBQ, large numbers of stages of manufacture in other words the bottom of the curve in (Orlicky, 1994). The MRP process may be Fig. 8.8 is fairly ﬂat. This presents the oppor- driven by actual orders, where the delivery tunity to review the stock level periodically, time (or lead time) for material is less than perhaps in conjunction with a natural the required lead time, or by forecasts when sequential delivery schedule, and in effect it is not. top up the stock level to a target calculated In practice the MRP process in the tour- so that the number obtained each time ism sector is usually driven by a timetable in approximately equals the EBQ. In effect this the case of travel, or by a predicted schedule system does not run at minimum cost, but of guest behaviour in the case of hospitality this is compensated for by simplicity of and leisure, e.g. meal and other activity operation. times. This results in the possibility of customers developing close supply chain Dependent demand relationships with suppliers, and of sharing In dependent demand situations material information on which material supply deci- requirements are deﬁned by ‘exploding’ the sions are made. The suppliers may even be primary requirement, for example the asked to make material requirement deci- reserved seat, into the dependent material sions based on planned activities and an Operations Management 235

extrapolation of previous material require- for example queuing and reservation sys- ments for these activities, and then to tems and using price differentials to even deliver what they think will be needed. The out demand. However, having employed success of such a supply chain relationship these techniques it now becomes necessary depends on: to schedule the hours of the workforce so that they are available when the customer ● Strong mutual trust between customers needs them. There are a number of con- and suppliers, which can only be straints to this process, such as: usually developed over a long time period. ● The need to match availability with the ● A fast flow, or immediate sharing of biological clocks and daily routines of market information. The value of elec- customers, and the travel timetables tronic point of sale (EPOS) and which these also dictate. This will, of electronic data interchange (EDI) sys- course include weekend working and tems is obvious in satisfying this working other unsociable hours when requirement. customers are at leisure. ● A system for closely monitoring mate- ● Any legal constraints on the services rial waste, and an agreed procedure for supplied, such as on the number of sharing the cost of this waste between safety officers that must be available or the customer and supplier. Obviously the maximum hours worked by vehicle the trust element is important here. drivers. ● The physiological needs of workers, Supply chain relationships, and the man- which are often written into workplace agement of them, have been the subject of agreements, i.e. limits on consecutive research in recent years. Models have been hours or days worked, and time delay designed to test and manage the compatibil- before start of the next work period. ity of customers and suppliers in terms of While constraints such as these limit the operating systems and organizational cul- operations manager’s flexibility in develop- ture (Macbeth and Ferguson, 1994). ing workforce schedules they actually simplify the process of scheduling itself. The need to work unsociable hours and at Scheduling weekends often results in the design of a rotating schedule which ensures that the As already stated, scheduling has twin hardships are shared fairly equally among objectives: the delivery of specific products the workforce. In such a system a worker or services at a time agreed with the cus- will rotate through a series of workdays or tomer, and the delivery of all products and hours, nesting with those of another worker. services at a low cost by efficient use of Systems exist to develop such schedules resources (in other words by full utiliza- using simple heuristic rules, and in complex tion). In many business sectors we can situations computerized workforce schedul- schedule activities to level demand for ing systems are available. resources, but in tourism there is an empha- Alternatively, the problems of workforce sis on scheduling the availability of scheduling can be eliminated to some resources so that they are available at point extent, particularly where demand is partic- of need and at the time when they are in ularly unpredictable, by having a large demand. In effect this is capacity planning number of casual workers on tap. Such with much shorter, daily or weekly, time- workers are often able to turn out at short scales. notice and give the operations planner flex- Many of the techniques which are ibility in being able to react to short-notice employed in capacity planning at the aggre- requirements, thus offering the competitive gate, or more strategic, level described above advantage of volume flexibility. If any work- are also applicable in short-term scheduling, ers, full-time or casual, have a range of skills 236 G. Southern

Fig. 8.9. Control of operations, process control diagram. then the advantage of service product flex- output process used earlier to define the ibility is also gained. The benefits of a transformation process itself. flexible workforce are illustrated in the case The secret of good control of operations is study on Stakis Hotels (Box 8.3). in the selection of the output parameters which are closely monitored, and in the selection of the input parameters which Control affect the outputs, these must also be monitored. Output measures must be directly related to the quality standards of the organ- Having developed a plan in terms of service ization as dictated by the competitive quality levels to be delivered, resources pro- priority factors on which the organization vided to deliver these service levels, and a competes in the market. Input measures schedule of when these resources will be must be in terms of the cost of delivery of the available, systems must now be put in place service to these quality standards, usually in to ensure that the plan is followed and per- terms of effort, or work standards. For each forms to expectations. In operations subsystem of the organization this results in management terms this is known as process the establishment of several channels to be control, and it is analogous to budgetary monitored. In essence, for each output chan- control in financial management. It involves nel monitored (Fig. 8.9), the inputs required the measurement of inputs and outputs, to maintain the level of service required at both in terms of quality and volume, and the that channel are also monitored. At a com- comparison of these to ensure that the con- parison point these inputs and outputs are version process is working as expected. It is considered to determine: here where the work standards which were used in the planning process are tested for ● if the quality service levels planned are authenticity. The process is shown diagram- being delivered; and matically in Fig. 8.9, and it should be noted ● if they are being delivered using the that this is really an extension of the input/ planned level of resources. Operations Management 237

Deviations from the plan will require those expected. Unravelling this situation is actions of two kinds, depending on the rea- never easy, and it is important to first select son for the deviation. the parameters which we must measure to If the deviation is a result of a difference control the perception of quality which we in the level of activity from that planned, deliver to the customer, and then to put then we will naturally expect to use more (or information systems in place which deliver less) resources than we had planned to use. data on both these parameters, and the costs We will check whether the work standards of delivering them in terms of effort (man- are still appropriate, and in fact we could hours) spent. Only when managers have also expect some benefits from economies of such systems in place can they expect to scale in terms of support functions. For control the business. example if a hotel is working at a higher room occupancy rate than we had forecast then we would expect to need more room Summary servicing labour than we had planned, perhaps as overtime or casual labour. (In 1. Definition: Operations management is management accounting terms this is equiv- concerned with the design and control alent to volume variance.) However, we of transformation systems to deliver the would not expect the supervisory effort to services, including products, of an increase as this tends to be a fixed overhead. organization at the right quality, at the In this case we would increase the resource right price, and at the right time. input, or more likely acknowledge and 2. Organizations are systems. The techni- endorse the actions the line managers have ques of representing and describing already taken. them are invaluable in analysing how If the activity level is equal to that plan- they operate, and the interdependency ned, but we are using more resources than of subsystems. planned, then we must question our work 3. Tourism is a service industry. As such standards on which we are basing our con- its product is perishable, heterogene- version logic. (In management accounting ous, and intangible, and the customer is terms this is equivalent to cost variance.) We an integral part of the product delivery must then either change the work standards process (simultaneity). to be more realistic, or reconsider the con- 4. Organizations should define their stra- version process itself and perhaps tegic market position in terms of re-engineer it to make it better. In the case of established competitive criteria. These hotel room cleaning, where we are using then determine the standards to which more labour than planned we should first they operate. check that the rooms themselves do not vary 5. Decisions to be made in operations greatly from our ‘standard’, then that the management consist of those pertaining cleaners are well supported and they do not to the design of the operating system spend time seeking cleaning materials or (design decisions), and those concerned equipment, and finally perhaps that they are with the effective short term utilization not exceeding quality specifications. If there of available resources (operating deci- are no discrepancies here, then we can sions). either redesign the room, or the cleaning 6. A useful framework for analysing regime to make it possible to do the tasks in operations management decisions in the time planned, or alter our work stan- organizations, or in parts of an organiza- dards (and readjust our expected profit tion, is by considering: margins). In most situations variances from the ● the service delivery quality stan- plan will be a caused by a combination of dards adopted, these are different activity rates from those used in fundamental to monitoring the fac- the plan, and different conversion rates from tors which create customer 238 G. Southern

perception of the service deliverable Engineering and Management, 3rd edn. at point of delivery; McGraw-Hill, New York. ● work (or performance) standards Hammer, M.J. and Champy, J. (1993) Reengineer- adopted, these are fundamental ing the Corporation: A Manifesto for Business Revolution. Brearley, London. building blocks for planning and ISO 8042 (1989) International Standard 8042. measuring economic performance of International Organization for Standards, delivery systems; Geneva. ● capacity, to ensure that resources Juran, J.M. and Gryna, F.M. (1980) Quality Plan- are available to deliver the service ning and Analysis, 2nd edn. McGraw-Hill, level quality standards at standard New York. work performance; Krajewski, L.J. and Ritzman, L.P. (1996) Opera- ● inventory, to ensure that systems are tions Management: Strategy and Analysis, in place to supply materials needed 4th edn. Addison Wesley, Reading, Massa- in the service delivery at point and chusetts. Macbeth, D.K. and Ferguson, N. (1994) Partner- time of need; ship Sourcing: an Integrated Supply Chain ● scheduling, to finalize short-term Management Approach. Pitman, London. plans to ensure that available Murdick, R.G., Render, B. and Russel, R.S. (1990) resources are there when needed; Service Operations Management. Allyn and ● control, to monitor performance to Bacon, Boston. plan and to take remedial action Open University (UK) (1994) Managing Develop- when there are deviations from the ment and Change (B751, Course Material), plan. Open University, Milton Keynes. Orlicky, J. (1994) Material Requirements Plan- Quantitative techniques and qualitative ning, 2nd edn. McGraw-Hill, New York. approaches are available to support the Paterson, N.D.L. (1989) Resource Management in management of operations. They should be the Hotel Industry, Proceedings of the Opera- employed flexibly in the operating context tions Management Association (UK) Annual of any specific organization. Conference 1989, Bedford, UK. IFS Publica- tions, Bedford, UK. Peppard, J. and Rowland, P. (1995) The Essence of Business Process Re-engineering. Prentice References Hall, Hemel Hempstead, UK. Voss, C., Armistead, C., Johnston, R. and Morris, Devanna, M.A. and Collins E.G.C. (eds) (1990) B. (1985) Operations Management in Service The Portable MBA. Wiley, London. Industries and the Public Sector. Wiley, Feiginbaum, A.V. (1983) Total Quality Control: Chichester.

9 Strategic Quality Management

H. Maylor

Introduction This is a challenge for managers, to go beyond the thin veneer of the smile of a When was the last time you received good receptionist, or a brand image and provide service? What was it about the service that that elusive quality of service that more and set it apart from other service encounters? more customers want, and are being led to What had the organization or individual expect. done that made it good? What happened or This chapter is entitled ‘Strategic Quality what did they do to make you aware of it? Management’. This reflects the requirement We are all customers of service products, yet for the consideration of quality to be carried it is rare that we are provided with truly out at a strategic level, and the impact that it ‘good quality service’. It is an unfortunate will have on the systems of organizations as side-effect of studying this area that it a whole. It also reflects the driver for increases your ability to be critical of the improvement in quality performance to be service quality you receive. It makes the inextricably linked to success. The chapter experience even more enjoyable, however, is divided into three sections. The first con- when you encounter an individual or an siders the quality issues of service design (as organization that has this area well man- mentioned above) and in particular the vital aged. Achieving service quality is about activity of definition and modelling of qual- being competent in the delivery of customer ity. The second covers the management of needs and expectations in the majority of an ongoing operation, and the issues linked areas of the delivery process, and exceeding to this. The third considers the means by them in one or two parts of it. As will be which managers can bring about improve- shown, this is a difficult balancing process, ment of quality performance, including a which requires a broad spread of achieve- discussion of some of the people who have ment in organizations. In tourist products, had the greatest influence in this respect. which will typically have different parts of the experience offered by different organizations, this task is particularly onerous, and Service Quality Design notoriously difficult to manage. As Johnston (1999) comments, ‘Most managers know One of the key questions at the start of this that designing their service right is impor- chapter asked for a consideration of what it tant. Yet with few notable exceptions, was about a good service encounter that had service organizations seem unable to get to made it seem good. This was asking for a grips with the detailed design of services.’ definition of the particular quality of that © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 239 240 H. Maylor

Fig. 9.1. Bridge model of quality.

service that appealed. In the field of quality in the domain of the marketers. Success lies management, this element of definition has not in choosing one of these routes, but in been discussed for a long time. Garvin the combination of the two. Quality as a (1984) suggested that the word ‘quality’ was subject area functions as a bridge between too imprecise to allow management discus- these two views, as shown in Fig. 9.1. The sion, and derived eight broad dimensions of caveat with this discussion of definition is quality for products. The same discussion that no matter how far we explore this area, has been continuing with service academ- there will always remain an element of qual- ics, though with as many dimensions and ity that is elusive and as individual as categories as there are people working in the people are. area. Peters (1999) suggests that this defini- The bridge element makes it clear that tional stage is still not sufficiently well while we would like to have quality as a described. This causes a problem for the definable and measurable set of character- manager, in that if we cannot describe what istics (internal), and while we would like to it is (the precise quality) we are aiming for, it manage people’s views of our offerings is very difficult to design systems that will through marketing communications (exter- deliver this. Despite this proliferation of def- nal), quality is an intangible element which initions, there is a set of well-used exists in people’s minds only. The approach definitions that can be applied to facilitate of this chapter is to concentrate on those the tourism manager in developing an manageable elements within this model: the enhanced definition of quality, both for internal (operations) issues and the external paid-up and potential customers. Initially, (marketing communications) ones. In doing definitions can be focused internally and so, we maximize the likely positive impact therefore be the prerogative of the opera- on the bridge elements of quality. tions function, or focused externally and be In the study of the evolution of quality, Strategic Quality Management 241

Table 9.1. Perspectives on quality management.

Perspective Deﬁnition supported Description of approach

Mathematical Conformance to specification The management of quality is limited to the assurance of the ‘goodness’ of a mechanical product or process. Activities are based on statistical tools, such as statistical process control (see tools in section on Service Quality Improvement) System-structural Conformance to procedure This is encapsulated in the approach of the bureaucratic quality system as used as the basis for the ISO 9000 model of quality management. The achievement of a level of quality relies on the development and following of a hierarchical set of procedural documents Control-organizational Continuously meeting In this approach, employees and customers are customer requirements viewed as key determinants of service quality. This notion has particular validity in the high contact service portion of the tourism and hospitality industry. Economic Cost of (un) quality The financial costs and benefits of quality management are assessed against the costs of failure Holistic Continuously meeting The total quality approach relies on a change in customer requirements at the entire way the operation approaches its lowest cost business processes, from senior management to the front-of-house staff Strategic Quality as competitive The additional responsiveness that can come from advantage successfully pursuing product and process improvement is treated as part of the competitive strategy of the firm

there have been numerous approaches, ited approach if used alone. which will be brought together into two models of quality that will be discussed at System-structural the end of this section. These concern the The system-structural approach is where perspective or paradigm of the methods procedures are defined by a particular stand- used. Table 9.1 shows these perspectives, ard, possibly ISO 9000 or any one of a the definitions of quality that they support number of customer-specific sets of guide- and a short description of the approach. At lines. While there are marketing benefits to the bottom of the table, the approach that is be gained from organizations becoming taken here, that of strategic quality manage- accredited to such standards, the measures ment, is described. they incorporate are also limited as they focus on assuring the reliability of the serv- Mathematical ice product rather than the actual service The mathematical approach was the only transaction. Whether this is required and tool available to managers in pursuing qual- organizations need to undergo the ‘jumping ity improvement for many years. This has through hoops’ of the standard mentioned is been incorporated as an element of other debatable. It is clear, however, that as an approaches and is now seen as a very lim- initiative alone it has limited merit. Rather it 242 H. Maylor

should be one part of a much wider quality management activity. Taguchi provides for management improvement effort if real ben- the further analysis of variation of product efit is to be gained by the system. by applying a definition of quality in a negative sense: it being a measure of the loss to Control-organizational society incurred by that product or service. In the control-organizational approach, Recent surveys conclude that while the employees and customers are viewed as key relationship between economic perform- determinants of service quality. This notion ance and quality performance is positively has particular validity in the high contact correlated, it has not been possible to pos- service portion of the tourism and hospital- itively establish a causal relationship ity industry. In the quality management between the two. Reicheld and Sasser (1990) literature, much attention is paid to this, have estimated that a 5% increase in cus- though many argue that human resources tomer loyalty can produce profit increases strategies have not been terribly effective in from 25 to 85%. One reason for this large improving quality performance. In consid- improvement in profitability is the cost of ering the degree of control that the attracting new customers. The old business organization can exact over the actions of adage that ‘market share is everything’ is individuals, training and systems of pay and therefore replaced by ‘quality of market reward are the main ‘behaviour modifiers’. share is everything’. The effect of customer The imposition of control through excessive loyalty over a lifetime of loyal purchasing chains of command is shown to be ineffec- can be assessed and more importantly, cus- tive in many studies. What has been shown tomer retention measured. A US pizza chain to be effective is to develop the concept of recently reported that the lifetime value of a ‘internal customers’ within organizations. single customer was US $8000. This meant An internal customer is someone who that if the customer defected to another receives work from another person (the sup- pizza supplier, the loss to the firm was not plier) within the organization. This ensures just that purchase, but a percentage of the that back office staff (those who have little or lifetime revenue of that customer. In assess- no contact with the customer) are connected ing the economic impact of quality, there are to the service delivery process, as their input well-developed methods for assessing the will inevitably have an effect on the ability ‘cost of quality.’ These will be discussed of the front of house staff to deliver service further in the following section. quality. The co-operation of the customer in the The holistic approach to quality will be dis- service delivery process has a number of cussed further in the section on Service implications. These include deciding which Quality Improvement – as part of the impact parts of an operation can be transferred to be of initiatives such as total quality manage- carried out by the customer (e.g. through ment on business practice. self-service and automatic vending facilities) with advantages for both the consumer Strategic (in response time) and the organization The strategic approach to quality is to treat (resourcing). quality strategy in one of four ways: ● as a functional strategy, recognizing the Economic need for a quality management function The approach to quality management from within the organization, which can plan an economic perspective is highlighted and optimize the use of its own resour- through the work of Crosby, Taguchi and ces, yet have influence on the operation others (see section on Service Quality as a whole; Improvement). The idea that quality per- ● as a single competitive strategy, focus- formance has both direct and indirect effects ing on the need for both relative levels of on the financial performance of the organi- quality and absolute levels of quality to zation is quantified and used as the basis for establish customer perception of the Strategic Quality Management 243

company and its products and hence model of quality provision considers the deliver higher differentiated value to function of five gaps identified as: customers; ● quality as one dimension of competitive ● between the actuality of customer strategy, treating the quality perform- requirements and the perception of ance as one of a number of strategic managers who design the service to variables; meet these needs; ● quality as an organizational culture that ● between the perception of the needs and is appropriate to any competitive strat- the stated design (specification) of the egy; by having a quality orientation or system; quality thinking, management decisions ● between the specification and the actual are made which will reflect on the need service system, i.e. that which is for both internal and external percep- received by the customer; tions of quality to be placed above other ● between that quality of service received considerations. by the customer and that which they were led to expect from marketing These are the main approaches to the sub- communications; ject. Table 9.1 showed the definition ● between the customer’s perception of supported by each approach. These defini- the service delivered and their expectations are discussed further below, as this tions. will help to identify the elements of service quality that customers require. As managers, At a simpler level, many people only focus the task then becomes one of designing the on the last of these, e.g. Maister’s first law system to ensure that these needs are met. (1993) states that:

Other approaches Satisfaction ϭ perception Ϫ expectation Considering other approaches to definition This is a limited external view, and does not of quality, and in particular, service quality, include the management of the internal ele- the literature has a more clearly defined ments, and the functioning of the quality identity through the developmental work of bridge. Satisfaction, as a concept, clearly is two distinct schools: the Nordic and the more complex, and requires consideration North American. The Nordic school is typ- of the technical aspects as well as the inter- ified by the work of Grönroos, and action aspects of the service. Gummesson (1991, 1993) and is characterized by: Service system design ● considering service quality as a the Having defined quality from a number of result of the provision of a service perspectives and, in doing so, discussed product; many of the design issues, there comes a ● the service product comprising a techni- point when this has to be translated into a cal content (what is provided) and a system that will deliver these objectives. service content (how it is delivered); The main tool for design here is the service ● the service content being further blueprint (after Shostack, 1984). A blueprint divided into the core service and is a model of the service system, covering in supporting/peripheral services; terms of activities and time, the progress of a ● the core service and the customer inter- customer through the service system as in action being paramount as they can Fig. 9.2. It shows the points where the cus- compensate for poorer technical per- tomer encounters different elements of the formance. service system (in this case labelled as serv- The North American school is dominated by ice elements), and is drawn using arrows Parasuraman, Zeithaml and Berry, whose and boxes, akin to a conventional flowchart. work is characterized by a focus on the proc- This can be limiting, as the perspective can ess of the delivery of the service. Their be purely internal/operational. Taking the 244 H. Maylor

Fig. 9.2. Blueprint of service delivery system. encounter from the customer perspective is function deployment (QFD). The construc- beneficial in this respect. A blueprint has a tion of a ‘House of Quality’ shows many further use. It can be employed to identify complex relationships between factors, and potential fail-points in the system, and to displays them on a single sheet of paper. It design vital recovery actions (see later sec- crucially allows the nature of the customer tion on failure management) that will requirement to be expressed in the custom- minimize the damage of failure within the er’s own language. The first correlation is system. In Fig. 9.2, potential fail-points exist then between this stipulation and the lan- with the interactions between the customer guage of the service provider, relating the and the service elements (e.g. failure to requirement (the ‘what’) to the elements understand the automated ticketing sys- under the service manager’s control (the tem). In addition, there may be fail points ‘how’). Customers are asked to prioritize such as the customer failing to find a parking requirements, which provides a rich source space or being unable to find their vehicle on of information as to the way in which per- returning to the car park. ceptions can be managed. Perceptions of In designing the service system, the cus- competitor performance (if available) are tomer input will need to be interpreted in a added to see the relative position of each in manner that ensures the minimization of the the eyes of the customer, on each of the gaps identified in the model of Parasuraman attributes described. Finally the correlation et al. (1985). A key tool for this is quality is made between the hows – some will be Strategic Quality Management 245

Table 9.2. Quality cost categories.

Category Characteristic being measured Examples

Prevention The costs of ensuring that the required Quality planning level of quality of service is met Blueprinting Appraisal Measuring what level of quality of service Customer surveys is provided Random inspection/checks Performance data gathering and analysis Failure The costs of getting it wrong and putting it Internal failure: mishaps or errors that are right, can be categorized as either resolved without the customer ever internal or external failure seeing them External failure: occurs in the interaction with the customer, may result in loss/ withdrawal of business or rectiﬁcation/ rescue being required

complementary, others will be conflicting – The management of quality should and the whats. The manager now has a involve the calculation of these costs; an framework for making trade-off decisions on activity that is by no means a simple one. the basis of good information. Quality costs, it seems, like quality have a The use of these extended correlation large number of definitions and the elements matrices has profound strategic implica- that are included under each heading in tions. Many authors claim that QFD should Table 9.2, are often subjective and vary from form the root of the strategy process. It is a organization to organization. Typically, central factor in the application of Hoshin compiling cost reports is the mechanism for Kanri (policy deployment). measuring these costs. The objective is not the keeping of further legions of ‘bean coun- ters’ in work, rather allowing a process of Management of Quality self investigation to follow, i.e. the purpose is that of reducing quality costs, not simply Within this area there are a number of measuring them. It has been found that a strands of work. These clearly overlap with company with a well-developed quality sys- the issues of design and improvement, and tem will have quality costs in the region of any classification of issues in this area is 2% of turnover. A company with a poorly rarely exclusive. The issues that will be dis- developed quality system will devote in cussed here include the assessment of excess of 20% of its turnover to quality costs quality costs, the management of failure and (Crosby, 1983). The impact on bottom-line the management of variability. performance from this consideration alone is clearly significant. This establishes the Quality costs importance of quality management in the Quality is not free. It costs. Precisely how costs of the service provision. The role for much it costs is a matter for the managers of management in this is the control and reduc- the system. Comparable companies in the tion of these costs. same sector routinely have widely differing approaches to quality, and very different Management of failure assessments of their quality costs. It is not The management of failure is required reported on balance sheets, but can have a where for whatever reason, a customer major impact on profitability. Quality costs becomes dissatisfied with the service include elements of prevention, appraisal encounter that your organization has pro- and failure as described in Table 9.2. vided or is in the process of providing. 246 H. Maylor

Customer perceptions, as will be discussed accepting of customer views, rather than in the following section are transitory (they defensive about their organizations. Having change with time) and how the problem is done so, it is vital that this is followed resolved is a key element of the responsive- through to some resolution that is accept- ness of the service encounter. Failure able to both the organization and the management, or recovery as it is more cor- customer. Containment is where the prob- rectly termed, is not a fashionable issue. lem is prevented from spreading; customers Organizations that recognize that failures of tourism products are notorious for will occur, no matter how well planned the spreading dissatisfaction, by drawing atten- system, do have some chance of not only tion to (providing cues to other customers) rescuing the current situation, but also elements of poor quality. learning from it, and improving in the The third stage is the recovery action. future. As one organization noted, customer This undoubtedly needs to consider the complaints in the first instance were direc- technical and interaction needs of the cus- ted to the person who was responsible for tomer. Firstly, the technical needs should be that area. Any repeat customer complaints addressed, ensuring that a solution is found were routed to the firms’ managing director. that is mutually acceptable. The second is This attempt to eliminate these ‘repeat con- the interaction, the customer should be left cerns’ was highly effective, and showed a in little doubt that their needs were con- level of commitment to the issue of quality sidered and that everything possible has at a high level. Moreover, it is a realistic been done to rectify the situation. Finally, it approach – mistakes do happen – most cus- is vital that the organization learns from the tomers accept this (albeit grudgingly). It is problems. Typically this would include the actions that follow that determine some analysis of the root causes of the prob- whether or not the event becomes a cause for lems and remedial action through, for ‘consumer terrorism’ (customers who gladly example, training or amendment to proce- tell everyone the problems that they had dures. with a firm) or an opportunity to get closer to The discussion of such failure entails the customer. The organization does have a much additional work for an organization, choice in this respect. The stages in the man- which cannot be cost-justified in conven- agement of failure are as follows: tional terms. If, however, an approach is taken which considers all costs, in this case ● identify that something has gone quality costs (see below), the justification wrong; becomes far easier. ● contain the situation: accept that there is a problem, prevent further damage or Management of variability escalation of the problem; The last issue that will be considered in this ● put in place recovery actions to regain section is the management of variability. the customer’s confidence; Service products, due to the involvement of ● ensure that practices are changed so that the customer in their delivery and the reli- this incident does not occur again. ance on staff for their quality, exhibit a far The first step, identification, considers that greater variability in their delivery than there will be some cue from the customer manufactured products. This is not neces- that all is not well. This may be through a sarily a problem if the service delivery, due verbal comment made to a member of staff, to being a high margin, customized service or direct observation of customer behav- for example, includes the costs of such cus- iour. tomization in the charges made to The second stage is that of recognition customers. Variability becomes a problem and containment. For a customer the rejec- where, due to volume throughput require- tion of their query by an organization can be ments, a standardized service is required. the first stage in a downward spiral. Front- Staff may take more time dealing with cus- line staff need to be aware of the need to be tomers than is allocated, and queuing or Strategic Quality Management 247

another form of delay results. Variability (including the use of SPC, ISO 9000, Tagu- also becomes problematic where the varia- chi techniques, teamwork) have beneficial bility introduced by staff is inappropriate for effects on business performance. Their the customers concerned. research, like others, is not capable of providing a control group to investigate the effects of the pursuit of other activities and Service Quality Improvement whether scarce resources could have been better deployed in other initiatives. A per- Basic arguments for organizational quality functory consideration of these factors casts improvement are: doubt as to whether this ‘evidence’ can be considered to be totally objective. Flynn et ● productivity-based (quality cost), more al. (1994) comment that ‘ . . . the majority of out for the same input of resources; the empirical work on quality management ● competitiveness-based, moving away can be characterized by a narrow focus and a from definitions of quality that focus on lack of rigour, particularly with regard to attributes other than defect levels. reliability and validity issues.’ The role of the former has already been dis- As will be shown in the discussion of cussed. Competitiveness based on quality is total quality management (TQM), it is far more difficult to assess once you move almost impossible to determine any certain- away from simply considering defect levels. ties as to what will and will not work. The The Profit Impact of Marketing Strategy basis of much improvement should there- (PIMS) database was established to inves- fore be a pragmatic assessment of the tigate the effect of high-level strategies on possibilities for changing practices within profitability. The methodology involves organizations, followed by selection of the questioning top executives of the companies options most compatible with the goals of involved and establishing their perceptions the organization. as to the relative market position of their companies in certain key areas, notably The role of top management in quality quality performance (Buzzell and Gale, improvement 1987). This has been extensively criticized Deming (1986) estimates that 94% of cus- as a methodology due to its subjective tomer problems are caused by the nature and the lack of any verification of the management system rather than by individ- data being provided. Studies using the PIMS uals. This may not possess the quality of data include that of Caves and Ghemawat delighting the customer but has a significant (1992) who conclude that differentiation- role in minimizing the ‘negative potential of related factors (such as quality) play more of operations’. Studies in the Japanese manu- a role in generating sustained intra-industry facturing industry (e.g. Ebrahimpour and profit differentials than do cost-related ones, Lee, 1988) have shown quite clearly that the in addition to providing bigger margins. way in which performance was measured Similarly, Lynn (1992) states the existence and rewarded was the key to high quality of a strong correlation between a firm’s prof- levels. Similarly, in a broader range of itability and the perceived quality of its industries, the removal of purely quantity- products and services. Hence the view that based measures of performance (e.g. number quality improvement should provide the of clients ‘processed’) was a prerequisite to basis for sustainable competitive advan- improvement (Garvin, 1984). tage. The nature of this commitment is open to Mann and Kehoe (1994) try to quantify debate. There is little congruity over meas- the relationship between three factors: orga- ures of commitment and real levels of nizational characteristics, quality commitment to change can be easily dis- improvement activities and business per- guised. The development of a quality formance indicators. They conclude that all department within an organization is seen to the quality activities they investigated show a degree of commitment from senior 248 H. Maylor

management. The real influence that this While there is a good logical argument that quality function can have, however, has to better trained workers will provide a better be set in perspective. Customers of tourism quality service to customers, the empirical and hospitality operations are likely to deal evidence is very sparse. As for evaluating with a cross-section of staff and provision of the effectiveness of quality programmes as a the tourist product takes cross-functional whole, a direct causal link between the activity. Expecting one department to activity (in this case the training) and the ‘police’ or have any great influence on the outcome (better performance) has not been processes risks taking the responsibility for established. One of the major challenges is ‘quality’ away from the place or people eliminating the distorting influence of the where it has greatest effect: in each of the inherent ‘level of quality’ of the employees, functions throughout the organization, e.g. natural motivation, employment his- which has led to the slogan ‘quality is every- tory, background, education, etc. This is a one’s business’. This need for key element that has been identified in a cross-functional cooperation is reflected in number of cases where service quality has the organizational structure of some world- been cited as excellent (Southwest Airlines, class companies who focus on processes for example). rather than departments. There is, however, a significant role dur- Evaluating service quality ing organizational change for a ‘quality In order to improve elements of service qual- champion’. Many organizations rely on ity, the first step in the process is the external sources for this, though there is a establishment of levels of current perform- good argument for the expertise to be devel- ance. Measuring guest satisfaction in oped in-house, so as to retain the experience hospitality operations has been a matter gained from the process for future use. One largely left to the comment card, which is persistent problem with such quality cham- certainly ineffective, if not actually mislead- pions who are then involved in the training ing (see Jones and Ioannou, 1993). Any of others (who would then train others and survey of customer satisfaction should so on, known as ‘the cascade method’) was address three issues. These are: that often they were ‘only one chapter in the ● the survey design; book ahead of the people they were train- ● survey distribution; ing’. Anecdotal evidence suggests that many ● data processing. improvement programmes have foundered due to the lack of credibility or authority of Issues of survey design include how many such individuals. The proof of this has not people should be asked as to their opinions, been forthcoming; organizations are reluc- and what they should be asked. Voluntary tant to admit that they have engaged in a completion results in a massive non- quality programme which has failed, and response rate bias (i.e. the cards are only the quality industry (notably the consul- completed by those with strong views – tancy firms which offer TQM training) has usually overwhelmingly negative – and do not encouraged such introspection. not give an indication of the overall picture Provision of resources for a quality that a representative sample would provide; improvement programme is just one area see e.g. Silver, 1997). The mechanism for where a level of commitment from top man- distribution should then be in-line with the agement is required. As Flynn et al. (1994) survey design, and what it is intended to comment, the nature of quality-oriented show (an overall picture of customer sat- training includes small-group problem- isfaction, or simply identification of solving, communication, statistical process outliers: customers with extremely good or control and other relevant areas, in addition extremely bad experiences). Data can be pro- to classroom and on-the-job training related cessed centrally (allowing some notion of to specific tasks. The objective is to develop control over the data and consistency with workers who are flexible problem-solvers. measurements from other service outlets), or Strategic Quality Management 249

locally (allowing addition of informal data accepted as a research tool for assessing the and client feedback). An important, but quality of hospitality provision’. Modifica- often missed element of this process, is that tions to the basic set of criteria include the information is gathered in the language of addition of new elements within each of the the customer. It is too easy to ‘interpret’ the criteria to suit the individual situation. For comments and miss the issues that were of example, a recent evaluation of a hospitality greatest importance to them. operation expanded the tangibles element of Determining what questions to ask peo- SERVQUAL (Mei et al., 1999). The charac- ple is an issue that is as debated as the teristics under this heading in the original definition of quality itself. This should be no scale were expanded to include the follow- surprise; the assessment should be a mirror ing elements: of the definition of quality that has been ● adopted by the organization. It does not equipment, fixtures and fittings are mean to say that it is the right definition, modern looking; ● only that it is the one that has been used. For facilities are visually appealing; ● the service manager, the key issue here is neat and professional employees; ● avoiding putting their own views of the materials are visually appealing; ● service above those of the customer. It is not fixtures and fittings are comfortable; ● unusual to find a customer survey ques- equipment and facilities are easy to tionnaire that reflected a manager’s use; ● preferences from the service, rather than equipment and facilities are generally that of the customer. One of the ways to clean; ● avoid this is through the use of frameworks, variety of food and beverages meets adapted for the particular customer service guests’ needs; ● experience in question. services are operated at a convenient The major framework for the evaluation time. of performance, is SERVQUAL. This model It is also appropriate to consider satisfaction breaks quality down into measurable ele- as a continuum rather than a discretized ments comprising: reliability, commodity. This was promoted by Zeithaml responsiveness, assurance, empathy and et al. (1990) who introduced the concept of a tangibles. Grönroos uses elements of pro- ‘zone of tolerance’ between a desired and an fessionalism and skills, behaviour and ‘adequate’ level. The framework clearly attitudes, accessibility and flexibility, relia- applies to each of the dimensions of quality bility and trustworthiness, recovery, discussed above. Furthermore, the study reputation and credibility (see also presented by Liljander and Strandvik (1993) Haywood-Farmer (1988) and Mattsson used what they call a ‘willingness to pay’ (1992)). Each of these attributes is an ele- construct to the expectations of service in ment of a scale for analysing both the three forms: expectations and perceptions of the service product (Parasuraman et al., 1985, 1986). ● the adequate level of service; The usefulness of such a scale has been ● the desired level of service; evaluated by, for example, Fick and Richie ● the predicted level. (1991). They concluded that while the scale This changes the discussion from perceived was useful in providing a means of assessing quality to ‘perceived service value.’ the relative importance of the various attri- Johnston (1995; see also 1999) identified butes to the customer in one specific three overlapping applications of the zoning circumstance, there were many practical concept: challenges to delivering the questions to customers and providing an analysis of their ● the description of pre-performance responses. Johns (1993) concludes that ‘the expectations (as above); SERVQUAL scale is likely to need further ● the satisfactory range of in-process serv- adaptation before it can be generally ice performance; 250 H. Maylor

● a description of the outcome state, rang- first is that if you are performing satisfacto- ing from dissatisfaction (negative rily in each of the quality dimensions, it is disconfirmation) to satisfaction (confir- not necessarily reasonable to expect your mation) to delight (positive customers to be pleased with this part of the disconfirmation). Johnston cites Ken- service. Making this the subject of question- nedy and Thirkell (1988) as describing ing increases the customers’ awareness of the range state of satisfaction as possess- that issue and hence raises expectations. ing a zone of tolerance. This may result in dissatisfaction in the longer term where increases in the level of At the outset of the customer encounter, the awareness of aspects of the service is not customer possesses a mixture of expecta- matched by increases in perceived customer tions, as already defined, due to prior benefit from that aspect of the service. The experience, marketing information or third second is that in the service provision proc- party information. The process encounters ess, incursions into the region of delight at will shape the outcome state, but carry the outcome or parts of the process, may immediate perceptive valuations by the con- result in a change in the expectations of the sumer. The role of marketing in the service in the future (Gummesson’s ‘Peanut consumer interpretation of the outcome Syndrome,’ 1991). It is important that these state will be discussed below. changes can either be sustained or that some In determining the width of the zone of other compensation is made to the cus- tolerance, the level of involvement is cited tomer, e.g. in price. as a crucial factor (Berry and Parasuraman, 1991; Johnston, 1995), the relationship The evolution of the subject of quality between the two being that the higher the management customer involvement, the narrower the Figure 9.3 shows the evolution of the subject zone of tolerance. Furthermore, Berry and from the centre of the figure (craft-centred Parasuraman emphasize that the zone of tol- industry) to the modern situation of strategic erance will (as for the absolute level) be quality management, which encompasses different for each quality factor, but is likely the previous approaches. The craft-centred to be narrowest in the element of reliability. approach – as typified by sole-trader busi- Managing processes to ensure that, as in the nesses – is still a feature of many tourism manufacturing paradigm, they are kept products. In such a situation, the onus is on within the acceptable limits, is a key task for the individual to provide the necessary tourism and hospitality managers. qualities that customers are seeking, using Coyle and Dale (1993) reported on an the influence of individualism to secure cus- investigation into the perceptions of impor- tomer approval. When products become tance of service features from the more industrialized (through service- perspectives of hospitality managers and factories, for example) the requirements customers. Their findings highlighted the change. Until recently, it was commonplace differences between actual customer for quality ‘inspectors’ to roam factories perceptions/expectations and their interpre- (service factories as much as manufacturing tation by service providers (managers of operations), seeking out poor quality. The hospitality operations). The major ‘feature’ failing part of operation would then be bera- that customers required of the service trans- ted for their poor performance. Such an action, was problem handling ability and approach was part of the Tayloristic com- authority in staff. Attitude and keeping mand and control structures of promises ranked second and third. Man- industrialized society. Apart from the obvi- agers rated value for money highest, which ous negative-only feedback that this was much further down the list of priorities provides, the assumed principle of control is for customers. that the error is created immediately prior to Two major practical implications for the point of detection. This is rarely the case; managers emerge from this discussion. The errors are usually the sum of a set of actions Strategic Quality Management 251

Fig. 9.3. Evolution of quality management.

in a chain, where the original cause is often The original phrase provided a good indica- well removed from the point at which either tion as to the nature of what quality the customer experiences it, or the inspector management activity was about, however it detects it. did not possess the necessary mystique As a result of recognizing these short- which the quality industry required. The comings, increased use was made of quality phrase ‘total quality management’, now pos- assurance. Errors or problems were tracked sesses as many meanings as there are to their source, and the focus shifted to pre- organizations which claim to be ‘Total Qual- vention, rather than detection and ity Companies’. Feigenbaum’s definition rectification. Where staff routinely give poor (1991) is: advice, resulting in later problems for other staff, this would be found under a system of Total Quality Control is an effective system quality assurance, whereas the problem for integrating the quality development, would be focused on the later incident in a quality maintenance and quality improvement efforts of the various groups system of inspection. in an organization so as to enable Following the work of a number of influ- production and service at the most ential people in this area (see below), the economical levels which allow full 1980s saw the emergence of the ideal of total customer satisfaction. quality management. The author of this ‘holistic’ approach was Feigenbaum (1956) in Other definitions which are worthy of note describing the work that he saw being include ‘Continuously meeting customer undertaken in Japan. His phrase ‘company- requirements at lowest cost,’ (P.A. Consult- wide quality control’: the use of the tools of ing Group, 1988) and ‘a proven systematic quality control on all processes within the approach to the planning and management business, was developed to the concept we of activities’ (Munro-Faure and Munro- know today as total quality management. Faure, 1992). These represent two classes of 252 H. Maylor

Fig. 9.4. EFQM organizational quality assessment.

definition: one is objective-oriented (i.e. championed by governments and consul- what are the objectives of TQM?) and the tancies alike, the evidence for their other is functional (what does TQM mean continued existence has been very sparse. for management?). This inexact definition of Most of it is anecdotal and concerns large the nature of TQM has caused much blur- blue-chip companies. The question of imit- ring of the precise level and scope of quality ability is therefore raised again. Several management terms, such as quality assur- studies will be examined to see if there is a ance, quality planning and quality systems. correlation between quality performance Johns (1993) suggests that this blurring and organizational financial performance ‘exists at a philosophical rather than a prac- (e.g. Powell, 1995; Lederer and Rhee, tical level’, though the implications are that, 1995). like the original discussions of quality, there The current state for many organizations is a high degree of ambiguity associated with is that they are launching quality initiatives the jargon of quality management. Some of for the second or third time, previous pro- this is misplaced; TQM for example is a set grammes having ‘faded’. The same cycle of of ideas or principles, whereas quality sys- initial enthusiasm followed by disillusion tems are means of achieving these and was observed with the idea of Quality Cir- quality procedures (such as SPC, Quality cles. These are groups of workers who are Circles, 7 tools of quality control) are the convened for the purpose of solving quality practical day-to-day measures that a quality problems around their work environment. system can draw upon to achieve its strate- Japanese experience was that they provided gic objectives. benefits to the organizations that used them It is this holistic approach to quality man- over a wide range of sectors. They became agement which forms the basis of the very popular for a short time during the American Baldridge and European EFQM 1980s when many organizations were hav- awards. All parts of the organization are ing their first experiments with quality assessed under the criteria shown in Fig. management. They very quickly faded from 9.4. While the pursuit of holistic pro- use, however, with many organizations grammes for management have been reporting rapid declines in effectiveness. Strategic Quality Management 253

The explanation postulated for this phe- and costs from the application of TQM, nomenon is that the static nature of the which previously would have been consid- groups turns them from high-performing ered heretical. Lederer and Rhee (1995) work teams into talking-shops and social consider TQM as an investment in new tech- groups. In addition, as might be expected, nology, and the relative success (through 80% of the benefit of the group is achieved stock-market valuation) is assessed. The relatively quickly. After this, they have to first-mover advantage appeared to be sig- focus on relatively marginal projects and nificant in this case, particularly where suffer from dwindling management support competitors were slow to follow. In other as a result. industries – particularly those cited as justi- This launching and relaunching of ini- fication for most new paradigms tiatives means that we can expect the (automotive, electronics, white goods, com- concept of total quality to be dynamic as munications) – the implementation of TQM illustrated by Tranfield (1992). The approa- programmes has not provided abnormal ches to TQM by organizations are positive returns. categorized into three main mindsets: Powell (1995) is far more careful to consider the causality of the relationships 1. Planning: quality improvement can be between apparent organizational success planned and measured as for any other and TQM initiative. He notes that many business performance measure. Sys- already successful organizations take on tems are the means of achieving the TQM, and are, because of their predisposi- intentions of this mindset. tion for success, more likely to succeed with 2. Learning: focuses on the empowerment the initiative. There was also a survivor-bias of individuals (with every pair of hands in this research which would tend to under- you get a free brain) and the continual state the positive impact of TQM; those improvement of the organization in its organizations which had not taken onboard ability to solve problems. the work would, at least anecdotally, appear 3. Visionary: guided by senior managers to be far more likely to have gone out of as a top-down initiative through the business. Such methodological problems application of systems of hierarchical are preventing an objective interpretation of control. Customer requirements are ‘what works where’ in assessing such ini- forced into the management decision- tiatives. making processes.

Tranfield further adds that all of these Major influences on the development of approaches are limited and that the only quality management theory and practice way to success is for a fourth paradigm to The major popularists in the area of quality emerge, termed ‘Transformational Total management and their influence on the sub- Quality’. This is defined as cycling between ject are shown in Table 9.3. the three main paradigms in order to obtain the benefits of each while not incurring the drawbacks. The negative effects of each are Tools of quality management seen to set in once the initiatives are allowed Available to the hospitality manager are the to become static. ‘7 tools of quality management’. These are Crosby (1983) stated that ‘quality is free’. described extensively in the quality and In the short-medium term, this is unlikely to operations management literature, though be justified. Significant investment will are as concerned with general problem- have to be made if the organization wishes to solving as quality improvement per se. The pursue a strategy of becoming a total quality tools (process flow charts, Pareto analysis, organization. The evidence to justify such Ishikawa/cause and effect diagrams, histo- an investment is contradictory. There has grams, correlation charts, process control emerged a pragmatism in management charts, check sheets) are described in, for thinking demanding evidence of benefits example, Bicheno (1998). The benefits they 254 H. Maylor

Table 9.3. Major inﬂuences on the development of quality management.

Instigator Major inﬂuence

Deming Initially developed statistical methods for control of repetitive processes, and their usage. Took the tools to Japan post World War II, and was seen as part of the Japanese quality revolution (though largely ignored in his native USA until the last years of his life). Recommended 14 points for management, the use of the Plan-do- check-act cycle (also know as the Deming Cycle) Crosby Championed the notion of ‘zero defects’, and ‘quality is free’ Feigenbaum The holistic approach to quality, company-wide or total quality control Taguchi The proponents of Taguchi methods claim great results for the design of experiments, though good examples are few and far between. A more nebulous approach to quality comes in the form of the loss function Ishikawa Quality circles and brainstorming tools including the ﬁshbone or Ishikawa diagram Ohno Architect of the Toyota Production System which took quality to new levels in manufacturing, through teamwork, training and education, ongoing continuous improvement and a focus on the absolute elimination of waste Juran The engineer’s quality guru established and compiled the requirements of systems and procedures for sampling and control with tangible products. Many of the routines are equally applicable to the tangible elements of service products

offer include the ability to be used through- 94% of causes of poor quality are with the out the organization and do not require a system rather than the individual. The quality specialist, once the simple princi- design of the system is the responsibility of ples have been taught. management and there is a well-developed Mizuno (1988) and Barker (1990) demon- tool set to assist in this respect. strated the use of ‘7 new tools of quality Achieving excellence has been shown to management’ (relations diagram, afﬁnity be economically worthwhile, both in terms diagram, systematic diagram, matrix dia- of competitiveness, and in terms of the cost gram, matrix data analysis, process decision of gaining customers and the costs of qual- programme chart, and arrow diagram). Their ity. The road to excellence is therefore a application requires a far greater command challenging one, but one that is very worth- of language than the original seven tools, as while. Avoiding some of the hype that they rely on the linguistic decomposition of surrounds an initiative such as TQM is nec- problems. essary for most organizations. Instead a focus on the strategic beneﬁt from the continuous improvement of different elements Conclusion of the service offering is required.

This chapter started by asking for examples of good service quality. As discussed these References seem all too difﬁcult to ﬁnd in practice. Yet, there are good examples available. Treating Barker, R.L. (1990) Drawing on Japanese experience. Total Quality Management December, quality as a strategic issue means that we can 24–33. consider it at a high level in organizations, Berry, L.L. and Parasuraman, A. (1991) Marketing and can begin to take some control of both Services: Competing Through Quality. Free internal (operations) and external (market- Press, New York. ing) aspects of quality, as it affects Bicheno, J. (1998) The Quality 60. PICSIE Books, customers. As Deming (1986) comments, Buckingham, UK. Strategic Quality Management 255

Buzzell, R.D. and Gale, B.T. (1987) The PIMS Johnston, R. (1995) The zone of tolerance: explor- Principle: Linking Strategy to Performance. ing the relationship between service Free Press, New York. transactions and satisfaction with the overall Caves, R.E. and Ghemawat, P. (1992) Identifying service. International Journal of Service mobility barriers. Strategic Management Industry Management 6(2), 46–61. Journal 13(1), 1–12. Johnston, R. (1999) Service operations manage- Coyle, M.P. and Dale, B.G. (1993) Quality in the ment: return to roots. International Journal hospitality industry: a study. International of Operations and Production Management Journal of Hospitality Management 12(2), 19(2), 104–124. 141–153. Jones, P. and Ioannou, A. (1993) Measuring guest Crosby, P. (1983) Quality is Free. Mentor Press, satisfaction on UK-based international hotel New York. chains: principles and practice. Interna- Deming, W.E. (1986) Out of the Crisis: Quality, tional Journal of Contemporary Hospitality Productivity & Competitive Position. MIT Management 5(5), 27–31. Centre for Advanced Engineering Study, Lederer, P.J. and Rhee, S-K. (1995) Economics of Cambridge, Massachusetts. total quality management. Journal of Opera- Ebrahimpour, M. and Lee, S.M. (1988) Quality tions Management 12, 353–367. management practices of American & Jap- Liljander, V. and Strandvik, T. (1993) Estimating anese electronic ﬁrms in the United States. zones of tolerance in perceived service qual- Production & Inventory Management Journal ity and perceived service value. 29(4), 28–31. International Journal of Service Industry Feigenbaum, A. (1956) Company-wide Quality Management 4(2), 6–28. Control. McGraw Hill, New York. Lynn, D.A. (1992) Overcome the barriers to supe- Feigenbaum, A. (1991) Total Quality Control, 4th rior customer service. Journal of Business edn. McGraw Hill, New York. Strategy, 13(1), 18–24. Fick, G.R. and Richie, J.R.B. (1991) Measuring Maister, D.H. (1993) Managing the Professional service quality in the travel and tourism Service Firm. Free Press, New York. industry. Journal of Travel Research 30(2), Mann, R. and Kehoe, D. (1994) An evaluation of 2–9. the effects of quality improvement activities Flynn, B.B., Schroeder, R.G. and Sakakibara, S. on business performance. International Jour- (1994) A framework for quality management nal of Quality & Reliability Management research and an associated measurement 11(4), 29–44. instrument. Journal of Operations Manage- Mattsson, J. (1992) A service quality model based ment 11, 339–366. on ideal value standard. International Jour- Garvin, D. (1984) What does product quality nal of Service Industry Management 3(3), really mean. Sloan Management Review Fall, 18–33. 25–44. Mei, A.W.O., Dean, A.M. and White, C.J. (1999) Grönroos, C. (1984) Strategic Management and Analysing service quality in the hospitality Marketing in the Service Sector. Chartwell- industry. Managing Service Quality 9(2), Bratt, Bromley. 136–143. Gummesson, E. (1991) Truths and myths in serv- Mizuno, S. (ed.) (1988) Management For Quality ice quality. International Journal of Service Improvement: the 7 New Quality Tools. Pro- Industry Management 2(3), 7–16. ductivity Press, Cambridge, Massachusetts. Gummesson, E. (1993) Quality Management In Munro-Faure, L. and Munro-Faure, M. (1992) Service Organizations – An Interpretation of Implementing Total Quality Management. the Service Quality Phenomenon and a Syn- Financial Times Management, London. thesis of International Research. Research P.A. Consulting Group (1988) How to Take Part in report No. 1 (January) International Service the Quality Revolution: A Management Quality Association. Guide. P.A. Consulting Group, London. Haywood-Farmer, J. (1988) A conceptual model Parasuraman, A., Zeithaml, V.A. and Berry, L.L. of service quality. International Journal of (1985) A conceptual model of service quality Operations and Production Management and its implications for future research. Jour- 8(6), 19–29. nal of Marketing 49 (Fall), 41–50. Johns, N. (1993) Quality management in the hos- Parasuraman, A., Zeithaml, V.A. and Berry, L.L. pitality industry. International Journal of (1986) SERVQUAL: A Multiple Item Scale for Contemporary Hospitality Management 5(1), Measuring Customer Perceptions of Service 10–15. Quality. Working Paper, Report No. 86–108, 256 H. Maylor

August. Marketing Science Institute, Coral Shostack, G.L. (1984) Designing services that Gables, Florida. deliver. Harvard Business Review 62 (Jan– Peters, V.J. (1999) Perspectives: total service qual- Feb), 133–139. ity management. Managing Service Quality Silver, M. (1997) Business Statistics, 2nd edn. 29(1), 6–12. McGraw Hill, Maidenhead, UK. Powell, T.C. (1995) TQM as competitive advan- Tranﬁeld, D. (1992) TQM2: a methodology for tage: a review & empirical study. Strategic regenerating the TQ effort. Paper presented Management Journal 16(1), 15–37. at the conference TQM – A Review of Direc- Reichheld, F.F. and Sasser, W.E. (1990) Zero tions, Newcastle. defections: quality comes to services. Har- Zeithaml, V.A, Parasuraman, A. and Berry, L.L. vard Business Review (September–October), (1990) Delivering Service Quality. Free Press, 105–111. New York.

Part Four Strategic Planning in Tourism

10 Strategic Planning

L. Moutinho

Before a tourism company can do business, any consumer behaviourist will tell you, before they can market their tourism prod- consumer demand may change on a whim, uct, before they can even plan their tourism so looking 5 years into the future combines product, they must first plan their strategy. experience and skill with a healthy portion Decisions regarding the type of business the of guesswork. So, while these plans may firm desires to be in, the segments of the often be inaccurate, they still provide a tar- market they wish to pursue and the type of get that tourism firms can attempt to attain, tourism products they wish to develop for or serve as a benchmark by which to identify their markets must all be carefully planned the company’s desired goals and ascertain out in what is known as the strategic plan. the extent to which they have been ach- Different levels of the tourism firm all ieved. (It should be noted, however, that engage in different levels of planning. They many tourism companies are increasingly plan at the corporate level, the specific com- using scenario planning and computer sim- pany or business-unit level and also at the ulations to make more accurate projections tourism product level. They also plan for and forecasts to help minimize this different periods of time. The time frame unknown aspect of the future.) that encompasses the firm’s plan is known Compared with the long-term strategic as the planning horizon. Planning horizons plan, the short-term plan, or annual plan, is generally vary from 1 to 5 years, but Jap- much more operational (or tactical) in anese firms are known for their extended nature, focusing more on the tourism firm’s planning horizons of 10–25 years and even marketing mix and to what degree it will be more. used for which tourism products. The plan should also identify the tourism firm’s marketing policy and the expected financial The Difference between Strategy and effects on the firm (i.e. promotional costs, Tactics expected sales, etc.). By identifying the difference between the Long-term plans (those extending beyond long-term plan and the short-term plan, we 3 years) are generally very strategic in have identified the difference between a nature. In them, the firm’s long-term goals tourism firm’s strategy and its marketing tac- such as profit margin, market share and mar- tics. The strategy is derived from a firm’s ket growth are all indentified. The longer goals and is a loose framework or set of term the plan, the less reliable available guidelines that a tourism firm will follow in information is on which to base the plan. As order to attain their goals. A tactic, mean- © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 259 260 L. Moutinho

Table 10.1. Comparison of strategic and tactical planning.

Strategic planning Tactical planning

Duration Long term ( > 3 years) Short term ( < 1 year) Done by Senior management; top marketing Marketing and product managers; management middle management Necessary information Primarily external information Primarily information from within the ﬁrm Degree of detail Broad in nature, based on a subjective Detailed information and analysis evaluation

while, consists of specific details as to how new tourism product line, many more to execute the strategy. For example, a tour- departments than just marketing will be ism firm’s goals may be to increase market involved. Thus, strategies should share in Region A by 5% over the next always have broad approval and 3 years. The resulting strategy may be to encouragement. develop a new tourism product line that will ● Allocation of resources. Tourism firms allow the company to achieve a dominant must constantly change to keep up with share of a certain target market. The tactic their changing environments. This may be to develop a specific, targeted prod- means that strategies must also change uct, sell it through a specific type of tourism over time and, thus, resource allocation retail outlet, price it at a specific level and must also change to meet the new strat- position it in a certain way to the consumer egy requirements. through the use of a TV advertising cam- ● Long-term strategic effects. Strategy paign. We will now examine strategies and changes represent changes in current tactics in more detail. Table 10.1 illustrates positions of the firm and, in effect, the differences between the two types of changing the firm’s foreseeable future. plans. In short, strategic changes are changes that may affect a tourism company’s performance for years, if not an entire Strategy Characteristics decade. Thus, firms should research and investigate potential changes in strategy with great care, but they also should not Strategies are different from tactics, as we overlook the need for revising or chang- identified above. Whenever a tourism firm ing their strategy if the circumstances begins to analyse a potential market or sell- dictate it. Data should be gathered that ing situation, it must have a strategic plan allow for intelligent, objective business regarding its approach to the market. Unfor- decisions that firms should be comfort- tunately, many tourism managers attempt to able living with for some time. act in the short term without the benefit of considering the longer-term effects of their Strategic development takes place on three actions. We will now examine some more levels identifying characteristics of strategy. Tourism businesses are often large organiza- ● Limited in number. Compared with tac- tions composed of many different tics, tourism firms only follow one or a departments, with each department having few strategies since following too many its own set of goals, norms and methods of strategies at once can spread the firm’s operation. But although each department resources too thinly. operates as an individual unit, they are not ● Multi-department involvement. In order autonomous. The departments are a cohe- to implement a strategy of introducing a sive set of units that are all striving for Strategic Planning 261

Fig. 10.1. Levels of strategy development. similar corporate goals. Each department contact or links to other SBUs, except must adhere to the wishes of the corpora- through shared ownership of the parent tion, while at the same time communicating firm. SBUs are also individual profit centres, to the upper levels of the corporation their thus responsible for their own profits or los- particular needs, goals and capabilities. ses. SBUs may operate in similar or Thus, although the marketing department is completely separate industries from other constrained by the corporate business plan, SBUs in the firm. it is often free to develop its own strategies Although the organization is composed and make its own tactical decisions within of SBUs, top management strategists have a the guidelines of the corporate plan. goal of increasing the value of the whole The operational marketing plan (other- firm, not just one SBU in particular. They wise known as the tactical plan or the must be aware of and analyse the economic product plan) must be in line with the busi- environments surrounding the industries in ness, or strategic, plan of the firm. Since the which each SBU operates. Once aware of marketing plan is based on the strategic future growth and market-share possibil- plan, it will be useful to examine this strate- ities, they will put together a strategy to gic plan. As noted in Fig. 10.1, the benefit the entire tourism firm. Thus their development of strategies that link the tour- strategy may include changes in levels of ism corporation with its surrounding investment or growth goals for different environment takes place on three levels: the SBUs. The SBUs must take these corporate corporate strategy, the business strategy and strategies and goals and develop their own the marketing strategy (Go and Pine, 1995). set of strategies based on top management’s general direction and challenges (Hitt et al., Corporate strategy 1998). Corporate strategy concerns the strategy of a tourism corporation’s strategic business Business strategy units (SBUs). An SBU is an organizational The business strategy concerns this next unit within the confines of the larger cor- level of strategy at the SBU level. The senior poration. Each SBU has a specific mission, managers of each SBU must manipulate tourist services, competitors and target their resources (operations capacity, man- group of customers. Each SBU is usually an power, financial capabilities, etc.) in such a operating entity unto itself, and has little fashion that allows them to best attain the 262 L. Moutinho

desired corporate goals. Although they are toward the future. These tourist firms tend developing strategy at a different level, the to spend their years reacting to competitive process that they follow to develop their and environmental forces without ever forg- strategy is similar to that of the corporate- ing their own identity with customers. Plans level planners. First, they must analyse their that live in the present, as opposed to plan- individual markets, their competitors, the ning for the future, are often short-lived and outside forces that may affect their industry best avoided. and present and emerging consumer trends. They then develop a strategy based on cor- A strategic planning model porate guidelines that best utilizes their Strategic decisions consist of fundamental resources and deals with their immediate choices for the long-term development of environment. This strategy is then dissemi- the organization. As customers become nated to the various departments that make more demanding (and often less loyal), as up the SBU. competitors become more numerous and aggressive, as environmental conditions Marketing strategy become more difficult, then the value of From the SBU strategy comes the marketing planning increases. Now that we under- strategy. At this point, the marketing depart- stand how a strategic plan affects an ment must decide how the strategy organization, and the levels of strategic established by the SBU affects the marketing planning that go on within a tourism cor- effort. They will utilize the variables of the poration, we will now take a closer look at marketing mix (the tourism product assort- strategic planning in itself. Just what is stra- ment that they offer and how the tourism tegic planning? Strategic planning is the products are positioned, advertised, priced development of a long-term plan that best and distributed) as best they can in order to utilizes the resources of an organization effectively implement the strategy. In fact, within the domain of the organization’s mis- each of these elements of the marketing mix sion. The strategic planning process consists warrants a separate strategic plan. Thus, the of a careful analysis of the tourism organiza- tourism marketing manager is responsible tion and the opportunities and threats that for the development of a tourism product competitors and environmental factors may strategy, a pricing strategy, a distribution bring. strategy and a promotion strategy. These The strategic decisions that are made strategies all become a part of the overall depend on the focus of the tourism com- business plan of the tourism firm (SBU), pany, the markets in which it operates, and because the marketing portion of the busi- the tourist product that the company sells. It ness plan is so significant that it often makes provides a direction and generates momen- little sense to separate the two. All in all, it is tum for the organization. Tactical decisions, easier to understand the business plan of an on the other hand, are the methods of exe- operation if the marketing specifics are cuting the formulated strategy. The specific included. strategic planning process is outlined in Fig. 10.2 and a large portion of this chapter Many tourism firms have plans that are one will be devoted to analysing this process. thing on paper and another thing in practice. The strategic planning process consists of In fact, some tourism firms merely review five steps that are linked together in con- last year’s plan and rubber stamp a continuation. tinuation of the previous policy for the At the completion of each phase, and coming year. Worse yet, some tourism firms before continuing to the next phase, the do not even have a plan to call on for guid- progress made should be reviewed and the ance and direction. As mentioned before, planners should ensure that they have not tourism firms that fail to plan, or tourist lost sight of the tourism company’s overall firms that fail to plan correctly, are bound to mission. Thus, the feedback loop allows the flounder in the present without ever looking tourism firm to check its progress towards Strategic Planning 263

Fig. 10.2. The strategic planning process. achieving the mission and incorporate chan- are we in?’ The answer may appear simple at ges as needed. We will now examine this first, but is actually quite complicated in process in greater detail. most cases. Tourism firms that invest money into new product lines or purchase other companies in seemingly related fields Description of the Mission Statement should first consult the(ir) defining question. And a difficult question it is as we will now discover. Up to this point, we have discussed strategy and its importance. But one further question Too broad or too narrow? that you may have asked yourself is: ‘How The mission statement should provide do you know which strategy to pursue in the boundaries and direction for growth. Thus, first place?’ That is a very good question. the mission statement should be neither too How does a tourism company know its role broad nor too narrow. If it is too broad, the in the social structure? How does a tourism tourism firm may invest in too many periph- company know what goals to set and which eral activities that could detract from its strategies to pursue? All firms have a mis- focus. On the other hand, by maintaining too sion. The mission, also known as the narrow a focus a tourism firm may experi- business definition, is a statement, usually ence significant opportunity costs by written, that sums up why the tourism com- bypassing investments that they should pany exists. It is a statement that anchors the entertain. This phenomenon is a study unto multitudinous employees, departments and itself, known as marketing myopia. divisions of a tourism firm to one defining The mission statement must focus the direction. It is the firm’s raison d’ être. activities of the tourism firm and at the same time provide opportunities to expand. Formulation of the mission statement Another danger of a mission statement is The question that tourism firms should con- that it can become too rigid. Environments tinually ask themselves is: ‘What business change with time. Consumers’ tastes 264 L. Moutinho

change, technology changes, the competi- enough to accept changes and still be appli- tive market changes. If a tourism firm insists cable. Typically, a mission statement should on a strict definition of their mission state- serve its purpose for 5–10 years, and some ment that is inflexible, they may also are applicable even longer. experience difficulty when adaptability is necessary in order to survive. It is easy to see why mission statements are difficult to SWOT Analysis develop, adhere to and maintain. Growth for a tourism firm seldom occurs all Internal versus external functions on its own. Very few tourism firms are in the Mission statements not only serve the func- position of being in exactly the right place at tion of guiding and directing the tourism the right time. More often, growth is a per- firm, but also to let outside people under- sistent dedication to striving for stand what the tourism firm is all about. pre-established goals and objectives. In Many tourism companies have mission order for these goals be to realized, a tourism statements printed in their annual reports or firm dedicates itself to rigorous planning other communications tools that assist with the goal set constantly in mind. The potential investors, customers, community plan, then, is the engine that drives the mar- members and other interested parties in keting department (and the rest of the firm) understanding the firm and its guiding phi- towards its goals. But the plan is not func- losophy. These statements are known as tional unless it is based on a reasonable set external statements, and they may differ of assumptions and premises. In other from the internal statements used within the words, it is hardly reasonable to develop a tourism company. Often a large conglomer- plan that will not be attainable due to exist- ate will print an external statement, while ing competitive pressures or environmental using different internal statements for the situations. various divisions or subsidiaries. The first thing that many tourism firms do The process of developing these state- in the planning process is to complete a ments is beneficial in itself, in that talking SWOT analysis. SWOT stands for Strengths, through and arguing a problem may also Weaknesses, Opportunities and Threats, result in an optimal solution. While man- and may also be known as the strategic audit agers of the tourism firm are certainly more or situational analysis. It is a methodical interested in adhering to an internal state- examination and evaluation of the internal ment, the external statements may be used and external operating environment of the as methods of announcing changes in direc- firm. A strong SWOT analysis is derived tions of tourism firms. basically by asking numerous questions about the factors that may affect the tourism Structure of the mission statement firm. The main focus point of a SWOT analysis is illustrated by the questions in Table A final note on mission statements concerns 10.2, the results of which would then be their longevity. Tourism firms produce mis- used to ascertain the implications these dif- sion statements to act as guiding lights in ferent factors have for the business their travels through the business world. It strategy. would not serve the purpose of the statement to have to stop and reformulate it every year or so, so it is better for tourism firms to Internal analysis define themselves by the needs that they Internal factors of the strategic audit are the satisfy rather than the tourist product they factors that can be most readily influenced develop. A statement must be developed by the firm. Funding available for invest- that can weather a changing environment to ments, capabilities, technologies, a certain degree. Change cannot be stunted, knowledge and capabilities of personnel, so a mission statement must be flexible tourist product line and assortment, Strategic Planning 265

Table 10.2. SWOT analysis, with the principal questions listed.

Internal analysis External analysis

Strengths Opportunities Differentiation possibilities? Potential new markets or segments to enter? Sufficient financial resources? Expansion of the tourist product assortment? Appropriate competitive strategy? Diversification into related products? Good reputation with your clients? Vertical integration? A known market leader? Possibilities to move towards a better strategic Brilliant strategy for each functional area? group composition? Possible scale advantages? Contact with competitors? Protected (so far as possible) from strong Fast(er) growth in the market? competitive pressure? Other opportunities? Unique technology Cost advantages? Threats Competitive advantages? Possible entrance of new competitors? Capacity for product innovation? Decreasing market growth? Proven management skills? Negative government influence? Other strong points? Growing competitive pressure? Vulnerable to recessions and other economic Weaknesses trends? No clear strategic orientation? Strengthening in the negotiation position of Worsening competitive position? customers and suppliers? Ageing facilities? Changing wants and desires of buyers? Insufficient profit from . . . ? Threatening demographic changes? Lack of management insight and experience? Other threats? Shortage of specific skills? Bad experience with the implementation of the strategy? Plagued by internal operational problems? Vulnerable to competitive pressure? Bad image in the market? Disadvantages compared with competitors? Less-than-average marketing skills? Not in a position to finance the necessary changes in strategy? Other weak points?

strength of the marketing plan, sales-force determine how to allocate necessary resour- ability and corporate reputation are all vari- ces and to locate areas of potential ables which the tourism firm can control. A vulnerability. SWOT analysis should above all be realistic: The internal analysis leads us towards it is easy to come up with an analysis that building a tourism company profile. This assuages everyone’s ego by telling them profile is a snapshot of where the tourism what they want to hear. In fact, it is human firm stands at that particular time. It is an nature to rationalize that all of last year’s easy-to-understand graphic representation effort resulted in success. But covering up of the internal situation of the tourism firm areas of weakness only hurts the tourism and how it compares with the competition. firm in the long run. By accurately assessing You can quickly gauge how potentially suc- the strengths and weaknesses, opportunities cessful this particular tourism company can and threats, the tourism firm can then best be in its market (Poon, 1993). 266 L. Moutinho

External analysis: the world outside the sion may begin to focus on value-based tourism firm promotions and tourist products sooner After the tourism firm takes a long look in than its competitors. Also, it is interesting the mirror at itself, it must turn its focus on how a potential threat can quickly be turned the outside world. This is important since into an opportunity for the tourism firm marketing strategies and plans are derived based on swift ‘proaction’, a skill which will based partially on what the competitive and be of increasing importance as tourist prod- regulatory environment allow a tourism firm uct life cycles shrink (time-wise) and to reasonably accomplish. The external competition intensifies. analysis should focus on identifying the Once the SWOT analysis has been com- trends of the environment and how they pleted, a tourism firm has a strong picture of influence or affect the tourism firm. Hope- what its capabilities and vulnerable areas fully, trends or market movements will are, where it stands in the market when emerge that will allow the firm to be pre- compared with the competition and what pared in advance (being proactive). For potential trends and opportunities may instance, a tourism firm interested in mov- impact the tourism firm. On this informa- ing into tourist product line A should tion, a marketing plan can then be more certainly be aware of any changes in con- accurately formulated. sumer behaviour that may have an impact on the long-term demand for tourist product A. Watching trends in consumer behaviour, Goal Formulation competitive movements and regulatory actions allow tourism firms to avoid or take Once the tourism firm has determined advantage of certain situations that may where they stand in the market based on an have not been apparent to the casual obser- evaluation of their strengths and weaknes- ver, thereby increasing the tourism firm’s ses, they can more readily set goals. The competitive position or minimizing its tourism firm’s goals are basically the level of exposure to potential problems. achievement that they want to attain in a Recognizing the trends that are vital to a certain area. Not only does the tourism firm successful SWOT analysis is much easier if itself have goals, but the individual depart- the mission of the firm is more clearly ments within the firm will have goals as defined, since the corporate mission more well, in fact, as we reach deeper into the narrowly focuses the arena of analysis. In organization, we find that the goals become other words, it is clearly easier to find some- more specific and detailed (going from a thing if we have been told just where to look more strategic nature to a more tactical in general, plus it prevents us from getting nature). For instance, a major tourism hold- side-tracked and devoting too much time ing company may have a goal to grow by and energy to considering areas that are not 12% within the next calendar year. This important to the tourism firm. may translate into a goal for Division A to While our internal search centred around grow by 12% within their tourist product the identification of internal, tourism firm- market, and the resulting marketing- specific capabilities and development department goal may be to grow by 12% (‘internal trends’ to a certain degree), the within a certain tourist product line targeted external search will look more closely at at a certain group of customers. The sales (environmental) opportunities that may goals of this corporation may also hinge on exist. By looking outwards, tourism firms the overall goal. Not only would the sales may see gaps (opportunities) in the market department have a specific goal, but each that other firms have not covered, or gaps sales market and each sales representative that are about to open due to regulatory within the territory may have individual changes, competitor action or social or eco- goals for individual customers. nomic movements. For instance, the Goals are effective only in certain cases, tourism firm that can spot a coming reces- and many goals, if formulated incorrectly, Strategic Planning 267

Table 10.3. Good and bad examples of goals.

Examples of badly formulated goals Examples of well-formulated goals

Long term Long term Our goal is to develop a leading tourist product Our goal is to devote at least 20% of gross proﬁt to development position in the industry research between 2000 and 2002, resulting in at least ﬁve new tourist products introduced in the market by the end of 2002.

Short term Short term Our goal is to increase sales in 2000 Our goal is to broaden our market share in 2000 from 21% to 25% by opening 22 new travel agencies and increasing our advertising budget by 15%

may even detract from the success of the departments (i.e. marketing) which is operation. For a goal to be effective, a few detrimental to the tourism firm’s overall things should be kept in mind (see Table well-being in the end. 10.3 for examples of some well-formulated goals, and some not-so-well formulated goals). More on Strategic Business Units 1. The goals should be measurable in Earlier in the chapter, we discussed strategic enough detail to give meaning and business units (SBU) and how they can even direction to those attempting to achieve be thought of as independent companies. An the goal. SBU can vary in size and scope; it can mar- 2. The goals should be achievable. No one ket just one tourist product or product line benefits from goals that are set beyond for a company, or it can entail the marketing reasonable attainment. When goals are of multiple lines of tourist products to mul- known to be unreasonably high or even tiple targets. We can identify some ‘impossible’ to obtain, then people will characteristics of an SBU. sometimes even work less at trying to achieve them because of their impos- 1. An SBU generally has its own mission sible nature. statement and its own mission. 3. Both long-term goals and short-term 2. An SBU is oriented towards the mar- goals should be developed. Although ket(s) that it serves, as opposed to the present is important, tourism firms having an internal orientation. must constantly know down which 3. SBUs generally, but not always, have a path they are travelling to the future, clearly defined target group that is dif- and make sure present goals and actions ferent from other target groups within are working towards the realization of the tourism firm. the future ones. 4. SBUs are most always directed by an 4. The goals should be ordered in terms of experienced, marketing-oriented man- priority to the tourism company. If dif- ager. ferent divisions are all chasing widely 5. Most SBUs are responsible for control- divergent goals, inefficiencies through a ling their own resources. lack of coordination may be experi- 6. SBUs tend to have their own separate enced as a result. This is the case where strategy and strategic plan, distinct one department (i.e. finance) puts its from the rest of the tourism firm. goals first and ignores the needs of other 7. Most SBUs have their own set of com- 268 L. Moutinho

petitors that are often unique and fortable with a centralized level of control, different from the rest of the tourism and those tourism firms that prefer segment- organization. ing for a sharper focus within the decision 8. Finally, most SBUs possess a differen- units. But even larger tourism companies tial advantage, which warrants their that market literally hundreds of products being identified as a separate operating still try to limit the number of SBUs to a few unit. dozen. In fact, some recent research indicates that some of the largest firms tend to SBU organization have fewer than 30 SBUs. Of course smaller Strategic business units can be organized in tourism companies should start with few a variety of ways, and no particular way is SBUs and add SBUs only when warranted to superior. SBU organization schemes are avoid unnecessary organizational costs and developed by corporations to best meet their duplication of effort. individual needs. Some tourism corpora- The move towards an SBU-based strategy tions organize by segmentation variables, has been increasing in recent years. It is which are the variables that tourism firms suggested by many management and mar- use to segment their markets. For instance, a keting consultants, such as the Boston tourist corporation may organize their SBUs Consulting Group, as a way of more clearly by target-consumer age (e.g. Saga holidays); identifying the businesses that tourism firms or they may have one SBU that produces desire to be in, and appropriately organizing tourism products for young consumers and the corporation to compete in those busi- another that produces for middle-aged con- nesses. More and more, managers are using sumers. The separate segments are thus the product portfolio analysis, advanced by homogeneous, and can be more readily the Boston Consulting Group, as a method of accessed with a similar marketing plan. analysing the strategic profile of their com- Other methods of SBU organization may pany. The portfolio approach is based on include geographical location. Also, many three basic concepts, the product life cycle, firms engaged in international marketing the products’ expected cash flow and the may have different SBUs in the separate learning curve. countries or territories of the globe that they serve. This may be especially useful if the territories are quite different in culture, lan- The Life Cycle and Cash Flow guage or methods of doing business. Tourism companies may also choose to Years of observation have shown us that build their SBUs around different tourist tourist products tend to live a limited life, products or product lines, or around the somewhat like humans. Most products tend needs of the customer. Target-market cus- to experience a birth, a rapid growth phase, a tomers, or their channels of distribution, maturing phase and then a decline phase. often provide the homogeneity needed for The speed with which a tourist product goes SBU organization. through these phases varies with elements that affect sales such as advertising spend- How Many SBUs? ing, number of competitors in the The number of SBUs that a tourism com- marketplace, etc. One of the aspects of the pany has is unique to each firm. Depending life cycle is the growth rate of the tourist on some of the factors mentioned above, products. It would appear logical that a tour- firms may have only a few SBUs or several ism firm should employ different strategies dozen. But however many that a tourism at different phases of the tourist product’s firm may have, they should be appropriate life cycle in order to deal with the changing for the size of the organization and the circumstances at these different points in extent to which the corporation wishes to time (Buttle, 1992). delegate its authority. A trade-off exists A tourist product that experiences rapid between tourism firms that are more com- growth tends to require a large amount of Strategic Planning 269

cash to finance the growth. Growth does not all operation costs per unit are dropping as come without advertising support, distribu- volume increases, so too are the marketing tion channel maintenance, sales promotions costs per unit. Similar economies affect the and other tourist product investments, and selling of the tourist product since addi- those all require cash on the part of the firm. tional advertising can be purchased at larger One way of increasing the flow of cash to the quantity discounts, marketing department tourism firm from the market is to reduce members become more knowledgeable some of these growth-supporting expendi- about their market circumstances and sales- tures. In other words, once the tourist people can efficiently add more sales product has been established and has been without greatly increasing their costs. This entrenched into the mind of the consumer, is known as the learning curve or experience and is on sufficient shelves in the travel effect. As people learn more about their outlets in the market, it may not take as large business, they become more effective and a cash investment for adequate support. efficient at it. Thus, tourism companies often find that the It is easy to see how the effect of the cash requirements of a tourist product learning curve can place a tourism firm in an lessen after a high-growth phase, and the upward spiral. As volume increases, costs cash flows to the company improve corre- per unit drop, which allows a differential spondingly. This is often the case with cost advantage over competitors. The tour- older, more established tourist products. ism firm can utilize this advantage in a One thing tourism marketing managers variety of ways: they may choose to retain must do is control this balance between the the cost advantage through increased mar- flow of cash into the tourism firm and the gins, they may choose to drop their selling growth of the tourist product in the market. price, they may choose to increase their pro- The marketing manager has the ability to motional expenditures or they may choose reduce advertising and other means of sup- to reinvest the money into their tourism firm port in order to slow growth, and possibly through superior technology, more efficient increase the net cash flow, or increase sup- operations or more aggressive research. port to increase growth and possibly decrease the flow of cash. We will delve more into this aspect in a moment. Portfolio Analysis

We have established that increased market The Learning Curve share allows tourism firms a specific advantage that can be realized in a variety of ways. As tourism companies strive to increase But since marketing is not accomplished in their market shares, they are also helping to a vacuum, the tourism firm must also look at ensure their long-term success. Not only what is transpiring in the rest of the market. does increased share boost sales and cash Earlier on we mentioned that as markets flow in the short run, but it drives down grow the tourism firm’s product requires operations and marketing costs per unit; more capital and investment in order to sometimes as much as 20–30% every time maintain its place (share) in the market. sales double. Two factors work in the tour- Tourism firms may become more efficient ism firm’s favour: economies of scale and and have more to invest, but even more the learning (or experience) curve. money may be required to fuel the engine of Economies of scale are based on the a rapidly growing tourist product segment, premise that a large tourism firm is more or else they will have a stable but decreasing efficient than a small tourism firm. As tour- (in terms of market share) piece of the mar- ism firms grow, they can add units of ket. Obviously, tourism firms will make operations at increasingly less expensive decisions on where to invest their funds rates as overhead costs are apportioned out based on their own picture of success as well among more and more units. While the over- as what they predict their market will do. 270 L. Moutinho

Fig. 10.3. Boston Consulting Group matrix.

But this picture is further complicated when growth. Market growth is the percentage of we consider that tourism firms very often annual growth that a tourist product experi- have multiple products or product lines, ences adjusted for inflation. In this case, we and these tourist product lines are in differ- have defined a low growth rate as 0%, a ent markets, each with its own growth moderate rate as 10% and a high growth rate curve. As tourism firms juggle the decisions as 20%, although the distinction between regarding the growth or stagnation of their low, moderate and high will vary greatly own products, along with the amount of with the industry and product line. Remem- money that each separate tourist product or ber that as the growth rate increases, the product line is generating, it can become a tourist product requires greater investment monumentally confusing task to identify to fuel its continued growth. and implement optimal planning and allo- On the horizontal axis, we have relative cation of the tourism firm’s resources. market share, which is calculated by dividing our market share by that of the three The Boston Consulting Group matrix largest competitors within our strategic A simple, two-dimensional matrix devel- group. So if our share was 20% and our oped by the Boston Consulting Group (BCG) competitors’ share was 25%, then our rela- was developed as a guideline to assist firms tive share would be 80%. Obviously, if we who face these investment dilemmas. Also are the market leader, then our relative mar- known as the product portfolio matrix, it ket share will be greater than 100%. Recall works well for those firms that have multi- that the higher the share, the greater the ple product groups, or a portfolio of differential cost advantage the tourism firm products. As shown in Fig. 10.3, the matrix possesses and the better the opportunity for is made up of a horizontal axis and a vertical success. axis, and the four quadrants of the graph that By combining these two axes, we can are derived from the axes. locate and plot almost any market situation. On the vertical axis, we have market As you can see, the plots (SBUs) will fall into Strategic Planning 271

one of the four quadrants identified. We can their growth. Hence the name question therefore establish the four quadrants as mark; tourism firms do not know the future follows. of the product. Question marks are found quite frequently in new and uncertain mar- Stars kets; it is unknown what life the tourist Tourist products that experience high product category will have, let alone the growth and at the same time enjoy a high firm’s actual product. If the tourist product share of the market. Recall that if a tourist is growing rapidly, it is producing a great product has a high market share, economic need for funding, but with a low share it has advantages through economies of scale may not attained a cost advantage over the com- be realized, which contribute to potentially petition. So tourism firms must decide just higher margins and increased cash flows. how long to fund a product that may have The extra cash will be required if the tourist little long-run advantage. Many question product is also growing at a rapid pace. marks are funded by the extra cash pro- Constant funding is needed to support the duced by the cash cow(s). additional advertising, promotions and other sales efforts needed to sustain its pace. Dogs Having a star tourist product is an excellent Tourist products that are not growing, nor position for a firm to be in, but only because have high market shares. Generally, dogs of the high share. Many stars reach a posi- simply are good tourist products, or are good tion where the cash generated and the tourist products in a product category that funding required are balanced, easing cash lost appeal to the consumer. Dogs enjoy few, flow management problems. Also, once the if any, advantages over their competitors. rapid growth is complete, the high share Although there may be some reasons for suggests that the tourist product may keeping this type of tourist product alive (for become a cash cow for the firm. instance, the continuation of the brand name until major modifications are ready or Cash cows to round out a tourist product line), the Tourist products that generate a large major decision becomes how to divest this amount of cash because of their high market tourist product or drop it from the line. This share, but do not require additional invest- will be discussed in more detail in the next ment because they are not growing. A section. typical cash cow may be a tourist product that is a leader in a stagnant or mature mar- Marketing planning applications ket. High market share ensures the We have described the above tourist product economies of scale advantage over competi- situations on an individual basis. Of course, tors, but the lack of growth means that the most tourism firms find that they have dif- funding is not required to be poured back ferent product lines, often within the same into the tourist product. Tourism firms like SBU, that fit into different tourist product to have cash cows around because they can categories. It is perfectly common to have a help finance the growth of other tourist star, a cash cow, several dogs and a question product lines or other projects, also known mark or two, all within the same tourist as cross subsidization. Cash cows do not product category. And just as financial man- have an infinite life, and eventually will agers seek to diversify away risk through experience a decline in sales and market balanced portfolios of financial investment share. But while they are around producing instruments, tourism marketing managers large net cash flows, tourism firms certainly also seek to manage their product situation find them advantageous. as if it were an investment portfolio. Tour- ism firms would like to have a product that Question marks (or problem children) is a star, another that provides investment Tourist products that are experiencing rapid funds (a cash cow), and a question mark that growth, but have little market share to fund has the potential to become the firm’s next 272 L. Moutinho

star. And as identified above, even dogs flows). This strategy is popular for dogs, have their use to the tourism marketing question marks or even for cash cows manager, although it may not always be that have uncertain futures. But a tour- immediately apparent. ist product will eventually be affected It is important to note that tourism man- by a decline in promotional support, agers have certain control over where their and firms must constantly remind products lie, and where they are destined themselves that there is a cost for pursu- within the product matrix. By increasing ing this strategy. investment, a tourism manager may be able 4. Divest. Finally, when the tourism firm’s to adjust the growth of a product, or by financial resources can be better used cutting price, the tourist product may attain somewhere else, it is time to get out of greater market share. Tourism managers will the market. Tourism firms will often look at their whole portfolio of products, manage this divestment process as and much as seen in Fig. 10.3, will plan the closely as a more aggressive strategy, path that the tourist product should take to since it is difficult to know just when to best support the needs of the whole SBU. discontinue the product. Tourist prod- The path will determine the specific strategy uct lines are kept alive just long enough that a manager should utilize in order to to sell them off before the brand is either attain the goal (Beerel, 1998). forgotten or tarnished by the poor sales. Four strategic alternatives are available Other tourism companies may decide to for the manager: drop the brand name altogether.

1. Build. Building market share suggests An evaluation of portfolio analysis an aggressive growth strategy where Although many tourism firms subscribe to market share is more important than the Boston Consulting Group (BCG) matrix profit margins. By focusing on addi- and the accompanying strategies, many oth- tional target groups or outlets for the ers do not. We will take a moment to analyse tourist product, new customers may be the positive and negative aspects of this attracted. Question marks are an excel- process. lent example of the tourist product type that needs to be supported with a build Advantages strategy. Funding for this strategy is not If a tourism manager uses the BCG approach, always easy to find since there is some he or she is forced to evaluate the product or risk involved, but cash cows are a prime SBU on market-share and growth-rate per- source. spectives. This helps ensure the long-run 2. Hold. A defensive strategy that merely viability of the tourist product, and inhibits maintains, or holds market share con- management from making decisions in the stant may be required for a cash cow. short run that may hurt the overall success Cash cows eventually decline, and with of the SBU. The matrix also allows tourism the decline goes a tourism firm’s source managers to be aware of the product’s needs. of funding projects. Moves are often By analysing the tourist product in isolation, made to prop up the cash cow without and not comparing it with other products attempting to gain share. within the SBU, the manager may recognize 3. Harvest. This is an attractive short-run certain trends (growth may be decreasing strategy for tourism firms in need of while market share remains strong) that cash. There is a lag between the cessa- would otherwise remain hidden. Finally, as tion of promotional support and the mentioned before, the portfolio approach decline in sales of the tourist product. allows portfolio management techniques. Tourism firms may decide to reap the For example, the tourism marketing man- benefits of past investments by remov- ager has several products that can be used to ing support from the product while support each other with necessary invest- enjoying the continued sales (and cash ment funding (cross-subsidization). The Strategic Planning 273

importance of the total tourist product port- ment opportunity a particular industry folio of the SBU will be given greater offers. consideration than just the one or two main This technique is also known as the products. Industry Attractiveness/Business Strengths matrix. By matching the strength of the SBU Disadvantages or tourism firm with the opportunities offered by a specific market, the matrix gives While the portfolio approach is worthwhile, us a suggested direction of how to manage it is not easy to achieve. The information the particular situation. We will now exam- needed to build the portfolio matrix for the ine these two dimensions a little more total market is difficult to come by, and closely. painstaking to properly maintain. Some tourism managers may find that it is more Industry attractiveness trouble to acquire the necessary information The attractiveness of an industry can mean than it is worth. This is probably a some- many things. As a tourism firm looks at an what myopic view in most cases. Secondly, industry in an attempt to gauge investment the position and description of the tourist potential, they may consider the growth rate products may be subjective. Even though the of the industry, the average profit margins tourist product may fall into the quadrant of experienced by tourism firms competing in the cash cow, industries that are under siege the industry, how many competitors there may not be strong enough to support the are, the strengths of the individual com- profits that a cash cow should reap. In other petitors and the areas or niches in the market words, just because the matrix suggest one that they do not cover. It also incorporates a thing, the uniqueness of the tourist market factor that was discussed in the previous may suggest another. Finally, recent matrix, economies of scale. Each industry research has identified that there are some has a unique cost structure that contributes industries that do not necessarily subscribe to the ability to attain efficiencies. Table to the economies of scale advantages that the 10.4 provides us with an overview of some matrix is based on. In many service indus- of the factors that one should consider when tries, the costs of producing the service do evaluating the attractiveness of a potential not change as much with increasing volume investment. to provide the advantageous position and Table 10.4 provides some general charac- the resultant cash benefits as a product- teristics that tourism managers should based industry might. Therefore, use of the evaluate. However, not all areas may be of matrix should be carefully evaluated as to its significance for every decision. One possi- fit with the SBU’s particular industry bility is to assign weights to the (Aaker, 1999). characteristics that are the most important to the manager. Evaluation can be made of An alternative: the GE matrix each characteristic on a scale of 1 to 5 and In recent years, the General Electric matrix the factors weighted so the combined has become popularized because it can han- weights sum up to 1. After multiplying the dle some of the shortcomings of the BCG factor score by the weight assigned, tourism matrix. The BCG matrix tends to simplify managers can sum up the results to score a things on just two dimensions, growth and total value weight. The tourism manager market share (however, these are two quite may want to compare this industry score important dimensions). In many cases, there with other industries under consideration to is also a need to assess return on investment, determine which ones are the most attrac- or profit, instead of only cash flow. Fur- tive from an investment perspective. thermore, the GE matrix makes use of some very important qualitative information: pri- Competitive strength marily how strong the unit is compared with The horizontal axis indicates the position of competitors, and how attractive an invest- (business) strength that the tourism com- 274 L. Moutinho

Table 10.4. Some criteria for assessing the attractiveness of the sector and the competitive power.

Attractiveness of the sector Competitor power

Market size Relative market share Market growth percentage Market growth potential Power position of the suppliers Quality of the product Power position of the customers Brand image Extent of competition Location of the tourism company Average proﬁt margin Proﬁtability Threat of potential entrants Insight into the market Threat of substitute products Price competition Cyclical trends Contract with the management Scale advantages Effectiveness of the sales force

1 The circumference of the circle represents High the size of the industry, not the size of the GREEN 3 SBU as in the BCG Matrix. The band in the circle represents market share. Medium Note that the matrix is divided into green, YELLOW yellow and red zones. These colours mean 2 4 much the same thing that a trafﬁc signal

Market attractiveness Low RED might. In the green zone there appears to be 5 strong match; the tourist market is quite attractive to the firm and the product offer- High Medium Low ing of the SBU is quite strong. Although the Competitive strength tourism manager should evaluate the issue thoroughly, the matrix suggests that this Fig. 10.4. The General Electric Market Attractiveness-Competitive Position Model. 1, Hotel match is too good to pass up, and the firm chain; 2, rollerblade, fast food; 3, discotheques; 4, should go ahead and invest in this market. casinos/gambling; 5, caravan parks. Likewise, the yellow zones indicate that the match between the strengths of the tourism pany feels its unit possesses. A tourism firm company and the attractiveness of the can gauge the strength of its SBU by items industry is less than optimal, so the firm such as relative market share, quality, image should proceed with great caution. Finally, of the brand and profitability (a more com- the red zone indicates that the industry and plete list is provided in the right column of the SBU situations are not conductive to Table 10.4). The tourism manager will ana- investment and the tourism firm should stop lyse the strength of his or her SBU in much and proceed no further. the same way that he or she determined the attractiveness of the market; by weighting Can these two matrices be used simultane- and summing the appropriate factors, an ously? Yes, as some tourism firms choose to approximation can be made. utilize the BCG matrix first to divide their SBUs into appropriate divisions, and then Determining the portfolio use the GE matrix for a more detailed analy- Next, the tourism manager will want to plot sis and evaluation of potential strategy. these two indices to see where his or her Combined, the matrices can provide a rela- SBU lies on a strengths/industry attractive- tively thorough picture of the goals and ness scale (Fig. 10.4). Each circle in the financial consequences that tourism firms matrix represents a tourism firm’s SBUs. face (Deegan and Dineen, 1997). Strategic Planning 275

Table 10.5. Ansoff’s product/market expansion matrix.

Product tourist market Current tourist products New tourist products Current markets Market penetration Product development New markets Market development Diversiﬁcation

Growth Strategies market-penetration strategy. Techniques designed to increase sales will result in Probably the most important stage in the deeper market penetration (increasing mar- tourist product’s life cycle is the growth ket share). stage. During growth, tourism firms begin to This can be done in one of two ways. recoup the vast investments of product First, market penetration refers to selling development and promotional expenditures more of the tourist product to the existing necessary to penetrate a market. Many tour- customer base. This can be accomplished by ism firms begin to experience their first either increasing the size of the contents (the actual profitable months during the growth amount) that the customer buys, or by phase. Further, the growth phase can be increasing their usage rate. Second, the firm thought of as a slingshot, in which the tour- may choose to go with a tourist market ist product is hurled into the future. If a broadening strategy. This means more target tourism firm does an excellent job of manag- customers within the same existing tourist ing cash and growth, brand identity and market purchase the product. New custom- target markets, then future success is more ers are hard to come by when you consider certain. On the other hand, poorly handled that this usually requires converting them growth phases can prevent the tourist prod- from the tourist brand that they normally uct from ever reaching its potential market purchase. Thus, a penetration breadth strat- share. For this reason, it is useful to look at egy is generally more successful in tourist some particular growth strategies that have markets that are continuing to grow proved popular for many tourism firms (Knowles, 1996). based on their particular market situations. Of course, whether you are going after new customers, a competitor’s customers or your own customers, this usually requires a Expansion strategies change in the marketing-mix strategy. The If a tourism firm has chosen a growth path promotion of the tourist product could be for their product, there are several directions altered through increased advertising or that they can take. They may choose to pene- publicity, better shelf-space displays in the trate deeper into an existing tourist market, travel outlets or intensified selling efforts. A they may choose to develop their market, or price change could catalyse sales by offering they may choose a product-development sales promotions, vouchers or even a reduc- route. Finally, they may even choose to tion in the selling price. Finally, changing diversify their tourist product or product the channels of distribution may make the line in some way. What determines the tourist product more attractive. The tourism direction of growth that a tourism firm takes firm may sell the tourist product in a differ- is dependent on two factors identified in the ent type of outlet or they may make it Ansoff product/market expansion matrix available in more remote locations. shown in Table 10.5. Tourist market development Tourist market penetration Another method is to develop the tourist When a tourism firm is selling an existing market by finding new uses for the product, product that it currently offers to an existing or by selling the product to new target seg- market that it already serves, it is pursuing a ments. In the Ansoff matrix this means 276 L. Moutinho

selling the same tourist product to new cus- sales. There may be a tourist market that tomers. This may entail finding new they feel offers aggressive growth opportun- segments who have previously not been ities for them. Generally, because the market exposed to the tourist product. Although the is one that the tourism firm is unfamiliar tourist product may not change at all, many with, companies will often purchase a firm new consumers are automatically potential that is already competing in the market. This customers. Also, a tourism firm may wish to way they gain entry into a tourist market, choose a different demographic target seg- they start with loyal customers to their pur- ment within the same country, or sell the chased brand, and they have eliminated one product to a new institution or industry of their (potential) competitors. Other tour- group, for example. ism firms choose to diversify in order to But is it reasonable to think that tourism spread the firm’s risk among more markets, firms have these opportunities open to them or to smooth out seasonal sales patterns. We that they have not already tried to take will now give diversification the closer advantage of? Possibly. If we consider that a attention it deserves. tourism firm may not have much expertise or experience in certain geographic or demographic areas, they may have shied away Tourism Diversification Strategies from the market in the past. So it is easy to see why many tourism firms utilize inter- Diversification is a generic term that we use mediary specialists of some sort who are to imply that a tourism firm is seeking new more familiar with these potential markets. customer groups, or target markets, and is Marketing communications campaigns and utilizing new products for this task. Table distribution-channel changes are the two 10.6 illustrates the four primary diversifica- most practicable mix variables to utilize in tion strategies: vertical diversification, reaching new special-interest tourists. horizontal diversification, concentric diversification and conglomerate diversification. Tourist product development Another strategy includes altering the char- Vertical diversification acteristics of the tourist product in order to Vertical diversification (or vertical integra- make it more attractive to the same general tion) refers to a tourism firm taking over new target market. By increasing the quality of markets or product groups within the firm’s the tourist product, or by offering more of vertical channel of distribution. Integration the product for a disproportionate increase can take the form of moving the tourism firm in price, firms can significantly enhance the closer to the end user or closer to the product value of their tourist products to existing source. When the tourism firm integrates a customers. Further, customers that previ- function between itself and the consumer, it ously were non-users or purchased is known as forward integration. Forward competing brands may now consider pur- integration may include a large restaurant chase. Typical tourist product modifications chain such as McDonald’s owning the local include making the tourist product more restaurant as opposed to running it as a fran- accessible or changing attributes and fea- chise. When the tourism firm integrates a tures of the tourist product in order to function between itself and its supplier(s) it expand its customer base (Laws, 1995). is known as backward integration. Integra- tion is not without its risks, however. Many Diversification tourism firms are ill-suited to the industries Finally, a tourism firm may choose to make that they integrate, even though they may more dramatic changes. By diversifying, a seem to go together. Generally, however, tourism firm attempts to generate new prod- tourism firms find that they can often (but ucts that they will sell to new customer not always) save overall costs through target groups. Tourism firms diversify for increased control of the channel function, more reasons than to simply increase their which may contribute favourably to the Strategic Planning 277

Table 10.6. Diversiﬁcation matrix.

New tourist products Current tourist products New tourist products New markets

Firm is own client Vertical integration Same type market Horizontal diversification Similar type market Marketing and technology-oriented Marketing-oriented concentric concentric diversification diversification New markets Technology-oriented concentric Conglomerate diversification diversification

firm’s bottom line (profits). Therefore, before serve them. But a major disadvantage of hor- attempting forward or backwards integra- izontal diversification is the flip side of the tion, a tourism firm needs to be certain that it last issue mentioned: the tourism firm has has the skills and requisite to take on the not spread out their risk, as in most diversifi- functions of the channel intermediary that it cation schemes. In fact, they may have is buying or replacing. exposed themselves to even greater risk by investing even more in the same tourism Horizontal diversification market. In our example, if the travel industry endured a serious downturn, then our Horizontal diversification is diversifying firm would suffer potential losses from both into new tourist products, but targeting your the travel agent side and the travel insurance existing customer base as the potential cus- side. tomers. Often firms feel that they have established a brand loyalty with current customers or a certain knowledge of their Concentric diversification markets which allows them to introduce Concentric diversification entails the intro- new products. An example might be if a duction of a new tourist product to a new, travel agent, who normally books vacations, but related market. By related we mean that diversifies by purchasing a company selling the tourist market must be somewhat similar travel insurance. The travel agent is serving to the firm’s existing market in either a mar- those same customers, but in a new manner. keting sense (customers, demographics, Horizontal diversification can be distingui- needs) or an operational sense. shed from horizontal integration by the newness of the tourist product to the firm. Conglomerate diversification (For instance, if the travel agent had pur- Also known as lateral diversification, con- chased a competing agency it would have glomerate diversification involves been an example of horizontal integration.) marketing tourist products that are not The advantages of horizontal diversifica- familiar to the firm, to customers who are tion are distinct. First of all, the tourism firm not their normal customers. It is so named is offering an additional product to a current since it is not unusual for large tourism con- customer base, so not as much effort has to glomerates to diversify the risk of their be expended to locate new customers. Sec- portfolios of SBUs by seeking completely ond, if the tourism firm already has new markets. Further, most conglomerate significant knowledge of or familiarity with diversification is achieved by purchasing a the customer base’s buying habits, then they company or a division of a company that is can be more efficient in the ways that they already in operation. While this strategy 278 L. Moutinho

gains a tourism ﬁrm a new product line and a new set of customers to serve, it can be quite risky since the new managers usually know very little about the new customer base or the nuances of the new market environment.

Selection of Growth Strategies

Although there is no specific set of rules or guidelines that allow a tourism company to pick and choose the market growth strategy that will suit it best, there are a few useful clues. The place to start is with the SWOT analysis discussed earlier in the chapter. This will help identify the tourism firm’s strong points, their mission and their goals. Next, by charting the strength of the tourist market, whether it is growing or in decline, and looking at the strength of the competition, a firm can then determine its actions (Tribe, 1997). Fig. 10.5. Tactical marketing planning. For instance, if a tourism firm is fortunate enough to be in a position where they are strong, the market is growing and the com- Figure 10.5 provides us with a four-phase petitors lack particular skills, they can model of tactical market planning. An usually attack aggressively by expansion. important element to note is that a tactical They may choose to attain a strong anchor plan is not developed in a vacuum. It should position in the tourist market, purchase one be a logical continuation of the strategic or more of their weaker competitors (if planning and the resultant goals. Control is allowed by regulators) and then diversify by provided at the end of each phase of the striving for a more complete path to the strategic plan through a feedback loop to customer through vertical integration. Other ensure that the plan is still on track and to strategies are also available for other tourist make any necessary modifications as nee- market situations. ded.

Phase 1: SWOT analysis Tactical Market Planning The first step a tourism firm takes is to construct a SWOT analysis, which as we know As we have already discussed, strategic from earlier is an internal and external anal- planning consists of broad, goal-oriented ysis of an organization or an SBU. This takes statements that specify the major directions shape in the form of a matrix in which the in which a tourism firm will head over the strong and weak points of a tourism firm as next 1–5 years (or longer). There is little in a well as the opportunities and threats facing strategic plan or a strategic statement, how- it are presented and summarized. Much of ever, that tells us exactly how the goals will the information necessary is available inter- be accomplished. The strategic plan guides nally or can be had through conversations tourism companies in the medium to long with colleagues. run, but they must also rely on specific tac- The SWOT analysis covers the market tics, or a tactical plan, to guide them on a (size and nature of the tourist market, the day-to-day basis. firm’s own position in the market, trends), Strategic Planning 279

the position of the competition, the most have been wasted and customers may have important market factors, a description of been upset and irritated at the out-of-stock the target group and its utilization pattern or situation, thus generating an unfavourable amount, the (business) results of prior years, attitude towards the tourism firm (they may the distribution structure and the firm’s own possibly buy a competing product to satisfy activities (operators, promotion strategy, their ‘immediate need’). etc.) The information in the marketing action plan should be specific enough that employ- Phase 2: goals ees know when events are to occur, how Those who are responsible for developing much funding will be available to support the marketing plan should include as much the events and how they will be carried out. detail as possible in formulating the tactical Projected target dates should be established goals or objectives, otherwise it makes little for tourist product introduction, promo- sense to continue with the rest of the phases tional campaigns, operations planning, and in the planning process. As one senior man- all other events that could affect the market- ager remarked: ‘if you don’t know where you ing mix. Of importance are the financial want to go, then one way or another you will consequences the marketing action plan always arrive there. And as soon as you provides in the form of budgets and pro- arrive there, then you won’t take the trouble jected cash-flow forecasts. to go any further.’ In other words, setting a Providing accurate sales forecasts (the goal such as ‘We will increase our market basis of the financial consequences calcula- share’ will not challenge a tourism firm to do tions) is one of the most important, and most and achieve as much as a goal such as: ‘We difficult functions of the tourism marketing seek to improve our market share in the department. Decisions to hire, fire, invest concentrated birdwatching segment in the and divest are all based on expected sales. special interest tourism sector from 10% to But accurate forecasts are difficult to come 15%’. Once a tourism firm can put its exact by because of a lack of necessary informa- tactical plan to paper, then it is ready to tion and the general level of uncertainty in develop an action plan. tourist markets. Tourism firms not only do not know what their closest competitors are Phase 3: marketing action plan going to do, but they also must estimate Once the tactical goals are known, assets general economic and consumer behav- and resources may be allocated. Tourism ioural trends, which is no easy task. marketing managers make decisions regard- Tourism firms should not only make one ing the marketing-mix elements and how to forecast based on current data but also make optimally combine the 4Ps (Price, Product, some alternative ones based on different Promotion, Place) in order to attain the results so they will be ready for any ‘sur- established tactical goals. The marketing prises’ in the market. Finally, the tourism action plan identifies how the department firm needs to specify how they will track will accomplish the goals on a step-by-step and measure the (future) results and deter- basis utilizing the 4PS. mine if the objectives have been achieved. The sequence of events in an action plan is uniquely important since tourism firms Phase 4: implementation, monitoring and must integrate their overall efforts in order controlling to effectively achieve their goals. If a tourism As the components of the marketing plan are firm releases an aggressive promotional implemented, careful control methods campaign that inspires buyers to seek out should (already) be established. Reviewing their product, then they must also ensure goals and expectations and comparing them that there is enough of their product on the with results achieved allow tourism man- travel outlets’ shelves or in the distribution agers to keep a watchful eye over the pipeline in order to meet this demand. If not, process. If tourist product introductions or a large amount of advertising money would promotional campaigns are not producing 280 L. Moutinho

Box 10.1. Marketing planning strategy.

There are five main strategy components that allow tourism companies to be categorized. Marketing objectives concern the objectives that a tourism company hopes to achieve through their marketing programme. There are basically three types including defensive objectives, steady sales-growth objectives and aggressive sales growth or market domination. It is very likely that more aggressive strategies would be more appropriate for rapidly growing tourism markets, whereas mature, sluggish markets may dictate a more defensive strategy. Strategic focus is the focus the tourism company will adopt to achieve its objectives. The most common strategic foci are market expansion, winning of market share and focusing on productivity and cost reduction. Again, the focus may be partly dependent on the stage in the tourist product or industry life cycle that the company finds itself in. Market targeting refers to the portion of the tourist market that the company will aim at in order to implement their focus. Some tourism companies may want to target a mass market, others may choose certain groups (a social class, age group or geographic region for example) or even certain individuals as their target. Quality positioning is the competitive stance that tourism companies will take in relation to the quality of the product as it compares with the competition. A tourism company may choose to have high-, moderate- or low-quality products in comparison with their competitors. Finally, price positioning is another way to relatively position a tourism company above, below or near the competition. We would expect that in most cases, if everything else is held equal, low pricing will tend to be the more successful strategy (but in actuality, this is seldom the case). After clustering the companies according to their strategy components, five generic market strategies can be identified. A brief description of each one follows: 1. The Aggressors are tourism companies that are out to win and expand their market share through aggressive sales growth and market domination. They usually target the entire tourism market as their customer base. They try to sell a higher quality tourist product than the competition, but they will not charge a higher price for it. They compete in new and growing tourism markets and, therefore, must respond to a rapidly changing set of customer needs. They are leaders in new tourist product development and are not afraid to take on any competitor. They usually reap the benefits since this strategy group outperforms all the other groups. 2. The Premium Position Segmenters are just that. They sell a premium tourist product and charge a premium price for it. They develop this premium tourist product through an aggressive new tourist product development programme. Obviously, they know that the whole tourist market will not be willing to pay a high price, so they segment the portions of the market that they will target for sales. They are out to win market share and expand their market, but are more concerned with a steady growth pattern than a meteoric one. Usually, their market is more mature and stable, with little market entry or exit. They perform better than most companies. 3. Stuck in the Middlers have a more mediocre success record. They are characterized by steady sales growth, and usually compete on a tourist product and price-parity level with the competition. The tend to be in more mature and stable tourist markets where growth is harder to come by. They compete by tourist segment and occasionally will avoid competition by letting competitors take over certain segments that they may not deem as valuable. 4. High-value Segmenters have a higher-quality tourist product, but generally do not charge a higher price for it, claiming to offer their customers higher value instead. They compete by tourist segments in new and growing markets and experience steady sales growth. They are also seeking to expand their market, but sometimes seem to avoid their competition. 5. Defenders are the worst performers of all. They are interested in defending their market shares and will do whatever is necessary to prevent declines in their market share. New tourist product development is a low priority for them and, in fact, they are generally more interested in taking costs out of their products in order to increase their own productivity. They usually go after individual customers instead of tourist market segments and compete in stable, mature markets. These five categories are neither mutually exclusive nor exhaustive, nor are they rigid in their form of make-up. Tourism companies may move between the categories as their product life cycles or marketing objectives and strategies change. There are certain tourism companies that do not fit into any of these specific moulds, but this work is a unique way of looking at European companies and the marketing strategies that they pursue. Adapted from: Hooley et al. (1992). Strategic Planning 281

the results on which forecasts are based, examined by three leading British academ- managers must be made aware of the prob- ics. lems immediately through a control (feedback) mechanism. Various control tools may include sales, share, growth, mar- References gins, awareness, tourist product development and consumer intent. Aaker, D.A. (1999) Strategic Market Management, But even though control has been estab- 5th edn. John Wiley and Sons, Chichester. lished, it will only be beneficial if the Beerel, A. (1998) Lead Through Strategic Plan- tourism firm is ready and willing to adapt to ning. International Thomson Business Press, market changes. Few introductions go London. exactly as planned due to many of the same Buttle, F. (1992) The marketing strategy work- unforeseen circumstances that make fore- sheet: a practical tool. Cornell Hotel and casting so difficult. When the control Restaurant Association Quarterly 33(3) mechanism indicates that things are getting (June), 55–67. Deegan, J. and Dimeem, D. (1997) Tourism Policy off course, the tourism firm must decide and Performance. International Thomson what action to take, if any. Although drastic Business Press, London. reformulations of the marketing-mix com- Go, F. and Pine, R. (1995) Globalization Strategy ponents may be highly unlikely, adaptation in the Hotel Industry. International Thomson by the tourism firm to the reality of the Business Press, London. marketplace is generally called for. Hitt, M.A., Ireland, R.D. and Hogkisson, R.E. Adaptation may be as subtle as extending (1998) Strategic Management and Compet- the advertising schedule for an extra week or itiveness and Globalization Concepts, 3rd two, or providing more brochure inventory edn. South-Western, Cincinnati, Ohio. to certain regions. Further, tourism firms Hooley, G., Lynch, J. and Jobber, D. (1992) Generic marketing strategies. International Journal of find that adaptations require additional Research in Marketing 9(1), 75–89. planning in order to reallocate those same Knowles, T. (1996) Corporate Strategy for Hospi- scarce resources discussed earlier, and this tality. Longman, Harlow, UK. is where the contingency plans the tourism Laws, E. (1995) Tourist Destination Management firm prepared earlier (for the ‘surprises’) can – Issues, Analysis and Policies. International come into play and save the firm valuable Thomson Business Press, London. time. As you can now see, once the plan is Poon, A. (1993) Tourism Technology and Com- implemented, the work has only just petitive Strategies. CAB International, begun. Wallingford, UK. Box 10.10 contains an analytical discus- Tribe, J. (1997) Corporate Strategy for Tourism. International Thomson Business Press, Lon- sion of corporate generic strategies don.

11 The Marketing Planning Index: A Tool for Measuring Strategic Marketing Effectiveness in the Hospitality Sector

P.A. Phillips and L. Moutinho

Managers practise in a consistently chang- effectiveness. In addition, the marketing ing environment necessitating the need for function within the hotel sector is currently an effective strategic marketing process. under scrutiny, as it has recently been Nevertheless, measurement of marketing described as dangerously insular and back- effectiveness has tended to be ignored in the ward (Michels, 1996). Michels argued that literature. In this short chapter we will many of the industry’s sales and marketing describe one specific managerial tool called techniques were at best primitive. Given this the marketing planning index, which meas- apparent gap between theory and practice, ures the effectiveness of marketing. The tool together with a lack of empirical research in is applied to the service industry – in this measuring marketing effectiveness, any case the hotel sector. Our findings have indi- applied research on this topic appears both cated that the marketing planning index is a timely and relevant. It seems evident that simple but powerful managerial tool that any managerial tool that can ascertain the helps to develop the diagnostic information barriers to effective marketing planning will needed to generate corporate and business be of benefit to the hospitality literature, and level initiatives designed to improve strate- to practitioners. The purpose of this chapter gic marketing effectiveness. is therefore threefold: Despite the growing relevance and 1. To propose a novel framework for meas- importance of marketing effectiveness, there uring marketing effectiveness. is strong evidence that marketing remains an 2. The creation of a diagnostic tool that area of significant weakness for companies can be used to enable management to (Ghosh et al., 1994; Phillips and Moutinho, identify the strengths and weaknesses 1998; Phillips et al., 1999). Recent changes in its marketing function. in competitive intensity in national and 3. To test the proposed framework and international hospitality markets have led diagnostic tool on the hotel sector. marketers to seek higher levels of effectiveness. Although much has been written on The entire chapter can therefore be treated how hospitality firms ought to market their as an extended case study within the context products and services, relatively little has of this book as a whole. been written on how to measure marketing

Marketing Effectiveness relation to the elements of the marketing mix. Recently, there has been a resurgence in the 4. Assess the positioning strategy of the importance of marketing planning (see, for marketing plans. example, Greenley and Bayus, 1994; Piercy 5. Evaluate the positioning of the market- and Morgan, 1994; McDonald, 1996). In ing department within the organization reviewing the marketing planning literature for maximum effectiveness. McDonald concludes that companies with 6. How well the results achieved by mar- complete marketing planning systems keting match the level of marketing (MPS) will be more successful than other department sophistication. firms competing in the same environmental and competitive circumstances. Notwith- Wanless (1991) argued that a first step in standing this importance, the measurement increasing marketing efforts is an audit of of marketing effectiveness remains an the marketing department. He also pointed under-studied area (Meidan et al., 1992). out that before cutting spending or changing This is somewhat surprising given that the the marketing approach, companies should effectiveness of the overall planning process consider what effect it will have on custom- may be as important as formalization and ers. Scheuing (1989) proposed the use of comprehensiveness. customer service audits to measure market- There are a number of steps that can be ing effectiveness. Accurate information on taken to develop reliable measures of market- both customer and costs is vital to marketing ing effectiveness. Marketing itself must be success. By measuring performance by peer defined in a way that encompasses all its evaluation, Speed and Smith (1991) found functions, including planning aspects. The that a strategy of attracting relatively marketing measurement effort must be wealthy customers and maintaining control undertaken at all levels. Baseline data must of costs was employed by retail financial be accumulated against which marketing service companies with better performance. measurements can be made, and target dates These findings appear to support Doyle’s should be set to evaluate whether demand (1987) model of generic strategy which stres- forecasts and customer perception goals have ses the need for a strategy that addresses been met. In addition, the importance of simultaneously both sides of a company’s effective measurement must be clearly com- operations, the market and its financial posi- municated by top management to all tion. In their review of the marketing organizational levels. The amount of return effectiveness literature, Meidan et al. (1992) an organization receives on its investment in concluded that ‘despite the importance of marketing is often determined by the sophis- assessing the effectiveness of all the market- tication of the marketing leadership and the ing variables taken together, so far there are level of organizational support. The results of no indexes or model(s) that could be used to most marketing efforts are difficult to assess handle this aspect of marketing planning’. because they fall between the clear-cut win- Hence, the marketing effectiveness index ners and losers. A review of marketing plans (MEI) proposed by Meidan et al. (1992) was submitted to top-level administration should a major contribution to the literature. To check for the following: fulfil the objectives of this chapter, the proposed framework and diagnostic tool will be 1. A tracking system that can measure developed by extending the seminal work of results for each product line, gauge con- Meidan et al. (1992), which focused on consumer perceptions, analyse distributor sumer goods manufacturing companies. and consumer satisfaction levels and Specifically, we emphasize the key attri- monitor the activities of competitors. butes of marketing planning, and focus on 2. How the marketing staff spends its time the service industry, and provide controls and pinpoints its priorities. for market-level influences by being 3. Measure sales-response functions in restricted to the hotel sector. The Marketing Planning Index 285

The Marketing Planning Index (MPI) would appear to be comparable with samples used in other studies (Slattery et al., MPI background 1994; BDO Hospitality Consulting, 1994). Factor Analysis (see Chapter 4) was used to In his study, Phillips (1996) observed the establish if the 15 attributes (see Table 11.1) existence of a planning–performance rela- could be transformed into a smaller set of tionship at the hotel unit level, together with uncorrelated variables that contained most four key design parameters (formality, par- of the original information. Any reduction ticipation, sophistication and thoroughness) would reduce the attributes to a more man- of the planning process. He found that effi- ageable set of constructs. cient planning systems were associated with higher levels of business performance. The factors These results, therefore, have significant As previously mentioned, the foundations implications for practitioners in the hospi- of the MPI lies in constructs identified by tality sector. Using the salient marketing Phillips (1996) during his survey of the lit- planning variables identified by Phillips erature pertaining to planning systems. (1996), together with the framework advo- Fifteen attributes were factor analysed, mak- cated by Meidan et al. (1992), this chapter ing use of the recommendations by Kaiser describes the MPI. (1960) on how many factors to retain. Kaiser suggests dropping factors with an Eigenva- Methodology lue of less than one. Factors were The sampling frame used to develop this interpreted based on loadings greater than study was the top 50 UK hotel groups (Hotel 0.62 (Meidan et al., 1992). Results of the and Catering Research Centre, 1992). The factor analysis using varimax rotation on the data used to test our MPI were collected as 15 attributes are shown in Table 11.1. Eigen- part of an ongoing research study (Phil- values for the five factors that emerged lips,1996). A 17 page questionnaire was ranged from 4.11 to 1.05, and these factors developed, which sought information on accounted for a cumulative variance of organizational strategy, strategic planning 6.2%. Factor 1 consists of hotel performance systems characteristics, and business per- variables, while factors 2 to 5 consider the formance at the hotel unit level. The quality of marketing mix, innovation, questionnaire was pre-tested through struc- SWOT analysis, and market segment analy- tured interviews with academics and sis, respectively. As can be seen the scales practitioners, who were asked a series of appear robust. They generally satisfy Nun- closed and open-ended questions. An initial nally’s (1978) threshold level for letter was sent to a contact or the managing exploratory research, taken as equal or director of each hotel group introducing the greater than a Cronbach alpha score of researchers, explaining the study, and 0.50. requesting the hotel general managers’ (HGMs) participation in the study. Fifteen Calculating the MPI groups agreed to participate in the study Using a similar methodology to that of Mei- (30%). The final questionnaire was then dan et al. (1992), a figure can be derived from mailed to 130 HGMs and 100 were com- the sum of the five equations, which repre- pleted and returned (77%). sents the level of marketing planning. Figure The average hotel unit for the sample 11.1 illustrates the systematic approach to consisted of 137 rooms, with an average assessing the MPS. In order to calculate the sales turnover of £2.82 million. With regards level of marketing planning, it is first neces- to sales per employee, the figure was sary to calculate the mean score of each £33,772. Although the sample size was by attribute that was included in the five fac- no means representative of the top 50 UK tors. These mean scores are then used to hotel groups, the key characteristics of room derive the weightings of the 12 attributes. size, sales turnover and sales per employee For example 286 P.A. Phillips and L. Moutinho

Table 11.1. Results of the factor analysis of those attributes that are important for calculating the MPI.

Factor 1 Factor 4 Factor 5 Variables that are important for calculating Hotel Factor 2 Factor 3 SWOT Market segment the MPI performance Marketing mix Innovation analysis analysis

Use of marketing data from a number of 0.0308 0.4780 -0.0972 0.4438 0.3452 different sources Use of sales and cost data relating to 0.0781 0.1245 0.1105 0.0548 0.7695 different market segments Use of market segment analysis 0.0118 -0.0878 -0.0498 0.0934 0.7332 Use of budgets by market segments -0.0428 0.1351 0.3040 0.5333 0.3626 Level of influence of sales and marketing -0.0139 0.1158 0.1511 0.8018 0.0343 exert on the long-range plan Use of SWOT analysis 0.3226 -0.6373 -0.0784 0.7423 0.0056 Quality of hotel facilities 0.1784 0.7000 0.3005 0.1200 -0.1474 Hotel service levels 0.1829 0.7829 -0.0313 -0.0302 0.1445 Brand image 0.0126 0.7642 0.0127 0.0630 -0.0201 Performance-efficiency (past year) 0.8608 0.2237 0.0007 0.0588 -0.0553 Performance-efficiency (next 2 years) 0.7081 -0.1045 0.5239 0.0337 0.1525 Performance-effectiveness (past year) 0.6850 0.2942 0.2669 0.1767 0.0363 Performance-effectiveness (next 2 years) 0.5663 -0.0071 0.6116 0.0696 0.1921 Performance-adaptability (past year) 0.1152 0.2534 0.6689 0.1483 -0.2164 Performance-adaptability (next two years) 0.1632 -0.0365 0.8660 0.0194 0.1418 Eigenvalue 4.1065 1.9472 1.6805 1.1389 1.0454 Percentage of variance 27.4 13.0 11.2 7.6 7.0 Cumulative percentage of variance 27.4 40.4 51.6 59.2 66.2 Cronbach alpha 0.7693 0.6797 0.6153 0.5530 0.4840

weightings of attribute a1 ϭ A Worked Example a1/a1+a2+a3+a4+b1+b2 . . . f1 Obviously, it is necessary to obtain a figure The weightings were used to determine the for the hotel sector, and then compare indi- equation for determining the level of plan- vidual hotel units, to allow each HGM to ning. Meidan et al. (1992) advocated the use ascertain their relative level of marketing of a weighting scheme for two primary pur- effectiveness. poses: (i) it considers the relative To improve marketing effectiveness, importance that respondents would assign hoteliers need first to identify the gap to each attribute; and (ii) it makes the sum of between themselves and best practice. This the weights equal to one. As a result of the gap is said to occur when the MPI for an above, the equations for determining the individual hotel unit is less than the figure level of marketing planning are as follows: for its peer group. By way of an example, this section describes how to determine the rele- Hotel performance ϭ 0.0821a1 ϩ 0.0834a2 ϩ vant measures for the peer group (which for 0.0792a3 illustrative purposes will be the average MPI Marketing mix ϭ 0.0810b1 ϩ 0.0895b2 ϩ of the sample), and an individual hotel unit 0.0770b3 (Hotel Y) within the sample. Innovation ϭ 0.0733c1 ϩ 0.0733c2 Table 11.2 shows the mean scores for SWOT analysis ϭ 0.0918d1 ϩ 0.0900d2 each of the 12 attributes. It can be seen that Market segment ϭ 0.0826e1 ϩ 0.0969e2 total scores for the peer group and Hotel Y analysis were 62.23 and 45.10, respectively. At first The Marketing Planning Index 287

Fig. 11.1. Procedural steps for developing the index of marketing planning effectiveness. Adapted from Meidan et al. (1992).

Table 11.2. Mean scores of the 12 marketing planning attributes.

Peer group score Hotel Y

Variables Factor 1: Hotel performance A1 Efficiency (past year) 5.11 5.50 A2 Efficiency (next 2 years) 5.19 1.00 A3 Effectiveness (past year) 4.93 3.60 Variables Factor 2: Marketing mix B1 Quality of hotel facilities 5.04 3.00 B2 Hotel services levels 5.57 5.00 B3 Brand image 4.79 4.00 Variables Factor 3: Innovation C1 Adaptability (past year) 4.56 4.00 C2 Adaptability (next 2 years) 4.56 1.00 Variables Factor 4: SWOT analysis D1 Level of influence of sales and marketing exert on the long- 5.71 5.00 range plan D2 Use of SWOT analysis 5.60 6.00 Variables Factor 5: Market segment analysis E1 Use of sales and cost data relating to different market 5.14 3.00 segments E2 Use of market segment analysis 6.03 4.00 Total 62.23 45.10 288 P.A. Phillips and L. Moutinho

Fig. 11.2. How to use the marketing planning index. Adapted from Meidan et al. (1992).

glance we can see that Hotel Y’s MPS is not appear to be symptomatic of the problems in as effective as its peer group. Closer exam- the marketing mix (22%), innovation (46%), ination reveals the extent of the problem. and market segment analysis (37%). This The responses by the HGM of Hotel Y indi- indicates that Hotel Y’s overall level of mar- cate that serious problems are expected over keting planning appears rather poor, and the the next 2 years, with the attributes of effi- HGM should attempt to work more closely ciency and adaptability (a2 and c2) only with customers, by segmenting the market rating the minimum score. Although there and provide the experiences that consumers could be many causes for the lack of market- want at a price they are willing to pay. As a ing effectiveness, an area worthy of starting point, the HGM should attempt to immediate investigation is the inappropri- identify other similar hotel units, to see ate marketing mix. The quality and level of what they are doing, and he or she is not. service, together with its brand image is well In addition, the MPI for the peer group of below the average. This is somewhat sur- 0.7462 indicates that the level of effective- prising as the SWOT analysis was rated ness is moderate with plenty of scope for fairly important. However, this weakness improvement. This observation, although in may be attributable to the quality of informa- conflict with Athiyaman and Robertson tion flowing from the SWOT analysis. (1995), tends to support Medlik (1989:14), These mean scores are raw and need to who stated: ‘only limited progress has been incorporate the weightings of each attribute. made in the translation of business and Using the methodology as shown in management theory from manufacturing to Fig. 11.1, the level of planning is then calcu- service industries generally and to hotels in lated for the peer group and Hotel Y. Figure particular’. 11.2 shows how to determine the marketing effectiveness gap between the peer group and Hotel Y. Table 11.3 shows that the MPI Managerial Implications of 0.5456 for Hotel Y is well below the figure for the peer group of 0.7462. This reinforces This chapter shows how one study can the results in Table 11.2 by revealing the extend the knowledge of marketing effec- precise extent to which Hotel Y’s MPS lags tiveness to the service sector, through the behind its peer group. The lack of hotel use of a novel approach. The MPI can meas- performance (34% below average) would ure marketing effectiveness, and also Table 11.3. Calculating the MPI.

Peer group Hotel Y

*Peer group Peer group Sub totals *Hotel Y Hotel Y Sub totals Strategic gap Variables score Weighting MPI (A) score Weighting MPI (B) (B–A)/A

Hotel performance A1 0.7300 0.0821 0.0599 0.7857 0.0821 0.0645

A2 0.7414 0.0834 0.0618 0.1429 0.0834 0.0119 The MarketingPlanningIndex A3 0.7043 0.0792 0.0558 0.5143 0.0792 0.0407 0.1776 0.1172 –34% Marketing mix B1 0.7200 0.0810 0.0583 0.4286 0.0810 0.0347 B2 0.7957 0.0895 0.0712 0.7143 0.0895 0.0639 B3 0.6843 0.0770 0.0527 0.5714 0.0770 0.0440 0.1822 0.1426 –22% Innovation C1 0.6514 0.0733 0.0477 0.5714 0.0733 0.0419 C2 0.6514 0.0733 0.0477 0.1429 0.0733 0.0105 0.0955 0.0523 –46% SWOT analysis D1 0.8157 0.0918 0.0748 0.7143 0.0918 0.0655 D2 0.8000 0.0900 0.0720 0.8571 0.0900 0.0771 0.1468 0.1427 –3% Market segment analysis E1 0.7343 0.0826 0.0606 0.4286 0.0826 0.0354 E2 0.8614 0.0969 0.0835 0.5714 0.0969 0.0554 0.1441 0.0908 –37% Total 8.8900 1.0000 0.7462 0.7462 6.4429 1.0000 0.5456 0.5456 –27%

*The actual mean scores have to be divided by the number of points on the Likert scale, i.e. 7. This allows the ﬁgures to be less than 1. 289 290 P.A. Phillips and L. Moutinho

highlight strengths and weaknesses in the sector; however, while this enhances inter- marketing planning process. The MPI is also nal validity, there is a limit to the extent unique in that its considers both hard and these findings can be applicable beyond soft variables of the marketing planning hotels. Another shortcoming of this cross- process. Moreover, given the paucity of rele- sectional study relates to the reliance on a vant research in the general and hospitality single participant to provide his or her literature, the study provides a much nee- views on marketing planning activities and ded solid base for future academic work. performance of their hotel unit. Such data The MPI is a simple but powerful manage- may be subject to various cognitive biases. rial tool that helps develop the diagnostic Future studies would benefit by incorporat- information needed to generate corporate ing a longitudinal approach, the use of and business level initiatives designed to multiple responses, together with the use of improve the marketing planning process. some objective data contained in archival or Given the renewed vitality in the hotel sec- financial records. Future replication tor, together with the fact that a good research, addressing the limitations in the product only flows from a good process, MPI study will allow for the rapid advancement is a marketing planning tool that would in the theory and practice of measuring mar- seem to be of particular interest to managers keting effectiveness. in the hospitality sector. On a wider dimension, this study builds on the work of Meidan et al. (1992) by increasing the valid- References ity and generalization of the proposed index using a survey of 100 hotels. This is a larger Athiyaman, A. and Robertson, R.W. (1995) Strate- sample than the 53 companies used by Mei- gic planning in large tourism firms: An dan and colleagues. The study also provides empirical analysis. Tourism Management controls for market-level influences by being 16(3), 199–205. BDO Hospitality Consulting (1994) United King- restricted to the hotel sector. dom Hotel Industry. BDO Hospitality Thus, based on the MPI, if hoteliers wish Consulting, London. to enhance marketing effectiveness, they Doyle, P. (1987) Marketing and the British chief could make a useful impact by focusing on executive. Journal of Marketing Manage- the following: ment 3(2), 121–132. Ghosh, B.C., Schoch, H.P., Huang, J.Y., Lai, W.B. ● hotel performance (past and future); and Hooley, G. (1994) A comparative study ● competitive positioning; of marketing effectiveness: profiles of top ● rate of innovation; performers in Taiwan and Singapore. Jour- ● customer-orientated SWOT analysis; nal of International Marketing and ● effective use of customer data. Marketing Research 19(2), 75–97. Greenley, G.E. and Bayus, B.I. (1994) Marketing Those hotels that understand and address planning processes in UK and US Compa- these aspects in their MPS will be more nies. Journal of Strategic Marketing 2, successful than those who do not. In addi- 140–154. tion, the MPI can play an essential part in Hotel Catering Research Centre (1992/3) UK Hotel helping hotel organizations to become fast- Groups Directory. Huddersfield Polytechnic, learning and flexible. The design, therefore, UK. of an effective MPS should be near the top of Kaiser, H.F. (1960) The application of electronic any manager’s agenda. However, as with any computers to factor analysis. Educational single study of an issue as broad and impor- and Psychological Measurement 20, 141–151. tant as marketing planning, the results of McDonald, M.H.B. (1996) Strategic marketing this particular study must be interpreted in planning: theory, practice and research agen- light of the obvious limitations the study das. Journal of Marketing Management 12, possesses. The single industry study descri- 5–27. bed provides some degree of control of Medlik, S. (1989) The Business of Hotels. Heine- environmental nuances to each commercial mann, London. The Marketing Planning Index 291

Meidan, A., Moutinho, L. and Chan, R.S. (1992) performance: a neural network analysis. Marketing effectiveness index (MEI): A tool World Marketing Conference, Malta, June. for strategic marketing planning. In: Critten- Piercy, N.F. and Morgan, N.A. (1994) The market- den, V. (ed.) Developments in Marketing ing planning process: behavioural problems Science, vol. XV. Proceedings of the Annual compared to analytical techniques in Conference of the Academy of Marketing Sci- explaining marketing plan credibility. Jour- ence, San Deigo, California, pp. 480–485. nal of Business Research 29, 167–178. Michels, D. (1996) Hotels – on industry or art? Scheuing, E. (1989) Commentary: conducting cus- Savoy Lecture, London. tomer service audits. Journal of Services Nunnally, J.C. (1978) Psychometric Theory. Marketing 3(3) (Summer), 35–41. McGraw-Hill, New York. Slattery, P., Feehely, G. and Savage, M. (1994) Phillips, P.A. (1996) Organisational strategy, stra- Quoted Hotels Companies: The World Mar- tegic planning systems characteristics, and kets. Kleinwort Benson Securities Ltd, business performance in the UK hotel sector. London. PhD thesis, Cardiff Business School, Uni- Speed, R. and Smith, G. (1991) Marketing strategy versity of Wales, UK. and company performance: a discriminant Phillips, P.A. and Moutinho, L. (1998) Strategic analysis in the retail ﬁnancial services indus- Planning Systems in Hospitality and Tour- try. International Journal of Bank Marketing ism. CAB International, Wallingford, UK. 9(3), 25–31. Phillips, P.A., Davies, F. and Moutinho, L. (1999) Wanless, B. (1991) Managing your marketing The interactive effects of strategic planning budget more effectively. Sales & Marketing and strategic marketing planning on hotel Manager Canada 32(5) (May), 25–26.

12 Demand Modelling and Forecasting

S.F. Witt and L. Moutinho

Introduction accurately is especially acute because of the perishable nature of the product. In science, and even in everyday life, many Martin and Witt (1988b), in a study which things are highly predictable, but in other reported the views of tourism academics circumstances prediction is often difficult. and practitioners on the desirable character- Furthermore, in making predictions, we are istics of forecasts, confirmed that forecast often unsure about the outcome. Forecasting accuracy is regarded as the most important assists tourism managers to improve property of a forecasting method. decision-making. In an organizational The purpose of this chapter is to examine design context, forecasting should not be several more advanced forecasting methods regarded as a self-contained activity, but (qualitative and quantitative) and provide should be integrated within the planning examples which illustrate potential applica- context of which it is a part. The role of tions of the various methods. The main forecasts in the tourism planning process methods described are: was noted by Gunn (1994: 5): ● Delphi and jury of executive opinion; Of interest to many tourist businesses is ● Cross-impact analysis; increasing the ability to make forecasts. ● Probability forecasting; Decisions on the purchase of new ● Econometric forecasting. generations of equipment, new sites, and new technology may rest on predictions of More substantial textbooks dealing with increased demand for a specific tourism forecasting are Frechtling (1996), Wilson service or product. and Keating (1998) and Makridakis et al. (1998). It is often stressed that accuracy is the critical characteristic of a forecasting method, as noted by Archer (1994:105): Delphi Forecasting/Jury of Executive Opinion1 The accuracy of the forecasts will affect the quality of the management decision . . . In the tourism industry, in common with most The Delphi method of forecasting has attrac- other service sectors, the need to forecast ted considerable attention in the tourism

1 Material in this section has appeared previously in Moutinho and Witt (1995). © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 293 294 S.F. Witt and L. Moutinho

literature since the late 1970s (Robinson, The above three cases are all examples of 1979; Seeley et al., 1980; Kaynak and Mac- standard Delphi forecasting applications in aulay, 1984; Var, 1984; Liu, 1988; Yong et tourism involving postal questionnaires, al., 1989; Moeller and Shafer, 1994; Taylor strict anonymity and iterative polling of par- and Judd, 1994). This technique aims to ticipants. However, Robinson (1979) and obtain expert opinion about the future Seeley et al. (1980) presented a ‘symposium through questionnaire surveys of a group of Delphi’ approach which they suggest can be experts in the field, and is particularly use- used at conferences to generate forecasts. ful for long-term forecasting. The The methodology was applied at the Inter- respondents provide their estimates of the national Symposium on Tourism and the probabilities of certain specified conditions Next Decade which was held in Washing- or events occurring in the future, and also ton, DC during 1979, and was used to estimate when the events would be likely to forecast international tourism conditions up occur. Delphi studies are carried out anony- to the year 2000. A two-round ‘symposium mously in order to minimize conforming Delphi’ study was undertaken, with the influences; thus, rather than meeting phys- sample group comprising 25 people (all of ically to debate the various issues under these participated in round 1, but only 19 in consideration, the experts are kept apart so round 2). The questionnaires were admin- that their views are not affected by dominant istered in a face-to-face situation with the personalities, social pressure, etc. Delphi whole group present, and the mean results studies involve several iterative rounds, and for each question were displayed imme- at each stage the derived group opinion is diately. Clearly therefore, the usual Delphi fed back to the participants in the form of the anonymity condition did not hold. On the range and distribution of responses. The other hand, ‘the interpersonal environment panel members are requested to re-evaluate provided an opportunity to clarify respon- their previous replies in the light of the sum- ses’ (Robinson, 1979, p. 271). A further mary group opinion and to justify any major advantage of the symposium Delphi answers which would still differ greatly approach can be the existence of a captive from the overall group opinion. The experts audience with the resultant possibility of a are thus able to try to convince one another 100% response rate within a minimal time about their views. Eventually a group con- period. Whether the forecasting approach sensus emerges and it is possible to draw up adopted at the Tourism and the Next Decade a forecast. The distinguishing characteris- Symposium can be correctly termed a ‘Del- tics of Delphi forecasting are the aim – to phi’ forecast is questionable; it is a generate aggregate expert opinion about the ‘consensus of expert opinion approach’, but future – and the method used – maintenance does not satisfy all the Delphi require- of strict anonymity within the group of ments. experts and iterative polling of participants The advantage of the Delphi approach with feedback of group opinion between over other consensus of expert opinion fore- polls. casting approaches where participants do One example of the use of the Delphi meet – that the views of the experts are not technique to predict future tourism trends in affected by social pressure, etc. – needs to be the Province of Nova Scotia, Canada to the balanced against the disadvantages of being year 2000 was described by Kaynak and unable to engage in debate with the other Macaulay (1984). Subsequently, Liu (1988) experts in order to exchange ideas, clarify carried out a Delphi study to forecast tour- points, etc. and the fairly long time period ism to Hawaii by the year 2000. Also, Yong required to carry out the exercise. et al. (1989) used the Delphi method to forecast the future of the tourism industry in In this next section, the particular consensus Singapore, with the most distant time hori- forecasting approach examined is jury of zon for the year of probable occurrence executive opinion. Results of a jury of execu- being ‘2000 and beyond’. tive opinion forecasting exercise carried out Demand Modelling and Forecasting 295

in 1992 are presented in which the distin- tific articles, and cover such areas as: video; guishing characteristics were: (i) that a transportation; recreation equipment; and specific time horizon far into the future computers and robotics. The questions (2030) was considered as opposed to the included in the present study were selected more usual year 2000 time horizon; (ii) that on the basis of their direct relevance and the emphasis was specifically upon the importance to tourism development over impacts of developments in science and the period to 2030. In addition, it was real- technology upon tourism; (iii) that the fore- ized that the spread of knowledge among the cast focus was not destination specific (e.g. tourism experts would be sketchy in some of Nova Scotia, Singapore); and (iv) that the the areas covered by Shafer and Moeller. tourism experts were mainly European, but Hence, attention was restricted to those with some Central Americans also present, facets in which the experts were expected to compared with the more usual non- have a high degree of interest/involvement; destination specific forecasting situation in areas that they could visualize, relate to and which the views of North American tourism respond to. experts predominate. The focus on the The questions selected for inclusion in impacts of developments in science and this study cover the areas of tourism super- technology stems from: first, the fact that structure, robotics, artificial intelligence, they have ‘come to dominate the economy recreation and transportation. These possi- and society in the developed world‘; and ble future developments are listed and second, the expected rapid pace of techno- described in Table 12.1. It was specifically logical development as exemplified in the on account of the rather innovative/radical statement that ‘All the technological knowl- nature of several of the possible tourism edge we work with today will represent only developments under consideration that it 1% of the knowledge that will be available was felt important in this case to permit full in 2050’ (Cetron and Davies, 1991, p. 5). discussion among the tourism experts Clearly, however, there are also many eco- before a forecast was generated, and thus to nomic, social and environmental factors follow a non-Delphi consensus approach. which will have a substantive influence on the future nature and evolution of the field Procedure of tourism. The fieldwork was conducted in June 1992 The objective of the study was to help to in Valencia, Spain, at a tourism seminar, create a strategic vision of the future of tour- where 25 tourism experts were asked about ism up to the year 2030. Underlying this their views on possible future developments objective is the premise that future tourism in tourism. The tourism experts were selec- phenomena can be managed by looking at ted to achieve a broad spectrum and futuristic scenarios which are based on the comprised approximately 40% academics impact of science and technology. In this (drawn mainly from the areas of marketing, way management by anticipation and proac- management, economics and accounting/ tive strategies can be translated into finance), 40% from the commercial tourism competitive advantage. industry (mainly managers of hotel chains and travel agencies, and consultants), and Future developments affecting tourism 20% from central and local government and Twenty-five possible future developments tourist offices. The latter group size was affecting tourism were selected from a restricted to 20% as it was felt that tourism framework developed by Shafer and Moeller authorities would generally be more distant (1988, 1994), in which they describe possi- from the effects of technological change than ble developments in science and technology academics and the commercial tourism that may strongly impact tourism planning industry. A time span of 4 h was allowed for and development. Shafer and Moeller’s the exercise. First, the objectives of the visions of future developments resulted study were explained, and then the ques- from a review of over 100 popular and scien- tionnaire was distributed. Next, the 25 296 S.F. Witt and L. Moutinho

Table 12.1. Possible future developments and consensus forecasting results.

Mean probability Most likely year of Impact/Importance of occurrence occurrence Possible development (1 ϭ low, 5 ϭ high) (%) (1992–2030)

Tourism superstructure Floating hotels 2.6 57 2000 Multi-storey ﬂoating hotels moored offshore, containing shopping, gymnasiums and glass enclosed elevators carrying tourists to the sea ﬂoor Underwater hotels 2.8 26 2030 Built completely underwater, visitors will be able to study and watch undersea life through their bedroom windows Theme parks 3.2 67 1997 Individual experience centres where technology lets people role play . . . Life in Victorian England, Early America or French Revolution

Robotics Robots play a large part in planning facilities 2.6 50 2000 and services: restaurants, landscaping, park design and entertainment Robots will be built in the form of buildings, 4.0 73 2000 providing most services of modern hotels, and these hotels will be run by an administrative computer

Computers/Artiﬁcial intelligence Programs which can make judgements will 4.0 69 2000 be used by tourism managers to design the best program mix for differing clientele and to manage natural resources for a multiplicity of uses Computers with artiﬁcial intelligence will 2.5 24 2030 mimic human senses and attitudes

Recreation Artiﬁcial environments 3.1 60 2000 Specially created and commonly used for recreational facilities and outdoor activities Skill training in recreation 3.5 78 1995 Video tapes used on location to train tourists, e.g. skiing, scuba diving, sailing Videocycles 2.9 63 1995 Combination of stationary exercise bike and TV/VCR used to tour scenic routes in forested and urban environments Night vision 2.6 51 2000 Glasses to allow participation in outdoor recreation in the dark. Other devices to improve hearing, touch, sense of smell, strength and coordination instantly Demand Modelling and Forecasting 297

Table 12.1. continued

Mean probability Most likely year of Impact/Importance of occurrence occurrence Possible development (1 ϭ low, 5 ϭ high) (%) (1992–2030)

Sunpods 2.8 62 2000 Solar-powered bubbles for all-over tan and relaxation even in freezing temperatures Simulations and image libraries 2.9 75 1996 Creation of own desired images and sensations through home based wall-size TV screens, e.g. rafting on Colorado river. Inexpensive ﬂat panel display devices to view the world’s art treasures, with resolution so good as to look like the real painting Digital TV 2.7 74 2000 Allows viewers to participate in production, superimposing and altering events Sensavision TV 2.8 49 2000 Whole room is part of TV set, allowing viewer to feel temperature and humidity, and to smell, i.e. to be part of the scene

Transportation Air travel 4.2 48 2020 New York to Tokyo: 2 h scheduled flight Paris to Tokyo: 1 h scheduled flight 3.5 28 2030 Skycycles: one person light aircraft flying 1.5 16 2030 40 km and more by pedal power (24 km h–1) Jet powered backpacks: individual flight 3.3 25 2030 propulsion within reach of middle-income families Two person aircraft: for touring and soaring, 3.4 60 2010 at an accessible cost Magnetic trains 3.9 52 2015 Flying on cushions of electromagnetism make short trips between cities faster than airlines manage today, e.g. Los Angeles to Las Vegas Supersubs 3.2 53 2000 Undersea tour buses, like undersea planes Multiple transportation cars 3.8 58 2020 Usable on land and in flight, at an accessible cost Space travel Shuttle services to orbiting hotels 3.5 4 2030 Space resorts 3.4 20 2030

possible future tourism developments were tourism experts were then split into groups explained in detail, and participants were of ﬁve to discuss the various issues. A lunch allowed to ask clariﬁcation questions. The break followed, during which the experts 298 S.F. Witt and L. Moutinho

were encouraged to continue exchanging groups of reinforcing or inhibiting events, views. Then a final question clarification and unfolds relationships between events session took place before participants filled which may appear unrelated. In brief, cross- in the questionnaires individually. Thus in impact analysis provides a forecast, making addition to the non-observance of the ano- due allowance for the effects of interacting nymity condition necessary for a Delphi forces on the shape of things to come. The study, iterative polling of participants was technique is suitable for projects which not carried out. However, the instant feed- involve environmental scanning, which is back which occurred in the discussion tracking broad trends appearing in the envi- groups obviated the potential benefits of ronment. A tourism organization may use iterative polling. cross-impact analysis to study, for example, The 25 tourism experts were asked to the impacts of technological trends in trans- rank the importance/impact of each of the portation capability, automation, 25 possible future developments affecting communications and information process- tourism on a scale 1 (low importance/ ing. impact) to 5 (high importance/impact); to Essentially, cross-impact analysis con- assess the probability of occurrence sists of selecting a group of five to ten people (0–100%); and to forecast the most likely to serve as project participants. These would year of occurrence (over the period normally be top decision-makers – the man- 1992–2030). Many of the developments pre- aging director, marketing manager, dicted to occur by the year 2000 have in fact operations manager, etc. – as well as possi- taken place. bly outside consultants. They are asked to specify critical events relating to the subject Empirical results of the project. For example, in a tourism The mean scores of the responses by the marketing project the events may fall into group of tourism experts regarding the any of the following categories: impact/importance of each development, its 1. corporate objectives and goals; probability of occurrence and its most likely 2. corporate strategy; year of occurrence are presented in Table 3. markets or customers (potential vol- 12.1. ume, market share, possible strategies of key customers, etc.); 2 4. competitors (product, price, promotion Cross-Impact Analysis and distribution strategies); 5. overall competitive strategic posture, In this section we focus upon a less well- whether aggressive or defensive; known forecasting method, cross-impact 6. internally or externally developed strat- analysis, and examine its potential applica- egies which might affect the project; tion within a tourism context. Although 7. legal or regulatory activities having cross-impact analysis has received some favourable or unfavourable effects; attention in the general forecasting literature 8. other social, demographic or economic (e.g. Helmer, 1981), the technique appears to events. have been largely overlooked in the tourism forecasting literature. However, there are a The initial attempt is likely to generate a long few documented examples of the applica- list of alternatives which needs to be con- tion of cross-impact analysis to recreation solidated into a manageable size (e.g. 25–30 (Bonnicksen, 1981; Becker et al., 1985, events) by means of group discussion, con- 1986). centrated thinking, elimination of Cross-impact analysis is a technique used duplication, and refinement of the essence of for examining the impacts of potential the problem. Management’s creativity and future events upon each other. It identifies farsightedness play an important role in an

2 Material in this section has appeared previously in Moutinho and Witt (1994). Demand Modelling and Forecasting 299

organization’s ability to pinpoint the relevant tifies those events, which are strong actors areas of concern, and hence tourism organi- and significant reactors, and provides a sub- zations should seek to develop within their jective opinion of their relative strengths. managers the habit of creative thinking. This information then serves as an impor- The project coordinator/moderator plays tant input in formulating strategy. a crucial role in facilitating and directing the discussion among participants, and hence Case study example in determining the effectiveness of the dis- The application of cross-impact analysis to a cussion group. His or her role involves tourism example is now considered. The stimulating discussion among all the partic- case is real, but artificial data are used to ipants, while at the same time ensuring that illustrate application of the technique. the focus of the discussion does not stray too The Azores are situated in the Atlantic far from the subject. The coordinator must Ocean, 1230 km from Lisbon and 3380 km have good observational, interpersonal, from New York, and include nine different communication and interpretive skills in islands aggregated into three major groups. order to recognize and overcome threats to They are volcanic mountains, with varied the discussion process. He or she should character and landscape. The existence of attempt to develop the following three sta- nine dispersed islands makes access to the ges in the group discussion: region difficult. At present, only three of the 1. Establish a rapport with the group, islands have airports with the capacity to structure the rules of group interaction receive intercontinental flights, but recently and set objectives. there has been an increase in the number of 2. Provoke intense discussion in the rele- inter-island flights. During the recent past vant areas. there has been rapid growth in the supply of 3. Summarize the group’s responses in tourist accommodation; for example, order to determine the extent of agree- between 1988 and 1989 capacity grew by ment. 20%. By the mid-1990s, the total number of tourist beds in the region had grown to The selected n events are represented in an approximately 4000, about 50% being ,n matrix for developing an estimated located on São Miguel, 25% on Terceira ן n impact of each event on every other event. and 20% on Faial. Five other islands This is done by assuming, for each specific account for the remaining 5%, with no tour- event, that it has already occurred and will ist accommodation on one of the islands. have an enhancing, inhibiting or null effect on other events. The project coordinator seeks the impact estimates from each project Table 12.2. Tourist arrivals and growth rates participant individually, and displays the (1983–1989). estimates in the matrix in consolidated form. The project participants then vote on the Tourist arrivals Growth rate (%) impact of each event. If the spread of votes is too wide, the coordinator will ask those voting at the extremes to justify their positions. 1983 227,682 7.5 1984 245,430 7.8 The participants are encouraged to discuss 1985 254,605 3.7 differences in the hope of clarifying the 1986 282,451 10.9 problem. Another round of voting takes 1987 306,255 8.4 place. During this second round the opin- 1988 323,214 5.5 1.9מ ions usually converge and the median value 1989 317,114 of the votes is entered in the appropriate cell in the matrix. This procedure is repeated until the entire matrix is complete. In the process of matrix completion, the The evolution of tourist demand for the review of occurrences and interactions iden- Azores is illustrated in Table 12.2. The 300 S.F. Witt and L. Moutinho

market grew fairly rapidly throughout the 1. High quality of life, absence of pollution mid-1980s, but declined in 1989. The aver- and the provision of close contact with age tourist length of stay during the period nature. was stable at just over 3 days, and the aver- 2. Excellent location for deep-sea fishing, age occupancy rate in all tourist snorkelling, and scuba diving. accommodation was 35%. The major tourist 3. Good conditions for walking and hiking origin markets for the Azores were Portugal trips, as well as bird watching, and ‘sci- (67% of nights), followed by Germany entific’ tours to study the flora, (11%), and the USA (6%). A complete vegetation and volcanic nature of the breakdown is presented in Table 12.3. From islands. 1988 there was a decline in the number of 4. Ideal stopover location for yachting and American and Canadian tourists (two of the good facilities for golfers. more traditional markets for the Azores), 5. Potential for the development of cul- and an increase in the number of tourists tural and rural tourism. originating from less traditional European markets, such as Holland, Belgium and Some of the major weaknesses which might Spain. Geographically, the two direct com- hamper the development of tourism in the petitors to the Azores are Madeira and the region were as follows: Canary Islands. The average length of stay 1. Distance from the most important origin and spending level by tourists in the Azores markets, cost of travel, and the reduced were well below the levels recorded at these number of scheduled flights to the destinations. Azores. 2. Lack of superstructure, particularly in the area of entertainment: improve- Table 12.3. Total shares of nights spent by foreign ments here could increase tourists’ tourists (1990). average spending levels and length of stay in the islands. Share of nights spent 3. Inadequate professional qualification Country (%) and training skills provided to staff employed in the tourism industry, Portugal 67.3 which has a negative impact on the Germany 11.4 quality of tourist services offered to USA 5.6 visitors. Switzerland 2.4 4. Seasonality effects which create United Kingdom 2.3 marked under-utilization of facilities Canada 2.0 during the low season and over- France 1.7 utilization during the high season. Scandinavian countries 1.3 Spain 1.2 The tourism sector plays a crucial socio- Belgium 0.9 economic role in the development of the Holland 0.6 Azores in terms of its contribution to the Other countries 2.7 gross domestic product, balance of pay- ments, employment and payment of reasonable salaries. The Azores Tourist Board (ATB) forecasted a cumulative annual growth rate of Situation analysis 10% for foreign tourist arrivals until the year The Azores’ strengths and competitive 2000. It aimed to increase tourists’ average advantages in the tourism sector, as per- length of stay and reduce seasonality ceived by Azores Tourist Board managers on through the implementation of promotional the basis of market research studies, were programmes and by improving the enter- described as follows: tainment facilities on the islands. The ATB Demand Modelling and Forecasting 301

Table 12.4. Basic format for the ATB cross-impact matrix. Up arrow, enhancing effect; horizontal line, no effect; down arrow, inhibiting effect.

Then the impact on this event would be If this event were to occur ABCD

A A further decline in the number of tourist arrivals originating from the more traditional markets

B Increased dependency on a limited number of airlines and specialized tour operators and travel agents

C Increased cost of international travel

D A general increase in domestic (internal) tourism

was particularly interested in encouraging A A further decline in the number of tour- tourism investment designed to develop ist arrivals originating from the more new tourist products, activities and facili- traditional markets. ties such as spas, convention centres, and B Increased dependency on a limited sports centres, which would enable foreign number of airlines and specialized tour teams to come to the islands for training operators and travel agents. periods, tourist trails, footpaths, scenic C Increased cost of international travel. points and nature parks. D A general increase in domestic (internal) tourism. Use of cross-impact analysis These events are arranged in matrix form as Being aware of the global trends in the tour- shown in Table 12.4. The arrows show the ism industry and tourist ﬂows worldwide, direction of the impacts. For example, the and taking into consideration the internal occurrence of event D (a general increase in situation of the Azores, tourism authorities internal tourism) is likely to bring about a considered which marketing strategies decrease in the cost of international travel would be most effective in striking a balance (event C). Hence, an inhibiting arrow is between the role of tourism as a catalyst for placed in the cell at the intersection of row D sustainable socioeconomic development in and column C. The increased dependency the region and the preservation of the local on a limited number of airlines and spe- cultural heritage, quality of life and the cialized tour operators and travel agents physical environment. The ATB recognized (event B) is likely to raise the cost of inter- that continued growth and development in national travel (event C). Therefore, an the future stem from current strategic plan- enhancing arrow is placed in the cell where ning and decided to use cross-impact row B and column C intersect. It is not analysis in order to enable its managers to expected that the occurrence of event B map out a strategic plan more effectively. would have any effect on event A, so a hor- In addition to competition, the ATB was izontal line is placed in this cell. The other concerned with the analysis of four main cells are completed in accordance with sim- environmental factors (events): ilar judgements. The completed matrix 302 S.F. Witt and L. Moutinho

Table 12.5. Example of subjective rating scale.

Voting scale Subjective scale

ϩ8 Critical: Essential for success ϩ6 Major: Major item for success ϩ4 Signiﬁcant: Positive, helpful, but not essential effect Enhancing ϩ2 Slight: Noticeable enhancing effect · 0 No effect

Slight: Noticeable inhibiting effect 2מ Signiﬁcant: Retarding effect Inhibiting 4מ Major: Major obstacle to success 6מ · Critical: Almost insurmountable hurdle 8מ

Table 12.6. The ATB’s cross-impact matrix showing degrees of impact.

Then the impact on this event would be If this event were to occur ABCD

A A further decline in the number of tourist arrivals originating from the more traditional markets Ϫ4 Ϫ4 ϩ8

B Increased dependency on a limited number of airlines and specialized tour operators and travel 0 ϩ8 ϩ6 agents

C Increased cost of international travel ϩ2 Ϫ6 ϩ6

D A general increase in domestic (internal) tourism ϩ4 ϩ8 Ϫ6

shows the direction of impact of rows how strongly the occurrence of one event (actors) on columns (reactors). If interest would influence the occurrence of each of focuses primarily upon event D, for exam- the other events. To assist in quantifying the ple, then column D should be studied for interactions, a subjective rating scale may be actor events. Each of these actor events used (Table 12.5). Table 12.6 shows how the should be examined in turn to determine basic cross-impact matrix can be modified to what degree of influence, if any, it is possi- show linkage strengths. Consider, for exam- ble to have on these actors in order to bring ple, the impact of event D on event B. It is about/prevent the occurrence of event D. felt that the occurrence of event D would Next, the impact should be quantified to have a critically enhancing impact on the show linkage strengths, i.e. to determine likelihood of occurrence of event B. Both the Demand Modelling and Forecasting 303

Table 12.7. The ATB’s cross-impact matrix showing interactive probabilities of occurrence.

Having this Then the new probability of occurrence of If this event were to occur probability of this event would be occurrence ABCD

A A further decline in the number of tourist 0.70 0.50 0.40 0.90 arrivals originating from the more traditional (+2 years) (+1 year) (immediate) markets

B Increased dependency on a limited number 0.60 0.70 0.70 0.85 of airlines and specialized tour operators (immed.) (immed.) and travel agents

C Increased cost of international travel 0.50 0.75 0.45 0.85 (+2 years) (immed.) (immed.) D A general increase in domestic (internal) 0.70 0.80 0.80 0.35 tourism (+2 years) (+1 year) (+2 years)

direction and degree of enhancing impact probabilities of occurrence and time rela- are shown in Table 12.6 by the +8 rating in tionships. Consider the impact of event D on the appropriate cell. On the other hand, the probable occurrence of event B. It is event A’s occurrence would make event B judged to have a critically enhancing effect less likely; the consensus rating is –4, and and the consensus is that the probability of this is entered in the appropriate cell. This occurrence of event B will change from 0.60 process is continued until all interactions to 0.80. (In this particular case study exam- are evaluated and the matrix is complete. ple, it was assumed that the participants’ Another approach involves the use of consensus judgement was that a value of +2 probabilities of occurrence. Once the proba- on the voting scale in Table 12.5 translated bility of occurrence of each event is into an increase in the probability of occur- assessed, then the change in that probability rence of ﬁve percentage points in Table 12.7, can be assessed for each interaction. The a value of +4 into an increase of ten per- probabilities of occurrence can be entered in centage points, and so on. Similarly, a value an information column preceding the of –2 translated into a decrease in the proba- matrix, and then the matrix may be con- bility of occurrence of ﬁve percentage structed in the conventional manner. points, and so on.) The new probability is, However, in many instances the degree of therefore, entered in the appropriate cell. impact is not the only important informa- Event B is judged to have no effect upon tion to be gathered from a consideration of event A; therefore, the original probability, interactions. The time relationships are 0.70, is unchanged. Event B is strongly often critical and can be shown in a number inhibited by the occurrence of event C, and of ways. For example, time information can the resulting probability of occurrence is be added (within parentheses) to each prob- lowered from 0.60 to 0.45. The occurrence of ability of occurrence depicted in the event B will increase the probability of matrix. occurrence of event D from 0.70 to 0.85. This Table 12.7 illustrates the use of a cross- procedure is followed until all of the cells impact matrix incorporating interactive are completed. 304 S.F. Witt and L. Moutinho

The time relationships in Table 12.7 can Probability Forecasting be interpreted as follows. If event B were to occur it would have a major enhancing It may not be necessary to obtain highly effect on event D, raising D’s probability of accurate forecasts of specific values, but occurrence from 0.70 to 0.85; this enhance- only to ascertain whether the probability ment would occur immediately. If event C falls within a particular range of values, in were to occur, it would raise the probability order to support good tourism management of occurrence of event A from 0.70 to 0.75; it decisions. Furthermore, it is usually would take 2 years for the enhancement to assumed that there is a cost trade-off when be completed. choosing a forecasting model. Fitzsimmons The information provided by the cross- and Sullivan (1982, p. 118) noted that: ‘Gen- impact matrices should have proved very erally the less-expensive models yield useful for strategic planning by the Azores less-accurate forecasts, and there are costs Tourist Board. It may be that the ATB was associated with inaccuracies in the forecast particularly concerned about a further . . . Is it worthwhile to spend more on an decline in the number of tourist arrivals accurate forecasting model than incur the originating from the more traditional mar- potential costs of a less-expensive but poor kets and had plans to deal with the situation forecast?’ Although Martin and Witt (1988a, should it occur. Various marketing strate- 1989a, b) have provided some empirical evi- gies could be employed to halt the decline. dence to the contrary, i.e. that more By studying column A in Table 12.7, the expensive models do not necessarily lead to tourism authorities could pinpoint those more accurate tourism demand forecasts, to events which were likely to have a marked the extent that the widely quoted trade-off impact on the likelihood of occurrence of stated by Fitzsimmons and Sullivan is true, event A. Thus, for example, if there was a it is important to identify an acceptable level noticeable general increase in domestic of forecast accuracy. tourism, the probability of occurrence of a Decision theory can be used to determine further decline in the number of tourist optimal strategies when a tourism decision- arrivals originating from the more tradi- maker is faced with several decision tional markets would increase from 0.7 to alternatives and an uncertain or risk-filled 0.8. Hence, the ATB would need to step up pattern of future events, i.e. states of nature. its marketing efforts accordingly. (Risk is taken to mean a situation in which various outcomes to a decision are possible, The idea underlying cross-impact analysis but where the probabilities of the alternative is that the probability of occurrence of an outcomes are known. Uncertainty describes event is directly related to the occurrence/ a situation in which there is no such proba- non-occurrence of other events. By bilistic knowledge or where the information analysing correlations between events, it is is fragmentary.) This section examines the possible to estimate the likelihood of future precision required for probability forecasts events occurring. This information can then and the use of skew loss functions as applied be incorporated into the strategic planning to tourism. For a general discussion of prob- process. Thus, cross-impact analysis can ability forecasting, the reader is referred to lead to improved strategic vision, and allow Wilson and Keating (1998), Delugio (1998), management to follow a more proactive and Makridakis et al. (1998). approach. Cross-impact analysis provides a framework for the analysis of a range of Required accuracy levels possible events and complex interactions. Here we assess how accurate the forecasts of Given that tourism is characterized by a high the probabilities associated with the occur- degree of interdependence among events. rence of alternative states of nature need to cross-impact analysis is a forecasting tech- be when we are considering problems nique that would seem to be particularly involving few possible actions and few relevant for this field. states of nature. As an example of this class Demand Modelling and Forecasting 305

of problem, suppose that a regional tourism EOL(A3) ϭ 0.1(0) ϩ 0.9(8) ϭ £7.2 mil- authority is interested in marketing a multi- lion unit tourist pack comprising local dairy, Clearly, under these conditions act A1 (the wines and handicraft products in order to low-capacity facility) would be preferable to generate additional visitor arrivals and the other courses of action. By assuming higher spending levels. The product is made various values that P(S1) could take, we can by a batch process which, through equip- construct the chart of expected opportunity ment indivisibilities, is restricted to the losses shown in Fig. 12.1. following annual capacities: If P(S1) is less than 0.5, then act A1 is best,

A1: 1 million units whereas if P(S1) is between 0.5 and 0.625, act

A2: 2 million units A2 is best. If P(S1) exceeds 0.625, then act A3

A3: 3 million units is best. If P(S1) is exactly 0.5 either A1 or A2

could be chosen, and if P(S1) is exactly 0.625 The conditional opportunity losses under S1 either A2 or A3 could be chosen. These ‘indif- (high sales) and S2 (low sales) are shown in Table 12.8. ference’ points are determined by ﬁnding the points on the abscissa where the lines of expected opportunity loss intersect, that is Table 12.8. Conditional opportunity losses: new where: multi-unit tourist pack problem (£ million). EOL(A1) ϭ EOL(A2)

State of nature Letting P(S1) ϭ P, we have: 6P ϩ 0(1 Ϫ P) ϭ 3 P ϭ 0.5 Act S1 S2 Similarly:

A1 60EOL(A3) ϭ EOL(A2) A2 330P ϩ 8(1 Ϫ P) ϭ 3 A3 08P ϭ 0.625 The implication of these calculations is that the new tourist product planner does not As can be seen from Table 12.8, in this need to know the precise value of P(S1) but example if S1 obtains then act A3 is the best only that it falls within speciﬁc ranges. In course of action and is accordingly assigned terms of the assumptions of this tourism a conditional opportunity loss of zero. If S 2 problem, the same act (act A1) would be obtains, however, act A becomes the best 1 chosen if P(S1) were, say, 0.1, as would be course of action. Act A is a kind of ‘hedging’ 2 chosen if P(S1) were say, 0.4. Although the act in the sense that the conditional oppor- illustration is simple, it does serve to dem- tunity losses associated with it are not onstrate that, in some tourism marketing extreme under either S1 or S2. The problem problems, forecasts do not need to be made facing tourist product planners is to estimate with high precision. the probabilities of occurrence of S1 and S2, and in particular they need to know how Skew loss functions precise these estimates should be. In more realistic cases a greater number of

Suppose that P(S1) denotes the probabil- states of nature and courses of action are ity that S1, occurs. Then P(S2) is equal to possible. For example in accommodation

1 – P(S1). If P(S1) were equal to 0.1, then the capacity problems some ‘best’ level of expected opportunity losses (EOLs) of the accommodation may exist for each possible three acts would be: sales level. In tourism demand capacity

EOL(A1) ϭ 0.1(6) ϩ 0.9(0) ϭ £0.6 mil- planning problems, the quantity of beds lion allocated may vary more or less continu-

EOL(A2) ϭ 0.1(3) ϩ 0.9(3) ϭ £3.0 mil- ously within a certain range. Let us now lion suppose that the same regional tourist 306 S.F. Witt and L. Moutinho

Fig. 12.1. Expected opportunity losses: new multi-unit tourist pack problem (£ million). authority is interested in determining the possible tourist demand levels for accom- ‘best’ (optimum) number of beds to offer for modation in the area. As an example, distribution to tour operators and travel suppose that the planners are willing to agents. If travel intermediaries’ requests for believe that tourist demand for accommoda- suitable accommodation exceed the quan- tion in the region will exceed 20,000 beds tity available, unfilled requests will result. If but will be no higher than 80,000 beds. Their the number of beds available in the region ‘most probable’ estimate of tourist demand exceeds the demand, there will be costs is that it will be between 30,000 and 40,000 associated with the excess supply of accom- beds. The cumulative probability distribu- modation. For purposes of illustration, tion can then be derived from a histogram suppose that the imputed ‘cost’ for each chart. The smooth curve should be used to unfilled tour operator’s/travel agent’s approximate cumulative probabilities request per night is £12.00, and suppose that within the histogram intervals. For example, the cost associated with each bed vacant per the estimated probability of tourist demand night is £3.00. The regional tourist authority being less than 35,000 beds can be seen to be is interested in recommending some best approximately 0.45 (Fig. 12.2). level of accommodation capacity that mini- To determine the optimal number of beds mizes expected cost under an uncertain to be offered to the market, tourism planners tourist demand. would like to find the appropriate balance The regional tourism planners should point where the expected cost of under- define the probability distribution of the construction just equals the expected cost of Demand Modelling and Forecasting 307

Fig. 12.2. Probability distribution: tourist demand for regional accommodation (000 units).

over-construction. Both these costs are pro- £12.00 portional to the difference between the P(D < n) < amount offered and the amount requested. £3.00 ϩ £12.00 Fortunately, however, it is not necessary to P(D < n) < 0.80 construct a payoff table for each possible act From Fig. 12.2, it can be seen that the largest and tourist demand level. Instead, the fol- n for which P(D < n) < 0.80 is approx- lowing principle may be adopted. Keep imately 48,000 beds. This represents the increasing the accommodation capacity graphical solution to the tourist capacity until the highest level n is reached for which problem. Had the planners not considered the expected incremental cost of adding the the asymmetry in the costs of over- versus nth unit is still less than the expected incre- under-construction, they might have plan- mental cost of not adding the nth unit to the ned for either: accommodation capacity level.

If we let D ϭ tourist demand level, C0 ϭ ● a capacity level equal to the midpoint of £3.00 = cost per night of over-construction, the bar in the histogram with the great- and Cu ϭ £12.00 ϭ cost per unit per night of est incremental height (i.e. 35,000 beds), under-construction relative to tourist the modal forecast; or demand, then we have by application of the ● a capacity level equal to the median or principle above: 0.5 cumulative probability level of the distribution (i.e. 36,000 beds). C0 P (D < n) < Cu [1 Ϫ P(D < n)]

[P(D < n)] (C0 ϩ Cu) < Cu In either case, they would have considerably ‘under-produced’ relative to the solution Cu P(D < n) < that takes into account the conditional costs C0 ϩ Cu of over- versus under-production. 308 S.F. Witt and L. Moutinho

Although the need for accurate forecasts origin country to a foreign destination coun- is often stressed, there are situations in try, or in terms of tourist expenditures by which highly accurate point forecasts are visitors from the origin country in the desti- not particularly useful. In particular, in the nation country. Tourist nights spent in the case of probability forecasting it is often nec- destination country are an alternative essary only to know whether or not the measure. probability falls within a particular range of values. Even if increased accuracy can be Population obtained, it is often not the case that the The level of foreign tourism from a given additional cost entailed is justiﬁed. When origin is expected to depend on the origin knowledge regarding error costs is available, population. In some studies population fea- this should be incorporated in the forecast- tures as an explanatory variable, but more generating procedure. In particular, cost often the effect of population is accommo- asymmetries will affect the level of demand dated by modifying the dependent variable to plan for. to become international tourism demand per capita.

Econometric Forecasting3 Income In tourism demand functions, origin country income or private consumption is The econometric approach to forecasting generally included as an explanatory varia- tourism demand involves the use of regres- ble, and commonly enters the demand sion analysis to estimate the quantitative function in per capita form (corresponding relationship between tourism demand and to the specification of demand in per capita its determinants; the estimation is carried terms). The appropriate form of the variable out using historic data, and future values of is private consumption or personal dispos- tourism demand are obtained by using fore- able income. casts of the demand determinants in conjunction with the estimated relation- Own price ship. See, for example, Smeral et al. (1992) and Smeral and Witt (1996). The group of The appropriate form of the price variable is variables that influences international tour- by no means clear. In the case of tourism ism demand will depend on the purpose of there are two elements of price: the cost of visit under consideration. As by far the travel to the destination; and the cost of majority of international tourist trips take living for the tourist in the destination. In place for holiday purposes, and it is only for certain studies where econometric forecast- holiday trips that individuals are coming models have been developed for pletely free to choose the destination, international tourism demand, a specific transport mode, and so on, we shall just destination tourist’s cost of living variable is concentrate on those factors that influence incorporated in the models. Usually, how- the demand for international holiday tour- ever, the consumer price index in a country ism. is taken to be a proxy for the cost of tourism in that country. In general, this procedure is adopted on the grounds of lack of more suit- Tourism demand function able data. Whichever destination price The variables involved in tourism demand variable is used, it needs to be adjusted by forecasting are discussed below. the rate of exchange in order to transform it into origin country currency. Forecast variable Exchange rates are also sometimes used Tourism demand is generally measured in separately to represent tourists’ living costs. terms of the number of tourist visits from an The usual justification is that consumers are

3 Material in this section has appeared previously in Witt and Witt (1995). Demand Modelling and Forecasting 309

more aware of exchange rates than destina- events which have been accommodated by tion costs of living for tourists, and hence are dummy variables. driven to use exchange rate as a proxy variable. Trend A trend mainly represents a steady change Substitute prices in the popularity of a destination country Economic theory suggests that the prices of over the period considered, as a result of substitutes may be important determinants changing tastes. It also, however, captures of demand. For example, an increase in holi- the time dependent effects of all other day prices to Spain may increase demand explanatory variables not explicitly for holidays to Portugal. Mostly, those sub- included in the equation, such as changes in stitution possibilities allowed for in air service frequencies and demographic international tourism demand studies are changes in the origins. restricted to tourist destination living costs. Substitute prices may be incorporated by Marketing specifying the tourists’ cost of living variable as destination value relative to a National tourist organizations engage in weighted average value calculated for a set sales-promotion activities specifically to of alternative destinations, or by specifying attempt to persuade potential tourists to a separate weighted average substitute desti- visit the country, and these activities may nation cost variable. take various forms including media adver- Just as tourists’ living costs in substitute tising and public relations. Hence, destinations are likely to influence the promotional expenditure is expected to play demand for tourism to a given destination, a role in determining the level of interna- so travel costs to substitute destinations may tional tourism demand. Much also be expected to have an impact, and can tourism-related marketing activity is not, be allowed for in a similar manner. Fur- however, specific to a particular destination thermore, if the data are disaggregated by (for example, general travel agent and tour transport mode, then travel cost to the same operator advertising) and therefore is likely destination by alternative transport mode(s) to have little impact on the demand for tour- would influence tourism demand to a partic- ism to that destination. The promotional ular destination by a given transport mode. activities of national tourist organizations are destination specific and are therefore Qualitative effects more likely to influence tourist flows to the Dummy variables can be included in inter- destination concerned. national tourism demand functions to allow for the impact of ‘one-off’ events. For exam- Lagged dependent variable ple, when governments impose foreign A lagged dependent variable, i.e. an autore- currency restrictions on their residents (e.g. gressive term, can be justified on the the £50 annual limit introduced in the UK grounds of habit persistence. Once people during late 1966 to late 1969), this is expec- have been on holiday to a particular country ted to reduce outward tourism. Similarly, and liked it, they tend to return to that desti- the 1973 and 1979 oil crises temporarily nation. There is much less uncertainty reduced international tourism demand; associated with holidaying again in the although the impacts of the oil crises on country compared with travelling to a pre- holiday prices and consumer incomes are viously unvisited foreign country. incorporated in these explanatory variables, Furthermore, knowledge about the destina- a further reduction in international tourism tion spreads as people talk about their demand is likely because of the psycho- holidays and show photographs, thereby logical impact of the resultant uncertainties reducing uncertainty for potential visitors to in the world economic situation. Witt and that country. In fact, this ‘word of mouth’ Martin (1987) discussed a range of one-off recommendation may well play a more 310 S.F. Witt and L. Moutinho

important role in destination selection than model, which is why population does not, does commercial advertising. A type of in general, feature as an explanatory variable learning process is in operation and as peo- in tourism demand models. The results from ple are, in general, risk averse, the number of model 11 are not included in the discussion people choosing a given alternative in any which follows. year depends on the numbers who chose it Income appears in each model in Table in previous years. 12.9, but the values of the estimated elastici- A second justification for the inclusion of ties vary considerably, ranging from 0.4 to a lagged dependent variable in tourism 6.6. However, other than the 0.4 value, the demand functions comes from the supply estimated income elasticities exceed unity, side. Supply constraints may take the form showing clearly that foreign tourism is gen- of shortages of hotel accommodation, pas- erally regarded as a luxury. The median senger transportation capacity and trained value of 2.4 strongly supports a priori expec- staff, and these often cannot be increased tations about the luxury nature of foreign rapidly. Time is also required to build up tourism. Many of the differences in elas- contacts among tour operators, hotels, air- ticity estimates can be readily explained. lines and travel agencies. Similarly, once the For example, although the income elasticity tourist industry to a country has become obtained in model 5 (0.4) is somewhat lower highly developed it is unlikely to dwindle than expected, travel from the USA to Can- rapidly. If a partial adjustment mechanism ada is likely to be regarded in a similar is postulated to allow for rigidities in sup- manner to domestic (USA) tourism, i.e. a ply, this results in the presence of a lagged necessity, rather than a luxury; whereas, dependent variable in the tourism demand overseas travel from the USA to the UK function (Gujarati, 1988, Chapter 16). (model 6) is viewed as a luxury (income elasticity is 2.4). By contrast, the value of the Empirical results income elasticity for travel from France to Examples of estimated econometric models Switzerland (model 1) is similar to that for are presented in Table 12.9. The most com- travel from France to the UK (model 2) at 2.8. prehensive study in terms of the variety of Again, this makes sense as Switzerland is a origins/destinations covered is by Martin destination with a very high cost of living for and Witt (1988c), and the first ten models are tourists, whereas visiting the UK involves a taken from this study. The four models high cost of travel because of the sea border, selected from other studies were specifically and therefore holidays to Switzerland and chosen because they include explanatory the UK are likely to be regarded as being at variables not covered in the Martin and Witt about the same luxury level by the French. study. Thus model 11 incorporates popula- (However, the income elasticity for travel tion as a demand determinant, models 12 from France to neighbouring cheap destina- and 13 incorporate marketing expenditure tions (such as Spain) would be expected to and model 14 incorporates a lagged depend- be much lower; see, for example, the different variable and travel time. (The elasticity ence in income elasticities for travel from values presented in model 14 are impulse Germany to Switzerland (high cost) and estimates.) All the models are specified in Austria (low cost).) log-linear form. As far as own price is concerned, travel Population features as an explanatory cost appears in 11 of the 14 models, and the variable only in model 11, but the estimated elasticity estimates range from –0.04 to –4.3, elasticity of 12.4 seems far too high to be with the median value being –0.5. The three realistic. (The population elasticity is expec- cases where demand is most responsive to ted to be fairly close to unity.) Furthermore, own travel cost are those models which an ‘incorrect’ coefficient sign is estimated incorporate statistically significant substi- for income. It appears, therefore, that multi- tute travel costs. Destination cost features in collinearity between population and 12 models, and the elasticity estimates range income may well be a problem in this from –0.05 to –1.5, with the median value Table 12.9. Examples of estimated econometric models.

Explanatory variables

Ref Model Method Trav Dest Exch Comb Subst Subst Subst Dummy Lag Travel Authors Date No of Est R2 Pop Inc Cost Cost Rate Cost TC DC CC Variables Trnd Mark DV Time

*0.150מ 0.0221מ 1.053 *1.242מ *Martin and Witt 1988c 1 OLS 0.969 2.819 0.0342מ (data 1*0.204מ 0.600 0.708מ *CO 0.953 2.756 2 –1965 2*0.109מ *0.755מ 0.037מ *CO 0.987 1.292 3 (1980 0.122מ 0.0401מ *2.803 1.250מ 0.932מ *CO 0.896 4.923 4 0.018מ 0.0422מ 0.156 0.364מ 0.355מ OLS 0.776 0.372 5 0.428מ 0.198מ *CO 0.897 2.431 6 1*0.258מ 0.130 *1.859 0.235מ *CO 0.991 4.550 7 Demand ModellingandForecasting 2*0.619מ 3*0.061מ 0.0221מ 0.921 0.637 0.155מ CO 0.911 1.775 8 2*0.604מ *6.305 *2.258 *1.403מ*1.122מ CO 0.972 1.331 9 1*0.374מ *3.308 *2.226 *1.827 0.679מ *4.337מ CO 0.978 1.743 10 2*0.367מ 0.69ϩ4 1.26+ 1.52+מ 2.90ϩמ Chadee and 1987 11 OLS 0.95 12.40ϩ Mieczkowski (data 1.90ϩ5 1976– 0.50ϩ6 1985) 0.175 7*0.515מ *0.721מ 0.458מ *Papadopoulos 1985 12 CO 0.996 3.346 and Witt (data 0.041 7*0.552מ 0.706מ 0.475מ *OLS 0.939 6.645 13 –1972 1982)

0.165מ *0.908 0.0558מ 0.049מ 0.199מ Witt 1980 14 OLS 0.969 1.386 (data 0.0919 1964– 0.15710 1972) 0.15211 0.145–1.01512

0.1 0.1מ 0.11מ 1.1 1.6 1.8 0.7מ 0.5מ Median valuesa 2.4 0.22מ 0.57מ

Notes: Pop, population; Inc, income; Trav Cost, travel cost; Dest Cost, destination cost; Exch Rate, exchange rate; Comb Cost, combined cost (travel + destination); Subst TC, substitute travel costs; Subst DC, substitute destination costs; Subst CC, substitute combined costs; Trnd, trend; Mark, marketing (promotional) expenditure; Lag DV, lagged dependent variable; OLS, ordinary least squares; CO, Cochrane-Orcutt. Model 1, France to Switzerland; Model 2, France to UK; Model 3, Germany to Austria; Model 4, Germany to Switzerland; Model 5, USA to Canada; Model 6, USA to UK; Model 7, UK to Austria; Model 8, UK to Spain; Model 9, UK to Austria by Air; Model 10, UK to Austria by Surface; Model 11, USA to Canada; Model 12, Austria to Greece; Model 13, Switzerland to Greece; Model 14, denotes UK to multiple destinations. *, signiﬁcant at 5% level; +, signiﬁcant at 10% level; 1, 1974 oil crisis; 2, 1979 oil crisis; 3, UK currency restrictions 1967–69; 4, second quarter; 5, third quarter; 6, fourth quarter; 7, 311 political disturbances/1974 oil crisis; 8, non-sterling area destination; 9, low cost of tourism or sterling area destination; 10, holiday type; 11, travel mode; 12, range of destination intrinsic characteristic values; a, ignoring results from model 11. 312 S.F. Witt and L. Moutinho

being –0.7. Tourists thus seem to react in a most accurate. On the other hand, Kulen- fairly similar manner to destination cost dran and King (1997) found that changes and travel cost changes. Exchange econometric models generated more accurate appears as an explanatory variable in rate forecasts than some univariate only 5 of the 14 models and in only one case time-series models but less accurate fore- is it the sole representation of tourists’ desti- casts than others. nation living costs. The estimated elasticities range from 0.6 to 2.3, with a median value of 1.8, indicating that for those Conclusion origin–destination pairs where exchange rate is important, there is a relatively high Forecasts of tourism demand are crucial for sensitivity of demand to exchange rate changes. The fairly high absolute values obtained planning purposes. In this chapter, a range of tourism forecasting methods has been for the price elasticities again support a pri- outlined which can be applied in a wide ori expectations regarding the luxury nature variety of situations. of foreign tourism. With regard to substitute prices, travel cost appears in 6 of the 14 models but destination cost in only three. The travel cost References and Further Reading values span the range 0.2 to 6.3 with a median value of 1.6, and the destination cost Archer, B.H. (1994) Demand forecasting and esti- elasticity values vary from 0.1 to 3.3, with a mation. In: Ritchie, J.R.B. and Goeldner, C.R. median value of 1.1. A wide range of dummy (eds) Travel, Tourism and Hospitality variables features in the models, showing, in Research, 2nd edn. Wiley, New York, pp. particular, that political events can have 105–114. marked impacts on tourism demand. Mod- Becker, R.H., Dottavio, F.D. and Bonnicksen, T.M. (1985) Conventional wisdom and qualitative els 12 and 13 indicate that marketing assessment. In: Wood, J.D. Jr (ed.) Proceed- expenditure does have a positive impact on ings of 1985 National Outdoor Recreation tourism demand, but that the estimated elas- Trends Symposium 2, vol 1. Science Publica- ticities are low. Model 14 demonstrates the tions Ofﬁce, National Park Service, US negative impact of travel time on tourism Department of the Interior, Atlanta. demand, and the importance of habit per- Becker, R.H., Dottavio, F.D. and Menning, N.L. sistence and/or supply constraints (as (1986) Threats to coastal national parks: a represented by the lagged dependent varia- technique for establishing management pri- ble). orities. Leisure Sciences 8(3), 241–256. Bonnicksen, T.M. (1981) Brushland ﬁre management policies: a cross impact simulation of The forecasting performance of econometric Southern California. Environmental Man- models of international tourism demand is agement 5(6), 521–529. mixed. In the earlier studies econometric Cetron, M.J. and Davies, O. (1991) 50 Trends models often generated less accurate fore- Shaping the World. World Future Society, casts than simple extrapolative methods. Bethesda, Maryland. However, Witt and Witt (1995) and Lim Chadee, D. and Mieczkowski, Z. (1987) An (1997) suggested that this may have been empirical analysis of the effects of the caused by lack of diagnostic testing coupled exchange rate on Canadian tourism. Journal with appropriate remedial action. The more of Travel Research 26(1), 13–17. recent studies, which incorporate a range of Delugio, S. (1998) Forecasting Principles and Applications. McGraw-Hill, Maidenhead, diagnostic tests, partially support this UK. hypothesis. For example, Kim and Song Fitzsimmons, J.A. and Sullivan, R.S. (1982) Serv- (1998) compared the forecasting perform- ice Operations Management. McGraw-Hill, ance of econometric models with several New York. univariate time-series models and discov- Frechtling, D.C. (1996) Practical Tourism Fore- ered that the econometric models were the casting. Butterworth-Heinemann, Oxford. Demand Modelling and Forecasting 313

Gujarati, D.N. (1988) Basic Econometrics, 2nd tourism planning. In: Ritchie, J.R.B. and edn. McGraw-Hill, New York. Goeldner, C.R. (eds) Travel, Tourism and Gunn, C.A. (1994) A perspective on the purpose Hospitality Research: A Handbook for Man- and nature of tourism research methods. In: agers and Researchers, 2nd edn. Wiley, New Ritchie, J.R.B. and Goeldner, C.R. (eds) York, pp. 473–480. Travel, Tourism, and Hospitality Research, Moutinho, L. and Witt, S.F. (1994) Application of 2nd edn. Wiley, New York, pp. 3–11. cross-impact analysis in tourism: a case Helmer, O. (1981) Reassessment of cross-impact study of the Azores. Journal of Travel and analysis. Futures 13(5), 389–400. Tourism Marketing 3(1), 83–95. Kaynak, E. and Macaulay, J.A. (1984) The Delphi Moutinho, L. and Witt, S.F. (1995) Forecasting the Technique in the measurement of tourism tourism environment using a consensus market potential: The case of Nova Scotia. approach. Journal of Travel Research 33(4), Tourism Management 5(2), 87–101. 46–50. Kim, S. and Song, H. (1998) Analysis of inbound Papadopoulos, S.I. and Witt, S.F. (1985) A mar- tourism demand in South Korea: a cointegra- keting analysis of foreign tourism in Greece. tion and error correction approach. Tourism In: Shaw, S., Sparks, L. and Kaynak, E. (eds) Analysis 3, 25–41. Marketing in the 1990s and Beyond: Pro- Kulendran, N. and King, M.L. (1997) Forecasting ceedings of Second World Marketing international quarterly tourist ﬂows using Congress. University of Stirling, Stirling, pp. error-correction and time-series models. 682–693. International Journal of Forecasting 13, Robinson, A.E. (1979) Tourism and the next dec- 319–327. ade: a look to the future through ‘A Return to Lee, Choong-Ki (1996) Major determinants of Delphi’. Proceedings of Travel and Tourism international tourism demand for South Research Association Tenth Annual Confer- Korea: inclusion of marketing variable. Jour- ence. TTRA, Salt Lake City, pp. 269–282. nal of Travel and Tourism Marketing 5(1/2), Seeley, R.L., Iglars, H. and Edgell, D. (1980) Utiliz- 101–118. ing the Delphi Technique at international Lim, C. (1997) An econometric classiﬁcation and conferences: a method for forecasting inter- review of international tourism demand national tourism conditions. Travel models. Tourism Economics 3, 69–81. Research Journal 1, 30–35. Lui, J.C. (1988) Hawaii tourism to the year 2000. Shafer, E.L. and Moeller, G. (1988) Science and Tourism Management 9(4), 279–290. technology: the wild cards in tourism strate- Makridakis, S., Wheelwright, S.C. and Hyndman, gic planning. Paper presented at Benchmark R. (1998) Forecasting – Methods and Appli- 1988: A National Outdoor Recreation and cations, 3rd edn. Wiley, Chichester. Wilderness Forum, Tampa, Florida, 13–15 Martin, C.A. and Witt, S.F. (1988a) An empirical January. analysis of the accuracy of forecasting tech- Shafer, E.L. and Moeller, G. (1994) Science and niques. In: Proceedings of Travel and technology. In: Witt, S.F. and Moutinho, L. Tourism Research Association 19th Annual (eds) Tourism Marketing and Management Conference. TTRA, Salt Lake City, pp. Handbook, 2nd edn. Prentice-Hall, Hemel 285–298. Hempstead, pp. 120–125. Martin, C.A. and Witt, S.F. (1988b) Forecasting Smeral, E. and Witt, S.F. (1996) Econometric fore- performance. Tourism Management 9(4), casts of tourism demand to 2005. Annals of 326–329. Tourism Research 23(4), 891–907. Martin, C.A. and Witt, S.F. (1988c) Substitute Smeral, E., Witt, S.F. and Witt, C.A. (1992) Econo- prices in models of tourism demand. Annals metric forecasts: tourism trends to 2000. of Tourism Research 15(2), 255–268. Annals of Tourism Research 19(3), Martin, C.A. and Witt, S.F. (1989a) Forecasting 450–466. tourism demand: a comparison of the accu- Taylor, R.E. and Judd, L.L. (1994) Delphi forecast- racy of several quantitative methods. ing. In: Witt, S.F. and Moutinho, L. (eds) International Journal of Forecasting 5(1), Tourism Marketing and Management Hand- 1–13. book, 2nd edn. Prentice-Hall, Hemel Martin, C.A. and Witt, S.F. (1989b) Accuracy of Hempstead, pp. 535–539. econometric forecasts of tourism. Annals of Var, T. (1984) Delphi and GSV techniques in tour- Tourism Research 16(3), 407–428. ism forecasting and policy design. Problems Moeller, G. and Shafer, E.L. (1994) The Delphi of Tourism 3, 41–52. Technique: a tool for long-range travel and Wilson, H. and Keating, B. (1998) Business Fore- 314 S.F. Witt and L. Moutinho

casting, 3rd edn. McGraw Hill, Maidenhead, Experts in Tourism (AIEST) 37th Congress. UK. AIEST, St Gallen, Switzerland, pp. Witt, S.F. (1980) An abstract mode-abstract (desti- 213–221. nation) node model of foreign holiday Witt, S.F. and Witt, C.A. (1995) Forecasting tour- demand. Applied Economics 12(2), ism demand: a review of empirical research. 163–180. International Journal of Forecasting 11, Witt, S.F. and Martin, C.A. (1987) Measuring the 447–475. impacts of mega-events on tourism ﬂows. In: Yong, Y.W., Keng, K.A. and Leng, T.L. (1989) A The Role and Impact of Mega-Events and Delphi forecast for the Singapore tourism Attractions on Regional and National Tour- industry: future scenario and marketing ism Development: Proceedings of implications. International Marketing International Association of Scientiﬁc Review 6(3), 35–46.

13 International Tourism Management

F. Go and L. Moutinho

The focus of this chapter is on the manage- knowledge beyond what is known and ment of tourism organizations in a dynamic deemed to be necessary knowledge by prac- environment. In particular, the competition titioners. For example, with economic and in tourism has traditionally taken place business activity becoming increasingly domestically, where the bulk of the market internationalized, there is a great need for is concentrated. However, the adjective managers of both private and public tourism ‘international’ in the title of this chapter is organizations to interact with the complex relevant because both the domestic and global tourism environment. In the next dec- global environments are intrinsic character- ade, tourism managers will require a global istics of modern industry. More specifically, perspective in order to respond effectively a growing number of local businesses is to being drawn into the global arena for two general reasons. First, rapidly rising costs a myriad of crises, such as overcrowding of and the weakening of growth opportunities tourist attractions, overuse and destruction in ‘slow-growth’ industrialized economies of natural resources, resident-host conflicts, is ‘pushing’ transnational corporations in loss of cultural heritage, increased crime and prostitution, inflation and escalating particular to further their expansion abroad. land costs, and a host of other political, Second, corporations that have their home- socio-cultural, economic and base in North America, Europe and Japan environmental problems that may be are increasingly ‘pulled’ into foreign mar- brought about or exacerbated by tourism kets by growth opportunities, especially in development’ (Theobald, 1994, p. ix). non-Western countries, and linked with network affiliates via global distribution Whereas Witt et al. (1991) surveyed the systems (GDS). management of the international tourism The globalization of the tourism industry environment, primarily by way of the tradi- has several significant strategic implica- tional managerial functions, this chapter tions. It increases competitive pressures by takes a somewhat different approach. It pin- bringing more entrants into the market. It points the globalization of the industry as a increases the complexity of doing business, central issue for tourism organizations and from learning to find and manage employees examines how to organize, integrate and with a diverse background in different coun- manage activities to respond to the simulta- tries to designing and delivering products neous need for a sense of global strategic uniquely suited for special interest travel intent and a sense of localized focus and markets. And it requires new knowledge, i.e. competitiveness. Three earlier works were © CAB International 2000. Strategic Management in Tourism (ed. L. Moutinho) 315 316 F. Go and L. Moutinho

used in preparing this chapter: Go and Pine the existence of different national and (1995) and Go (1994, 1995). intranational tastes, preferences, needs and institutions. In this theory the Japanese have been repeatedly vindicated (Levitt, Globalization of the Travel and 1983, pp. 25–26). Tourism Market The major transnational corporations that are actively involved in travel and tourism The increasing homogenization of customer tend to pursue global markets with standar- needs and lifestyles, the nature of the inter- dized branded products. Where national tourism industry’s macro- international travel is extensive, for exam- environment, which demands a worldwide ple in Europe, a global brand can have a presence, and the development of comput- substantial advantage in that the brand has erized reservation networks have led to a an impact on country visitors through adver- global travel and tourism market. tising and distribution outlets (Aaker, 1991; p. 265). The visitor may be aware of the Telecommunications, television and brand because of the marketing and distribu- international travel have laid the groundwork for a ‘global lifestyle’, tion activities that the international especially in the metropolitan cities of corporations carry out in the visitor’s home industrialized countries. The ﬁlm and country as part of the value chain activities television media deliver the same images that are usually tied to the travel generating throughout the global village. [Air] travel markets. Due to the service nature of the opens the avenues of exchange which has tourism product, the ‘production’ and serv- resulted in a ‘globalized’ market comprised ice delivery have to take place in the of groups of consumers in large traveller’s destination. metropolitan areas, like New York, Day (1990, p. 91) has observed that ‘when Stockholm, and Milan who may show more markets are globalizing then regional dissimilarities than consumers in Manhattan and the Bronx in New York itself (Naisbitt tinctions become important’. In this regard, and Aburdene, 1985, pp. 118–120). it should be observed that there are pitfalls and traps in an approach that overlooks cul- The trend towards globalization in the ser- tural and regional differences but there is vices sector follows the precedent set by danger as well in assuming too much sim- manufacturers who produce their standar- ilarity. Speciﬁcally, the more homogeneous dized products and sell them under a brand consumers’ lifestyles become, the more name on a worldwide basis to reap econo- steadfastly they are likely to cling to deeper mies of scale. The Japanese corporations values and treasure the traditions that spring have been particularly successful in exploit- from within (Naisbitt and Aburdene, 1985, ing global markets by being very p. 120). Furthermore, the needs and prefer- customer-oriented as Levitt observes: ences of customers around the globe will What is distinct about Japan is the simultaneously become more universal and unrelenting drive for economizing and more specialized. Clear cut differences are value-enhancing distinction. And that likely to remain from country to country, but spells everywhere and in everything a drive international corporations will satisfy these for global standardization at high-quality- with adjustments to standardized products levels. The governing theory is that with and services. The homogeneity and special- reasonably restrained concern for ization paradox will allow greater diversity, suitability, if you force costs and prices distinctiveness and uniqueness in customer down and push quality and reliability in all preferences (Hickman and Silva, 1987, p. things up, everywhere around the world customers will prefer your world- 102). Akin to this last observation, it should standardized generic offerings in rising be noted that globalization is not ‘an all or proportions, regardless of what nothing proposition as far as branding is conventional market research and even concerned, [but that it] can involve some common observations may suggest about elements of the brands – the name, the sym- International Tourism Management 317

bol, the slogan, the perceived quality, or the the population in industrialized countries, associations – it need not involve all of the reduction in household size, and a them’ (Aaker, 1991, p. 268). For example, decline in the leisure time of people who the golfing ‘boom’ represents a global market possess the bulk of the discretionary opportunity for corporations that is con- income. strained by the problem of building enough golf courses to accommodate players. While Ageing population the world’s golfing population has doubled, As a result of the increase in life expectancy, the number of golf courses has increased by a larger share of travellers will consist of only 16% (Anon, 1989). older people who are healthy enough, have a The globalization of travel and tourism secure income, and fewer family responsi- increases the complexity of doing business bilities. Though population growth in in that companies have to be able to cater to Europe is close to zero and the propensity the tastes of foreign guests and manage for travel already high, the demand for travel employees in foreign (host) countries and can be anticipated to increase as a function from diverse cultural backgrounds in the of an ageing population. For example, in home country. At a strategic level the global Europe, 20.1% of the population was over market requires travel and tourism compa- 65 in 1980; by the year 2025 that figure will nies to redefine their market and the ways of have risen to 29.2%. Taking into considera- defining and accomplishing work (Mou- tion those aged between 55 and 65, the tinho, 1989, p. 139). number of Europeans who are now part of the ‘mature market’ is about 100 million. The average life expectancy in Europe in The Changing Environment of the 1980 was 72.2 versus 57.3 for the rest of the International Tourism Industry world. The average world life expectancy has now risen to approximately 65.3 and in Slowing population growth rates in devel- Europe to 75.4 (ILO, 1989, p. 73). The ageing oped nations due to a declining fertility rate, population, especially in Europe and North the deferred rate of marriage and rising America, forms a large and affluent potential divorce rates have led to a decline in the travel and leisure market. A larger share of industrialized nations’ share of total world tourists consists of older people. So far, population. Therefore population growth attention in industrialized nations has may become a national priority given the focused largely on the pressures the growing fact that in Western European countries the group of elderly will place on pensions and population is shrinking (Czinkota et al., health care. But in fact the changes to come 1989, p. 631). will range from where seniors will live, The once accepted authority and influ- where they will eat, and what foods they ence of family, religion and political will consume: a market with enormous institutions are being replaced by emancipa- opportunity for the lodging industry. Real tion, a concern for ecology and a growing estate developers are beginning to investi- interest in wellness, health and life-long gate this relatively new but rapidly learning. The international travel and tour- expanding market segment, i.e. the growing ism industry will be the potential need for senior citizen housing. Increasing beneficiary of these trends in increasingly demands from the ageing population pro- diverse lifestyles if it manages to adapt to vide opportunities for private retirement ‘demographic and social shifts (that) are centres, including the new lifecare concept, occurring which will dramatically trans- which has excellent growth potential well form the level and nature of tourism’ into the 21st century. (Ritchie, 1991, p. 152). For the international travel and tourism Household size reduction industry, some of the more significant demo- The trend away from marriage and low pop- graphic changes have included the ageing of ulation growth implies that Western society 318 F. Go and L. Moutinho

will be increasingly influenced and in cer- affect their well-being. tain countries perhaps dominated by The present intellectual revolution in households consisting of singles or couples. society affects the travel and tourism market Smaller households with fewer children in particular. On the one hand, rising urba- will mean different spending patterns, more nization of world populations will increase money to spend on themselves, and poten- the demand for scenic beauty and nature. tially greater mobility to devote to travel and On the other hand, millions of consumers leisure activities. International corporations will put increasing pressure on policy will have to be responsive to, for example, makers and business leaders to preserve the the consumers’ concerns for their physical environment. For example, Aderhold (1992) fitness and state of mind. reported on the growing sensitivity to environmental matters among Germans on Discretionary income in relation to time vacation. Specifically, he indicated that the Conventional wisdom held that the long percentage of German holiday-makers who working hours of the 19th century would noticed problems relating to the environ- decline due to the automation of the work- ment during their holidays doubled place and the influence of unions and that as between 1985 and 1988. a consequence discretionary or leisure time The ‘environment’ has become a mega- would increase for the average worker. force that will influence the type of products Instead, the reverse seems to be happening. the market is likely to want in the future. In America, for example, one survey showed The growing number of consumers who care that: about the environment implies that the international tourism managers have to From 1973 through 1985, the number of demonstrate greater concern about environ- leisure hours available to most Americans mental matters. What has the industry done dropped from 26.2 hours to 17.7 hours a to assure that its actions are environmen- week, a loss of 8.5 hours every week, or one tally compatible? The World Travel and hour and 12 minutes a day . . . Taken Tourism Council established the World together, the number of hours the average American spends at work each week has Travel and Tourism Environment Research increased from 40.6 in 1973 to a current Centre (WTTERC) in 1991 to monitor, assess 48.8, a rise of 8.2 hours a week or one hour and communicate the environmental prac- and 10 minutes a day. One key reason for tices of the travel and tourism industry the dramatic shifts in working hours and (WTTERC, 1994). leisure time can be found in the increasing number of women who are working, now up to an estimated 56% of all adult women. Implications of Shifting Tourist That means that both spouses are spending more time at work and have less time left Demand for leisure. Another is that the country has shifted radically away from blue-collar The mass movement of tourists is a con- production to white-collar service jobs. sequence of contemporary migration Blue-collar hours have remained steady or patterns in industrialized society. Specifi- declined, while white-collar hours of work cally, recreational travel is a function of have risen (Harris, 1987). migration to the city and the commuting resulting from large-scale urbanization and Rising environmental concerns spatial separation of the workplace and the Greater interest in nature and the protection home. Travelling abroad for pleasure pur- of the environment are part of shifting value poses by large numbers of people is a structures and lifestyles in society. For a relatively modern occurrence, dating from growing number of consumers in the indus- the early 19th century. Increased awareness trialized world, quality of life issues have of the outer world in particular, led to an become as important as standard of living increased readiness among the more edu- issues, because the former are perceived to cated groups in society to migrate International Tourism Management 319

temporarily or even on a permanent basis requirements. One now increasingly identi- (Cohen, 1972, p. 197). fies visitor needs and interests as At present, there are a number of sig- fundamental to a continuing research proc- nificant travel demand shifts taking place ess necessary to better understand visitor that will affect the international hotel indus- market segments and their motivations and try, including: behaviours. ● A potential, substantial discontinuity (Crouch and Shaw, 1990, p. 18) of inter- Changing Patterns of Competition national travel flows due to the dramatic changes taking place in Central and The advent of the air transportation industry Eastern Europe and the Asia-Pacific Rim in the post-war era resulted in the inter- region. Increasing numbers of visitors national travel and tourism industry as we from new markets will pose a challenge know it today. It had its origin with Pan for destinations. For example, Asian American Airways’ creation of subsidiary visitors tend to be uncomfortable in a InterContinental Hotels in 1946 to provide completely foreign setting. This recog- its passengers and crews with modern nition has implications for food service, accommodation in Latin America. From language ability of service staff and so these humble beginnings, the hotel group on. was built into a worldwide ‘hotel chain’. ● The ageing populations and the size The expansion of international air trans- reduction of families in the industrial portation and jumbo jets carrying greater countries (where the vast majority of numbers of passengers created shortages of international travellers originate). The quality accommodation in a number of loca- contemporary urban household often tions and accelerated airline involvement in consists of two income earners, includ- the international hotel industry. For exam- ing professional individuals whose jobs ple, in May 1967, Trans World Airlines generally involve longer hours in a high (TWA) purchased Hilton International pressure environment (Lakatos and Van Hotels for US $17 million, making the air- Kralingen, 1985; Gibbs, 1989). line owner of 42 hotels in 28 countries ● The emergence of more demanding cus- (Sampson, 1984, p. 164). And in 1970, a tomers. Greater affluence, higher levels merger was negotiated between Westin of education and more sophistication (then Western International Hotels) and places new demands on traditional United Airlines (UAL) Inc., with Westin travel activities including those involv- continuing to operate as an autonomous, ing attractions, events, shopping and wholly owned subsidiary. dining. Constant renovation of facilities The merger of airlines and hotel com- and upgrading of service to ensure prod- panies and the emergence of motel uct quality are ‘musts’. For example, conglomerates such as Holiday Inns, upscale consumers are searching for Ramada Inns and Quality Inns expedited the new experiences including themed introduction of standardized hotel ‘formu- tours, cruising and all-inclusive las’ and modern travel marketing practices resorts. throughout the world. The internationaliza- The shifts in demand have implications for tion of American-based hotel corporations business travel, pleasure travel, personal had a profound effect on the domestic hotel travel and international travel. Market seg- industries of many countries. Traditionally mentation in the hotel industry has domestic hotel industries which could sur- generally taken place along the dimensions vive in less competitive times depended for of main target markets such as corporate their success on a durable competitive travellers, group travellers, conference advantage. In particular, they operated in a groups, aircrews and leisure travellers. Each defined, usually local, market wherein com- segment typically has its own specific petition was restricted. 320 F. Go and L. Moutinho

For instance, Tideman (1987, p. 1) established international tourism organiza- chronicled the significant change in the tions with a large network in place are likely Dutch Hotel industry when the Hilton Inter- to focus more and more on system coordina- national hotel in Amsterdam opened in tion to remain competitive by improving 1962. It was the first foreign-owned and communications and cost control. operated hotel in The Netherlands and the The above example draws together the forerunner of an ‘invasion’ of international basic ideas of the evolving globalization and hotel chains. During the next quarter of a industry structure in the travel and tourism century, other foreign-owned and operated sector. Most independently owned enterpri- hotel companies penetrated the Dutch hotel ses are local in nature, whereas many of the market, despite the resistance and compet- larger chain-operated corporations are itive counter measures of Dutch hoteliers. In active on the global level. There is, there- 1987, the five largest hotels (measured by fore, a need among independently owned rooms count) in The Netherlands were all enterprises to be either unique and excel in owned and operated by corporations based what they do, or become affiliated with a in foreign countries. By comparison, the global external network (alternatively an Grand Hotel Krasnapolsky in Amsterdam independently owned enterprise can with 364 rooms was the largest domestically expand into a corporate chain). owned and operated hotel company in The Netherlands, but ranked only sixth in terms Competitive scenarios of size. The pattern of international competition dif- The invasion of foreign hotel chains fers from industry to industry. However, resulted in a competitive response by Dutch Porter describes the generic pattern of inter- hoteliers who banded together and, with the national competition as follows: help of KLM (Royal Dutch Airlines), established the Golden Tulip Hotels Company. In At one end of the spectrum, international essence, the Golden Tulip Hotels Company competition takes a form that can be termed allows independently owned domestic local, i.e. competition takes place on a hotels to function more effectively under a country by country basis. Some competitors brand name and through a reservations sys- may be multinational firms, but their tem. The Golden Tulip Hotels brand and its competitive advantages are largely confined referral system has been successful both in to each country in which they compete (Porter, 1990, p. 53). The Netherlands and abroad due, to a great extent, to its link with KLM, the Dutch At the other end of the spectrum are global national air carrier (Tideman, 1987, pp. 1, industries, in which a firm’s competitive 12). position in one nation significantly affects Due to the internationalization of the (and is affected by) its position in other economy and business activity, the competi- nations. Rivals compete against each other tion in the tourism industry has shifted from on a truly worldwide basis, drawing on the local level to the global level. This devel- competitive advantages that grow out of opment influences to a significant extent the their entire network of worldwide strategic decision process of both independ- activities. Firms combine advantages ent tourism operators and international created at their home based with others that result from a presence in many nations, tourism organizations. Independent and, for such as economies of scale, the ability to the most part, local tourism organizations serve multinational customers, and a will increasingly attempt to become part of a transferable brand reputation . . . Industries network to benefit from the scale effects have increasingly become global in the brought about by configuration to ensure post-World War II period (Porter, 1990, p. survival. The application of the principle of 53). configuration has been illustrated by, for example, the formation of referral and fran- Although there is no conceptual difference chise systems. On the other hand, in strategic management for domestic or International Tourism Management 321

international hotel firms, managers need a share, or worse the opportunity to survive. global mindset because the world-class service organizations offer a competitive benchmark, whereas traditional service The Technological Environment firms of the ‘Available for service’ and ‘Jour- neyman’ types proposed by Chase and Historically, new technology has been Hayes (1991) offer little inspiration for developed with the goal of improving pro- building competitiveness. ductivity and lowering the cost of To achieve a competitive advantage, production. This trend is likely to continue, international tourism managers have to as new innovations and technologies are ‘craft’ an appropriate strategy and then combined with those of the industrial revo- implement this strategy through an effective lution. For managers, it will be important to structural process. The latter stage tends to envisage the type and degree of change and be the more complex of the two stages in that to take steps, within the international tour- it requires leadership and skilled and com- ism sector, to anticipate such change. In the mitted workers. International tourism technological environment, the speed of managers may be aware of global compet- new transportation modes and advances of itive benchmarks in the formulation of information technologies are especially rel- strategy. But the organizational structure evant to international tourism. required to implement the strategy leaves International tourism managers who much to be desired, that is, if the findings in embrace new information technology by one study of the international hotel industry actively participating in the technology (Go and Pine, 1995) can be considered repre- planning process will be able to identify sentative of organizational structure in the new uses of technologies and manage them tourism sector. for improved competitive advantage. As the In general, small business operators have focus of research shifts from creating tech- little, if any, awareness of global standards. nology that improves business efficiency to Hence, their performance expectation is identifying innovative technology applica- usually based on local competitive bench- tions that will enhance the traveller’s marks. Ideally, international tourism experience, managers have to gain an in- managers should think globally and train depth understanding of the key attributes of their staff according to global standards customers, competitors, and the strengths which lead to world-class service and excel- and weaknesses of the company. Only by lent performance. However, their traditional understanding the market will the managers administrative heritage prevents all but the be able to determine business needs and the managers of the leading international tour- potential use of technology. ism companies to compete on a world-class level. Due to fierce competition and limited resources, domestic tourism organizations find the ‘internationalization’ process slow Structural Dynamics of the and difficult. International Tourism Industry In summary, international tourism managers who may have developed appropriate The significant relationship between indus- strategies but lack an internal process, can- try structure and the market has been not expect to make progress towards the discussed elsewhere against the backdrop of world-class service organization model pro- the historical evolution of economic market posed by Chase and Hayes (1991). Given the theory (de Jong, 1985). Within this frame- fierce competition in international tourism, work, human economic activities are managers should invest in those means that characterized by the ‘art of acquisition’. In will help improve their organizational capa- order to acquire profits or ownership of bility and hence the management of process another firm, a commercial organization in their companies, or risk losing market must compete in the market; which means, 322 F. Go and L. Moutinho

according to Stigler (1965, p. 235), ‘rivalry is value chain’ (Porter, 1990). The way in a race – a race to get limited supplies or a which one activity within the value chain is race to be rid of excess supplies. Competi- performed affects the cost or effectiveness of tion is a process of responding to a new force other activities. and a method of reaching a new equilib- In an increasingly complex and changing rium.’ Resistance on the part of traditional environment, international tourism organi- international hotel firms to meet new chal- zations cannot effectively compete through lenges, specifically their (i) high cost structures that are uni-dimensional and compared with substitute products and static. But how can managers develop the budget type hotels; (ii) inflexibility in organ- organizational structures, processes, and ization; and (iii) inflexibility in corporate perspectives to implement the strategic strategy, could cause organizational decline. capability to achieve competitive advantage In turn, organizational inflexibility might that is broad-based, as opposed to uni- inhibit the capacity of hotel firms to success- dimensional based? What model is designed fully adapt to human attitudes, (consumer) to develop the kind of organization that behaviour and civilization shaped by socie- embraces change and complexity? Which tal structures which in turn are determined organizational configuration of assets and by the production preconditions. Or to sum- resources is optimally responsive to the marize Schumpeter’s theoretical shifting distribution of roles and relation- propositions as cited by de Jong (1985, p. ships and the different set of management 53): (i) production preconditions determine skills and capability needed in an environ- fundamental societal structures; and (ii) ment that demands a sensitivity of managers process determines structure. both on the global and local levels? Galbraith (de Jong, 1985, p. 63) viewed In order to function effectively in the the pressures applied by consumers and integrated network in the fast-moving, com- suppliers respectively as a ‘countervailing petitive market requires an organizational power’ in the world of oligopolistic enter- structure like the ‘transnational model’ (Bar- prises. For example, the large hotel chains tlett and Ghoshal, 1989) which incorporates have been considered to take on, in effect, an a much more flexible management mentality internationally functioning competitive oli- than the one which dominates the tradi- gopoly which operates only on the local tional organizational hierarchy typically market concerned (Go and Welch, 1991, p. encountered in international tourism orga- 91). J.S. Bain was a proponent of the ‘indus- nizations. trial organization theory’. According to A transnational model (Bartlett and Gho- Bain, three elements determine the market shal, 1989, p. 6) relevant to the international structure in particular, namely: (i) the level tourism organization emerged in the 1990s, of industry concentration; (ii) the entry con- characterized by: (i) the distribution of spe- ditions or barriers to the industry in cialized resources and capabilities through question; and (iii) product differentiation an integrated network; (ii) the coordination (de Jong, 1985, p. 73). The aforementioned of flaws of products, resources and informa- economic theories lead to an overview of the tion across interdependent units; and (iii) a theory of competitive advantage. management mentality which treats world- Studies of large multinational firms in the wide tourism operations as an integrated 1970s have shown that these corporations and interdependent strategic network. The typically compete in domestic and inter- transnational organization model is signifi- national markets on the basis of competitive cant in relation to the international tourism advantage. The competitive advantage the- industry because it enables international ory offers a perspective on business strategy tourism organizations to balance global that facilitates analysis of the competitive reach and local adaptability. The latter is environment. The key factors for success of important in that it allows international different industries lie in different produc- tourism organizations to develop an optimal tion functions ‘at different points along the strategy (between adapting completely to International Tourism Management 323 each local environment and standardizing Integrated Networks across them) for arriving at an integrated, sustainable and profitable operation. The greater importance of information and ‘The network avoids the problems of knowledge transactions in the international duplication of effort, inefficiency and resist- tourism industry will require managers to ance to change to ideas developed elsewhere extend their horizons well beyond the tradi- by giving subsidiaries the latitude, the tional trade channels of distribution. Fierce encouragement, and tools to pursue local inter-industry competition caused in partic- business development within the frame- ular by technological change and the work of the global strategy’ (Czinkota et al., subsequent reassessment of business strate- 1989, p. 609). The main tool for implement- gies has encouraged leading international ing this approach is to develop international tourism organizations to target their services teams of managers who meet regularly to to specific user groups by complementing develop strategy. the services performed by ‘mega’ industries. For international tourism organizations The result is the emerging networking of with the ambition to stay in or join the inter- international tourism organizations with, for national arena, the central issue is how to example, telecommunications, banking, organize, integrate and manage their activ- finance, training and education organiza- ities to respectively remain or become tions. This dynamic network has been successful international players. This is par- formally defined as ‘an organizational archi- ticularly true of tourism organizations that tecture that accommodates constant and have overseas expansion potential but are accelerating change while at the same time beginning to comprehend that constructing, stimulating components of the corporate operating and controlling offshore proper- environment to build deep and lasting rela- ties does not necessarily mean they are tionships’ (Hickman and Silva, 1987, p. 210). equipped to compete effectively on a global While service companies used to have a basis. Increasingly, the issue of global supporting role in the facilitation of eco- expansion deals with a series of differentia- nomic transactions in the past, they tion and integration decisions. increasingly tend to take on a transactions On one hand, international tourism orga- determining role (de Jong, 1985, p. 9) and a nizations have a clear need for a sense of strategic significance. For instance, the plan- global strategic intent, or for broad-based ning and building of commercial resource, training and marketing allocation accommodation in a tourist destination schemes. On the other hand, international determines to a great extent the type of tour- tourism managers’ views must be ‘tuned-in’ ist market this destination will attract in the to local issues, for instance the availability future. of sites for tourism development in desirable Due to the scarcity of required expertise, locations or understanding the grievances of the high development and operations costs, a host population which is against inter- and the risk factors in the restructuring of national tourism development because of its the international tourism organizations, it is perceived negative impact on their commu- becoming more common for international nity. Since community demands for active tourism organizations to seek long-term participation in the setting of the tourism relationships with production, research and agenda and its priorities for tourism devel- marketing groups around the world. An opment and management cannot be ignored integrated network of relations between (Ritchie, 1991, p. 151), astute international service providers is emerging based on for- tourism organizations will become more mal agreements to cooperate with one sensitive to the local community in which another by contributing specific knowledge they (wish to) operate and compete. In addi- and information that are complementary. tion, they must be able to deal effectively This type of cooperation does not take the with cultural conditions and different form of a merger or a joint venture but is behavioural values. rather a limited involvement of the parties 324 F. Go and L. Moutinho

designed to solve knowledge and To continue with old ways in the globalized information-related problems through the environment is a blueprint for potential assistance and contribution of organizations disaster. which for instance know and understand Up to now, knowledge about the home local markets (Van Rietbergen et al., 1990, p. market was sufficient to survive. On another 214). Thus, each of these service providers level, technical knowledge was often con- in the network contributes specific core sidered to be more important than the competencies to the value chain on a short- management of information. This is no term or long-term basis. Following this train longer the case, because in the international of thought, the international tourism organi- operating environment new ideas and new zations should therefore be viewed as ways of thinking about problems are deriving value-added services to a lesser required as successful business strategies, extent from traditional functions and to an designed to sustain a competitive advan- increasingly greater extent from those func- tage, result from a particular state of mind tions that arrange and maintain transactions (Ohmae, 1982, p. 4). in integrated networks (de Jong, 1985, p. 8). Astute managers will detect emerging These networks are designed to build the opportunities in the changing environment. central competitive advantage of the 1990s: Specifically, in today’s information society, superior execution in a volatile environ- the modern international tourism organiza- ment. No traditional corporate structure, tion can be viewed to derive less from regardless of how de-cluttered or delayered traditional production functions and more it is, can compare with the speed and flex- from a portfolio of core competencies and ibility of networks (Charan, 1991, pp. encompassing value-creating disciplines. 104–105). Network effects create important The skills-based view of the international opportunities for gaining competitive tourism organization is based on these core advantage in the hotel industry in which the competencies and value-creating disci- basic service consists of linking buyers, sell- plines which allow a product to be delivered ers and third parties. to customers at the best possible price/ performance trade-off (Hamel, 1991), and which form, for example, the raison d’être Strategic Change, Challenges and for the multinational tourism organization Opportunities (Caves, 1971; Buckley and Casson, 1985). Conceiving of the international tourism Strategy and organization are key determi- organization as a portfolio of core compet- nants of business performance and are, at encies and value-creating disciplines least to some degree, subject to managerial implies that ‘inter-firm competition, as influence. A concern of this chapter has opposed to inter-product competition, is been to identify business strategies and orga- essentially concerned with the acquisition nizational structures which tourism of skills’ (Hamel, 1991). enterprises need to effectively cope with To take advantage of new opportunities change, risk and uncertainty inherent in the and build competitive advantage, interna- international business environment. tional tourism organizations have to To a certain extent, international tourism develop three diverse and often conflicting organizations are captives of their past in strategic capabilities simultaneously to that their organizations affect managers’ meet three major challenges: abilities to develop appropriate responses to changing environmental forces. Interna- ● The multinational flexibility to respond tional tourism managers often face change to diverse, local market needs. with reluctance. Such managers may think ● The global competitiveness to capture that they are making the necessary changes efficiencies of scale. when in actual fact they are rearranging ● The international learning ability that things through actions like reorganizations. results in worldwide innovation. International Tourism Management 325

Consequently, international tourism man- income countries, and marketing issues in agement should be, among other things, ‘the Central and Eastern Europe. The second adaptation of the organization to the chan- process is skills-based and encompasses ges of the outside world. An adaptation that broadly intercultural negotiating skills, the is not passive and is forced by circumstan- ability to read different markets in different ces but active, creating new answers and contexts and understand comparative poli- formulae suited to new situations’ (Cassee, tics (de Wilde, 1991, pp. 41–44). 1983, p. xv). The globalization of travel and tourism is underway. Some international tourism Implementing international tourism strategies managers may ask if it is a fad or the initial The present shift, especially in the indus- phase of a long-lasting, important shift in trialized countries, from a resource-based international tourism. The unabated expan- and labour intensive economy to one that is sion and cumulative effects of information knowledge intensive rigorously challenges technology, development of global capital the current acting and thinking of interna- markets, and generation of exports-oriented tional tourism managers. Traditionally, businesses (de Wilde, 1991, p. 41) suggest tourism-related services have been classified that globalization is here to stay. as convenience services, as opposed to Amid signs that the future will be more knowledge services (Tettero and Viehoff, unpredictable and unstable, there is the cer- 1990). But as organizations prepare for the tainty that value-creation for international global economy and resources are being shif- tourism managers will remain a priority on ted out of low-wage activities into higher the agenda of consumers and organizations value-added activities where advanced tech- alike. One of the main themes throughout nology, knowledge and service provide a this chapter has been that value creation in competitive edge, the continued prosperity travel and tourism is derived from the abil- of international tourism will depend largely ity to cooperate and learn collectively in a on well-educated human talent; particularly transnational network. The implementation managers who are able to think, weigh and of effective international tourism strategies judge critical issues in addition to rendering implies the need for creating and sustaining quality service (Grönroos, 1989). value for consumers, corporate stakeholders In order to implement international tour- and the host community. In turn, this may ism strategies effectively practitioners have require the upgrading of management to be able to perform in world where US expertise in some cases, and in other cases dominance has waned, Japan’s rapid expan- the present incumbents may not be capable sion has plateaued, Europe may experience of meeting the challenge. Within the value- a renaissance, and East Asia and Eastern added context, the cultivation of Europe represent to a lesser and greater competencies and capabilities is moving extent, respectively, the ‘wild cards’. from the realm of corporate philanthropy to The successful implementation of inter- the realm of productivity. When that dis- national tourism management will be based tinction is linked to rising competitive on two learning processes (de Wilde, 1991). pressures and labour shortages, the travel The ﬁrst is conceptual in nature and is and tourism sector should have an incentive addressed in terms of the way issues change to support international tourism manage- as a result of the global economy. Some ment education, training and research examples of such conceptual issues include, initiatives. but are not limited to the following: global competitive strategy and strategic alliances, organizational development and perform- New Directions for the Hospitality ance in global markets, segmentation and Industry target marketing, researching differences between global and domestic markets, The hospitality industry, which may be marketing strategies for middle and higher viewed as an important element of the tour- 326 F. Go and L. Moutinho

ism sector, has evolved in the post war While the following trends are by no means period towards consolidation and interna- exhaustive, we believe that they represent tionalization. In the UK, for example, public the most important and pressing issues fac- companies have progressively become the ing the global hospitality industry. major owners of hotels. The same is true in the USA and to a lesser extent in continental The asset evolution phenomenon Europe. The economies of scale that may The hospitality industry of the early 1980s accrue through their multiple units and the was characterized as a heavily asset-based financial and managerial expertise they can industry with a large part of world hospital- muster, means that the emerging larger orga- ity assets being concentrated in the hands of nizations have the ability to grow even a few, powerful hospitality firms. The sec- larger and at a faster rate within the market- ond half of the 1980s, however, saw what place. Therefore, hotel consolidation may be has been called the ‘asset evolution phe- defined as the growing concentration of nomenon’ (see Box 13.1). By this we refer to rooms and marketing expertise in the hands the situation whereby US hospitality firms of relatively few, large organizations whose have all but relinquished their assets. The international, multi-site operations have the US hospitality industry is no longer an capability of attracting a broad customer asset-based industry, but rather a manage- base (Go, 1989). In other words, consolida- ment contract-based industry. In order to tion is the amalgamation, or association of meet unrealistic pressure from the capital different companies in one or many indus- markets for continued bottom-line growth, tries. It is the fusion of ownership, US hospitality organizations were forced to management and expertise that occurs as a pursue a strategy of asset liquidation. The result of the structure of the industry, or that buyers of those assets were predominantly is initiated as the strategy to gain marketing the Japanese and British. ‘strength’. Within this context, the emergence of European harmonization raises a query of Box 13.1. The asset evolution phenomenon. strategic importance, namely: ‘How can a standardized product be packaged, branded ● Japanese: Long-term asset appreciation and distributed as effectively in export mar- and concentration kets as at home?’ While trends reveal that ● European: Asset accumulation. More the main players of public hotel manage- difficult to get adequate return ment groups and marketing consortia ● USA: Asset liquidation. Growth in appear to be gaining an increased compet- management contracts itive advantage, it should be noted that the ● Asia: Asset acquisition European market is very fragmented and offers smaller hospitality firms the opportunity to build on the existing divergence of The Japanese are clearly pursuing a strat- customs, traditions and preferences within egy of asset appreciation. They are investing the marketplace. This chapter attempts to strategically; i.e. on a long-term basis. The identify the most important and pressing Japanese tend to buy quietly and moder- issues facing the global hospitality industry ately. However, we have recently witnessed and the marketing implications related to Japanese investors paying well above mar- contemporary structural changes. ket price for individual hotel properties. By suddenly purchasing a property above market price the Japanese investor is Strategic Thinking consciously raising the value of all other properties in his or her portfolio which sig- There are a number of issues which are pre- nificantly raises the value of the total asset dicted to have a major impact on the holdings and in turn provides him or her hospitality industry of the 21st century. with much greater leverage in the market- International Tourism Management 327

place. This leverage permits further benefits. This, in turn, will only come about acquisition of properties. when lodging organizations employ more It should be noted, however, that the Jap- sophisticated methods of segmentation, i.e. anese are not the only major Far Eastern a move beyond purely descriptive methods investors with interests in the hospitality of segmentation to behavioural, psycho- industry. Many other Asian corporations, graphic methods of segmentation. especially those originating from the newly In connection with the proliferation of industrialized nations (NICs) have been brands, we predict an increase in the use of actively pursuing strategies of asset acquisi- focus or concentrated growth strategies. By tion in the industry. this we mean that growth for its own sake is no longer feasible, as demonstrated by the The technological flood case of Holiday Corporation. Rather, organizations will focus on what they do best. The hospitality industry has been trans- Marriott’s recent divesture of its restaurant formed into a more technology-oriented division is evidence of this trend. There will industry. One only has to look at the evolu- be a focus approach to global brand pro- tion of the ‘smart hotel room’, with its use of liferation. fibre optics for video check-out facilities, for In future we will see a continuous stream evidence of the emerging emphasis on tech- of attempts by major hospitality corpora- nology. The Japanese have even gone as far tions to become ‘closer to the customer’. as to develop a ‘litmus paper toilet’ which Customer expectations of service will raise. allows a guest, by observing the colour of the Some suggest that service, not price, is now litmus paper automatically injected into the the dominant differentiating factor. toilet basin he or she has just used, to deter- In an attempt to provide more effective mine his or her biomedical status. and efficient service some predict an increase in expenditures by hospitality cor- Marketing and technology porations on product design. Product Attempts by lodging organizations to pursue innovation will result in the introduction of branding strategies are visible and indica- new products ranging from the smart hotel tive of the product-orientation of many room, to the use of computerized touch- organizations as well as their use of descrip- screen systems. Such touch-screens tive criteria for segmentation purposes. effectively eliminate all contact with any Branding, as currently practised, is a result service personnel by allowing the customer of product segmentation. Many of the to select his or her choice of items by simply attempts at branding in the lodging industry touching the appropriate selection dis- were developed to create brand awareness, played on the VDU screen. recognition, and ultimately brand loyalty by Technology will also affect the control of maximizing brand switching costs. Unfortu- industry capacity. We will see the growth of nately, the product orientation driving the what we term ‘mega-systems’ consisting of whole branding issue has led to customer several interchange systems between vari- confusion. Differentiation through the use of ous components of the hospitality industry. brands in the lodging industry has all but An excellent example of an attempt at the become meaningless, for it does not clarify introduction of such a system was Rupert customer confusion but only serves to Murdoch’s venture with ‘UltraSwitch’, enhance it, the very problem it was designed which is an international network linking to eradicate! We predict a greater emphasis travel agencies, hotel and airline reservation on a truly market orientation to branding systems through a satellite communication which will involve the development and network. The major issue arising out of this implementation of strong positioning state- growth in mega-systems is who will control ments, creation of well-defined images, the industry capacity? Unless closely super- determination of benefits sought by the con- vised, such systems will effectively take the sumer, and the differentiation of those control of industry capacity out of the hands 328 F. Go and L. Moutinho

of the organizations that actually provide address in the future. the capacity. The workforce of the 21st century will be more demanding. By this we mean that The labour issue employees will expect more of their employ- Management culture in the hospitality ers. The role of the institutions of higher industry is rooted in the ‘how-to’ side of the learning in the hospitality field should be to business, as opposed to the behavioural furnish students with an ability to critically side. Traditionally, hospitality managers analyse what they read and see with think- have been very task-oriented and practice ing skills, not just technical skills. reactive, as opposed to proactive, management styles. If hospitality management is Geopolitical–legal issues truly to come of age, we need to pay increas- Democratization in Eastern Europe and the ing amounts of attention to developing a former Soviet Union during the past decade more behaviourally oriented manager. It is worked well for the hospitality industry, only through the development of such an initially in the form of joint ventures. How- individual that corporations will be able to ever, the vast market potential that exists for successfully pursue a strategy of differentia- the hospitality industry in Eastern Europe is tion through service. We still have an somewhat tainted by poor infrastructure abundance of needs to address in the area of and poor, if existent, tourism organizations. multicultural management. The impact of the NICs has also yet to be In terms of labour supply, we see a grow- determined. Recent events seem to indicate ing similarity between the situation of the that these countries will experiment with Western and Eastern worlds. In the West service industries far earlier in their eco- changing demographics have led to a labour nomic development than did Japan. shortage. In the USA for example, on any Hospitality organizations need to be poised given working day, it is estimated that just to take advantage of this trend, should it above 20% of positions go unfilled, or filled emerge with force. unsatisfactorily, due to a lack of available It is predicted that government regulation labour. The East has traditionally had an will continue to be an important aspect of abundance of labour and has, as a direct the hospitality industry for several reasons. result of labour supply outstripping labour Perhaps the two most important reasons are demand, been able to produce the levels of (i) the pollution aspect; and (ii) the issue of service for which Far Eastern hotels have industry capacity control. Both these issues become famous. It is predicted, however, will become volatile areas of debate and that in the future we will see the beginning legislation. Evidence clearly suggests that of some intense competition for labour in money is becoming multinational in nature. several Far Eastern countries with a result- Since the early 1970s, the industrialized ing lowering of the service level offered by nations of the world have steadily lifted reg- hospitality organizations in these coun- ulatory restrictions on international capital tries. flows and on foreign participation in domes- As the hospitality industry becomes tic financial markets. At the same time that more and more global in its focus, we need governments have been liberalizing their to devote increasing amounts of attention trade and foreign investment policies, tele- and resources to educating (not training), communications have provided individuals to be aware of, and adapt to, the instantaneous transmission and processing multicultural nature of the industry. The of information around the globe. Capital ‘imprinting’ of one’s own culture will no now moves swiftly across borders because longer be acceptable either to host countries technological changes have reduced trans- in which a hospitality organization oper- action costs associated with global arbitrage. ates, or to customers of varied nationalities This recent globilization of capital markets and beliefs. Multicultural education and has radically altered the way lodging and training is a major issue that we need to other real estate properties are funded. International Tourism Management 329

Today, the global integration of capital mar- companies cannot meet the value based kets has widened the gap between real needs of customers. They require the tech- properties and their financing sources. The nology and skills of others to meet such globilization of finance may represent the needs. Strategic alliances allow companies final outcome in a gradual process of fund- to focus their attention on the areas in which ing sources and property. Today, debt and they are to add the most value per unit of equity capital for hotel investments ema- input, compete for the world’s best talent in nates principally from seven geographical a given activity, and make their organiza- regions: Asia (Hong Kong, Taiwan, Korea), tional structure ‘leaner’ (Quinn et al., 1990, Australia, Europe, Canada, the Middle East, p. 66). Japan and India. Strategic alliances are also exemplified, at the strategic level of organizations, by the growth in consortia-type organizations such Strategies for Global Hospitality as Best Western and Consort. In the simplest Firms of the 2000s form of this strategy, firms are tied together by a common reservation and marketing sys- In an attempt to adjust to, and take advan- tem. While the physical product may not be tage of these trends in the global hospitality standardized, attempts are made by partici- industry, hospitality firms have little choice pating organizations to standardize quality. but to follow either a strategy of concentra- The mainstay of this type of strategic alli- tion or a strategy of diversification. A ance has been the small independent concentrated growth strategy implies that a operator. Strategic alliances are increasingly firm will direct its resources to the profitable evident through inter-company cooperative growth of a single product, in a single mar- link-ups for marketing purposes. For exam- ket, with a single dominant technology. The ple, Radisson opted for a strategic alliance majority of major companies appear to fol- with SAS International Hotels, Movenpick low an overall strategy of concentrated Hotels and Park Lane Hotels in Hong Kong. growth. Market developments will force An alliance with partners based in different most small and medium size enterprises continents allows individual partners a new (SME) to opt also for either a concentrated logic for management action, in that their strategy, for example by joining a franchisor focus can switch to maximizing the mar- or consortium or a diversification strategy. ginal sales contribution to fixed costs. At the We shall address the latter issue later on. same time, the strategic alliance addresses In the hospitality industry, there appear the global issue of global marketing as Radis- to be several forms of concentrated growth son distributes the Movenpick, SAS as practised by the major corporations. International Hotels and Park Lane Hotels These forms are strategic alliances, franchis- products in North America, and vice versa. ing, management contracts, joint ventures A more complex type of strategic alliance is and acquisition. All five of these strategic best exemplified by the Radisson Hotel forms reflect the unique nature of the hospi- Company affiliating with Movenpick tality industry’s almost pure competitive (Swiss), SAS (Scandinavian), Park Lane status. Each will now be discussed in turn. (Hong Kong), Commonwealth Hospitality of Canada, and Pacific Rim Leisure (Australia) Strategic alliances in order to better promote its product Strategic alliances may be defined as ‘orga- worldwide. nizational arrangements and operating The second type of alliance takes place at policies through which separate organiza- an operational level and is best exemplified tions share administrative authority, form by the concept of cross-franchising which is social links through more open ended con- defined as the process of two organizations tractual arrangements as opposed to very with different products but similar manage- specific, arm’s length contracts’ (Bardar- ment styles or philosophies joining forces acco, 1991). Within the global market under one roof with the intention of reduc- 330 F. Go and L. Moutinho

ing overheads and increasing profits. Three provide the capital; (ii) the franchisor does versions of cross-franchising can be seen: (i) not have to endure alone the various prob- where one franchisee becomes a franchisee lems associated with regulations and of another company; (ii) where there is a licensing activities required by many combination of units offering signature nations; and (iii) the franchisor does not items within the same company; and (iii) have to engage in extensive site selection where there is a combination of units featur- activities in relatively unknown territories. ing signature items of companies not in the Despite these advantages of franchising as a same organization. form of growth, there are several concerns The strength of strategic alliances as a which the franchisor ought not to ignore. form of concentrated growth lies in the fact These include: (i) the selection and structure that it can rapidly take advantage of the of organization of the franchise; (ii) the brand recognition of several multinational nature of the relationship between the fran- firms. This is especially important in today’s chisor and the host government; and (iii) the operating environment where it is becoming ability to control standards and operational increasingly difficult to harness the capital procedures of the franchisee. for international expansion. Entering into an The franchise method can be implemen- alliance of the type described here requires ted as simply as one firm with one unit little capital but produces substantial bene- licensed from a franchisor or it can be as fits such as (i) the spreading of marketing complex as master regional franchises. This costs over a larger base; (ii) a reduction in the is where one firm has the rights to expand potential problem of acquiring labour and the brand throughout an area or region of the management expertise; and (iii) a minimiza- world. Quality International has used the tion of the problems associated with any master regional franchise extensively in multicultural difference that might be order to expand internationally, while Days encountered by an organization when seek- Inns in India have used the concept in con- ing to expand into a new geographical part junction with the establishment of of the world. partnerships thus necessitating little or no In what is becoming an increasingly equity on their part. fierce saturated and competitive operating We believe that the growth in franchising environment, hospitality organizations are as a form of international expansion is having to join forces to ensure they harness directly related to the brand proliferation the necessary resources, both financial and evident in the international hospitality non-financial, to penetrate the marketplace. industry. Many organizations believe that We believe that the 21st century will see an brand awareness, recognition and loyalty increase in both the number and the type of are the keys to maintaining and increasing strategic alliances in the hospitality indus- market share in this industry. By franchis- try. Alliances will no longer be confined to ing, organizations are able to effectively companies operating in the same industry implant their brand into any given location joining together, as in the case of Radisson with few, if any, changes to the general outlined above. Rather we will see an concept. increase in strategic alliances between syn- ergistically related organizations such as car Management contracts rental organizations, life insurance compa- One of the most popular and most prevalent nies, airlines and lodging corporations. forms of international growth by hospitality organizations is through the use of the man- Franchising agement contract method. A management This form of growth is one of the most pop- contract is an agreement between a hotel ular and preferred methods of growth for owner and a hotel operating company, by international hospitality organizations. The which the owner employs the operator as an reasons for the popularity of franchising are agent to assume full responsibility for the numerous: (i) the franchisor seldom has to management of the property in a profes- International Tourism Management 331

sional manner. As an agent, the operator investment with the majority of the capital pays, in the name of the owners, all property risk being shouldered by independent busi- and operating expenses from the cash flow nesses which come together primarily for generated through operations, retains its marketing purposes. management fees, and remits cash flows, if any, to the owner. The owner provides the Acquisition hotel land, building, furniture, furnishings The last decade has seen a tremendous and equipment, and working capital, while growth in the number of acquisitions in the assuming full legal and financial responsi- international hospitality industry. The fact bility for the hotel. Hyatt International, that the five largest hospitality organizations Hilton International, Marriott, SARA, Nikko in the world control over 1% of hospitality and Holiday are perhaps the best known market demand, in conjunction with other examples of management contract compa- market factors, has led to an increase in the nies. Expansion through management number of acquisitions in the global hospi- contracts is also one of the common meth- tality industry. Examples of the increases in ods of expansion used by large acquisitions include Ladbroke Ltd’s acquisi- multinational food service companies such tion of Hilton International Co. from Allegis as Marriott, Trusthouse Forte and ARA. Corporation and Grand Metropolitan’s The greatest advantage of the manage- acquisition of Pillsbury and its Burger King ment contract is that it allows rapid subsidiary. expansion and easy market penetration with Based on historic and current trends in little or no capital from the investor or devel- acquisition activity worldwide, and based oper of the asset itself. Occasionally the on current and projected market conditions, management firm will adopt an equity inter- it is predicted that there will be a continued est in the business. Some management firms growth in horizontal integration, geographic have also engaged in the development of a diversification, and forward integration. In property only to sell that property once it addition a decline in acquisition involving has been fully developed. backward integration and conglomerate diversification is predicted. Joint ventures The joint venture has proved to be a popular With international expansion forming a sub- growth vehicle for those firms with substan- stantial part of the strategic agenda’s of tial financial resources. The development of today’s hospitality corporations, scanning both local and global partners has brought the environment for trends that dictate stra- together such firms as SAS and Saison of tegic postures is a necessary and vital part of Japan as they plan to grow their Interconti- strategic hospitality management. nental chain worldwide. Additional joint ventures include World International and Wharf Holding with their purchase of the The diversification issue Omni chain, and the Ritzker family of Chi- What does the trend towards concentration cago and William Hunt Holdings of Hong imply for SMEs? Will standardization lead Kong with their purchase of the Southern to complete uniformity in the international Pacific Hotel Corporation of Australia. tourism industry? We think not for several The joint venture strategy has usually reasons. First, the decision on standardiza- taken the form of a large real estate tion is not a dichotomous one between developer/holder and a hospitality/travel- complete standardization and customiza- related firm joining forces. Investors are tion; rather there can be degrees of usually global in nature and oriented to standardization. Several authors have holding assets which can provide them with argued that standardization is almost a given long-term appreciation. The joint venture for countries that are economically similar. differs from the other three strategies dis- If one accepts this assumption, standardiza- cussed in that it concentrates on low capital tion should be rife across the USA, Western 332 F. Go and L. Moutinho

Europe and Japanese hospitality industries. The process of networking and collabora- This is clearly not the case. tion is also reflected in the proliferation of Second, the globe is, and will remain, a publications on aspects of interorganiza- culturally diverse place. Even within con- tional relations (Burt, 1997; Uzzi, 1997; tinents such as North America or Europe Gulati, 1998). Through the value network there remain as many cultures as there are (Stabell and Fjeldstad, 1998) SMEs will be states or countries. In Europe, for example, able to create competitive advantage hospitality marketers would be foolish not through the access, control and coordina- to take different backgrounds into account tion of information, the stimulation of in the formulation and implementation of creativity through co-innovation and the their marketing strategies, despite the cur- strategic collaboration of other firms (Dyer rent popularity of referring to Europe as if it and Singh, 1998). The ‘consumer driven were going to be a single uniform entity. value chain’ was introduced by Go et al. Values that are important to one culture may (1999) as an organizational structure for mean little to another. The potential con- SMEs to bundle and build the organizational flicts that may arise from such a situation capability that results in the creation of become more intense in an industry that added value. sells very personal services to a diversified clientele. Different cultures reflect different beliefs, attitudes, motivations, moralities, Concluding Remarks perceptions and rituals. Although precon- ceived notions of what the hospitality This chapter, although by no means exhaus- industry wants may be discrepant with the tive, has attempted to cover several trends guests’ own notions in any country, they can that we believe should be taken into account result in disaster when marketing to differ- by hospitality corporations when they are ent cultures. Therefore, it can be stated that formulating and implementing their global cultural differences have a tremendous strategies. While concentration strategy impact on marketing mix decisions in hospi- seems to rule today’s business environment, tality operations. Ignoring this impact has it should not be inferred that standardiza- often resulted in expensive consequences tion of products is a panacea. On the for hotels operating in arenas outside their contrary, environmental variability and corporate homeland. complexity result in the frequency of change Third, economic differences also need to and the heterogeneity and range of environ- be formulated into marketing strategies, gen- mental activities that can be clearly erally at the National Tourism Association observed in the market. It appears that mass level. The environment in which interna- marketing is a vestige of the past. Increas- tional marketing decisions are made is far ingly, guests will need to be wooed through more complex than the environment in what is coming to be termed ‘micro- which domestic marketing decisions are marketing’ or ‘niche marketing’. The made. The Central and Eastern European fragmented European market offers SMEs in markets require a different approach from particular, ample opportunity for a diversifi- the OECD markets, due to the variance in cation strategy. However, it is of the essence economic development and the level of to establish the net economic benefits that wealth in the respective economies. the entrepreneur would gain if he or she Finally, the rise of mass- were to diversify. Within this context, the individualization offers SMEs great oppor- trend is towards customization. It is also tunities to add value through inter-firm essential that hospitality operators, large alliances, for example through flexible net- and small, tailor the product to meet indi- works (Hakansson and Snehota, 1997). The vidual needs and tastes, or at least ensure number and variety of inter-firm relations that provision is equipped with adequate and networks such as strategic alliances flexibility to be adapted to multiple market have accelerated in the past two decades. segments, for example, and ‘mass- International Tourism Management 333

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Index

Page numbers in bold refer to illustrations and tables accommodation 32, 307 Ansoff’s product/market expansion matrix 275 Accor Academy 177–178 Antarctic 27 accuracy levels, forecasting 305–306 APOLLO 28, 32 acquired immune deficiency syndrome Applied Future 132 (AIDS) 10, 23 ARA 331 acquisition 331 area sampling 104 action 48 ARGE (asset revenue generating efficiency) action plan, marketing 279 204–205 activities 219, 215–216, 226, 251–252 arrivals and growth rates (1983–1989) 299 activities interests and opinions (AIOs) 125–129 Asia 4, 13, 172, 325, 329 adequacy evaluation 76 Asia-Pacific region 4 administrative environment 33–34 Asia-Pacific Rim 319 advancement opportunities 176 asset evolution phenomenon 326–327 advertising 71, 72, 127–128, 158–159 asset revenue generating efficiency (ARGE) advertising-copy strategy definition 160 204–205 Afghanistan 35 ATB (Azores Tourist Board) 300–304 AFPA (French adult training agency) 177 ATB cross-impact matrix 301, 302, 303 Africa 20, 32, 142 ATMs (automated ticket machines) 163 ageing population 317 attention and learning process 75 AID (automatic interaction detector) model 100 attitude 35, 44–45, 48, 50–51, 52 AIDS (acquired immune deficiency attractions 32 syndrome) 10, 23 Australia 22, 329, 331 AIOs (activities, interests and opinions) automated ticket machines (ATMs) 163 125–129 automatic interaction detector (AID) 100 air transportation 319–320 average-commitment strategy definition 140 Albania 35 awards 252 Allegis Corporation 331 Azores 299–304, 300–304 alliances 28, 329–330 Azores Tourist Board (ATB) 300–304 alternative revenue assumptions 203 alternatives, evaluation 65, 68–73 America see United States of America (USA) baby boomers on the move 21 analysis of variance (ANOVA) analytical backroom versus front office activities 219 procedures 91, 100, 109 backward pricing 153 ANOVA (analysis of variance) analytical Bain, J.S. 322 procedures 91, 100, 109 BBC and Cosmos Tours 212 337 338 Index

BCG (Boston Consulting Group) 268, 272–273, case studies 274 asset evolution phenomenon 326–327 matrix 270–271 Azores 299–304 behaviour 6, 60, 73–76 BBC and Cosmos Tours 212 buying airline products 53 bicycle provision 231–232 decision making 52 buying airline products 53 intentions 51, 60–63 Chicago Pizza Pie Company 217 methods of segmentation 327 competency models for employee hiring 178 models and modelling 50–51, 73–76 German dual system 180 re-engineered 13 MPI (marketing planning index) 283–291 search behaviour 58, 62–63 MPS (marketing planning strategy) 280, tourist 6, 60, 73–76 283–290 travel 42 re-engineering from the bottom up 177 beliefs 43, 48, 49 Stakis Hotels 227 Belize 27 tourist arrivals and growth rates Berlin 34 (1983–1989) 299 best practice model 181 cash cows 24, 270, 271 Best Western 329 cashflow 189, 268–269 bicycle provision, case study 231–232 Central Florida Hotel/Motel Security bill of material (BOM) 234 Association 33 Bolivia 10 Centre Parcs 19 BOM (bill of material) 234–235 centurism and expectation 13 booking sites 26–27, 162–163 challenges 324–325 Boston Consulting Group (BCG) 268, 272–273, Channel Tunnel 29 274 channel-control strategy definition 165 matrix 270–271 channel-modification strategy definition 164 branded products 70–71, 135, 144–146, 316, channel-structure strategy definition 164 327 characteristics of strategy 260–263 break-even chart 197–199, 200 Chicago Pizza Pie Company 217 Bridge model of quality 240 China 32 choice criteria 75 British see United Kingdom (UK) classification of techniques 81 brochures 59–60, 61–62 climate change 28–29 budgeting and control 187–188 Club Medic 22 Burger King 331 cluster analysis 110–113, 135, 136–137 Burma 35 cluster sampling 102–104 Business Strategies Ltd 25–26 cocooning 25 business strategy 261–262 cognition 45–49 buying behaviour for airline products 53 cognitive learning theory 47 buying probabilities, repeat 76 cognitive representation 60 Comfort Inns 145 Commodore Hotel, Scotland 192 California 14 Commonwealth Hospitality of Canada 329 Canadian Antarctic 142 communication 44, 47, 62, 82–85, 86 Canadian hospitality programme, Superhost 179 communications and infrastructural canonical correlation analysis 107–108 environment 32 capacity communications technology 30 adjusting 226, 227–228 companies 193–194 definition 220–221 competency models for employee hiring, case in a framework for operations study 178 management 222 Competition Commission 201 management 226–232 competitiveness utilization 204–207 based on quality 247 capital budgeting 188–194 changing patterns 319–321 capital rationing 191–192 Competition Commission 201 Caribbean 32, 142 costs factor 218 Carnival Cruise Lines 145 power 274 Index 339

competitiveness continued CRS (computerized reservation systems) 10, 28, pricing 200–204 29, 30, 162–163 priority factors 225 Cuba 35 profit maximization in competitive culture conditions 199–200 diversity, Europe 332 scenarios 320–321 environment 23–25 strength 273–274 events 24–25 computerized reservation systems (CRS) 28, 29, influences 42–43 30, 162 values 22, 126–127 communication 47–48 Culture Media and Sport 179 concentric diversification 277 customers 28, 225, 228, 246, 247–248 confidence intervals 97–98, 102 customization 133 confirmatory factor analysis 109 CVP (cost-volume-profit), analysis 197–204 conglomerate diversification 277 conjoint analysis 113–114, 137–138 consensus forecasting results 296–297 DA (differential advantage) 195–196 consideration set 65 data analysis 114–116 consistent action 10 data collection 81–87 Consort 329 databases 30, 132–133, 176 continuously meeting customer requirements at Days Inns 144, 330 lowest cost 251–252 DCF (discounted cash flow) 189–194 contracts 330–331 debt wreck 12–13 control decision making costs 188 behaviour 52 framework 221, 222 family 54–56, 57 loss of 30 future 76 of operations 235–237 model 54, 65–66 process control diagram 236 operations management 221 quality 252, 253–254 patterns 123–124 control-organizational approach to service processes 52, 56–58, 73, 74, 75 quality design 242 rules 66 controlling marketing planning 279, 281 tourists 68–69 convenience sampling 95 decision support system (DSS) 117 corporate strategy 261 decision-process models 56 correspondence analysis 1, 138 Delphi forecasting 4, 228–229, 293–298 Cosmos Tours 212 demand cost-plus 151 dependent 233–235 cost-volume-profit (CVP) analysis 197–204 forecasting 308–310 Costa Brava 142 independent 233–234 Costa del Sol 20 modelling and forecasting 293–312 costs patterns 228 capital projects 189 regional accommodation 307 control 188 shifts 319 curve 200, 234 and supply 4–5 factor in competitiveness 218 tourist 307, 318–319 quality 245 democratization of tourism 22 Coupland, Douglas 169 democracy 35 Courtyard, Marriott hotel group 135 demography 20–21, 123–124, 328 critical ratio method (CRM) 205–207 Department of Labor and Industrial Relations, CRM (critical ratio method) 205–207 Hawaii 172 Crocodile Dundee Effect 24 Department of National Heritage, United Cronbach alpha score 285 Kingdom 170, 173, 174–175 cross cultural consumer classification 126–127 depth interview 83 cross-cultural analysis 43 designs 61–62, 89–91, 220 cross-franchising 329–330 destination 134–135 cross-impact analysis 293, 298–304 destination awareness 64–65 subjective rating scale 302 diagonal marketing systems 9 340 Index

difference between strategy and tactics 259–263 energy policy 29 differential advantage (DA) 195–196 England 115–116 dimensions of market strategies 138–140 see also United Kingdom (UK) Dinkies (dual-income-no-kids) 22 English Tourist Board 179 Dinks (double income, no kids) 5 Environment 7–8, 26–29, 318 disabled people 22 EPOS (electronic point of sale) 235 discounted cash flow (DCF) 189–194 ERC (efficiency-risk coefficient) 194–195 discriminant analysis 108, 137 ES (expert systems) 117 Disney theme parks 25 estimates 310, 311, 312 Disneyworld 231 EU (European Union) 31, 32, 173, 175, 179, 180 dissatisfaction dimension 76 Euro-consumer 132 distribution 160–165 Europe distribution strategies 163–165 ageing population 317 distribution-scope strategy definition 164 capital market investment 10, 329 diversification 276–277, 329, 331–332 Central 319, 325 diversification strategy definition 149 cross border marketing 132 dogs 270, 271 cultural diversity 332 DSS (decision support system) 117–118 Eastern 31, 35, 36, 319, 325, 328 dummy variables 309–310, 312 harmonization 326 Dutch Hotel Industry 320 hotels 188 long-haul flights 4 market 332 early-entry strategy definition 139 mature Europeans 5 EBQ (economic batch quantity) 233–234 population 18, 126 ecological aspects 7–8 renaissance 325 econometric forecasting models 293, 308–312 tourism demand 26 economic tourism experts 295 approach to service quality design 242 Western 331–332 aspects 4 European Commission’s statistical service environment 25–26 (Eurostat) 173 lot size 233 European Foundation for Quality Management order quantity 233 (EFQM) 252 theory 199 European Union (EU) 31, 32, 173, 175, 179, 180 economic batch quantity (EBQ) 233–234 European Works Councils 181 ecotourism 27 Eurostat (European Commission’s statistical EDI (electronic data interchange) 235 service) 173 effective marketing 80, 284–285, 287 Eurostyle system 126 efficiency 204–207 evaluation efficiency-risk coefficient (ERC) 194–195 adequacy 76 EFQM (European Foundation for Quality alternatives 65, 68–73 Management) 252 performance, framework 249–250 Egypt 36 portfolio analysis 272–273 elasticity estimates 310, 311, 312 post-purchase 76 electronic data interchange (EDI) 235 segment 131–132 electronic point of sale (EPOS) 235 service quality 248–250 element 93–94 evoked set 63–64 Embassy Suites 144 ex post facto studies 87–88 emotional hot-buttons 81 Excel 193 empirical results in Delphi forecasting 298 exercise answer 208 empirical results in econometric expansion strategies 275 forecasting 310, 312 expectation and centurism 13 employment experimentation 87–93 competency models for employee hiring 178 expert systems (ES) 117 levels of in UK 25–26 exploration 14 quality 171–176 external analysis 266 tourism, quality 171–176 external information search 58–60 enactive imagery 60–61, 60–62 external versus internal functions 264 Index 341

facilities 32 goal formulation 266–267 factor analysis 108 goals 278–279 factorial design 91 Golden Tulip Hotels Company 320 failure management 245–246 Goldilocks Economy 26 Faith Popcorn 25 government attitudes 3–4, 35, 328–329 family 19, 43, 54–56 government subsidies 34 family life cycle (FLC) 55–56, 124–125 Graeco-Latin square design 91 fantasy adventure 25 Grand Canyon, Colorado River 14 Far East 327, 328 Grand Hotel Krasnapolsky, Amsterdam 320 field experiments 92 Grand Metropolitan 331 financial functions in spreadsheets 192–193 grey tourist power 19, 124 financial management in tourism 187–209 groups 128 financial modelling 231–232 growth 4, 13, 275–276, 278 first-in strategy definition 139 Gulf states 32 five-force model 131 fixed capital 188–189 harvesting strategy definition 140 FLC (family life cycle) 55–56, 124–125 Haves-Eurocom Group 126 flexible pricing 154 Hawaii 172, 173, 176, 294 Flying Wheels Travel 22 HCNs (host country nationals) 176 focus group interview 83–85 forecasting health and AIDS 10, 23 health and safety 29 cash flows 194 helicopter view of a systems and system consensus forecasting results 296–297 boundaries 214 Delphi forecasting 4, 229, 293–298 heterogeneity 217 and demand modelling 293–312 HGM (hotel general managers) 285, 286–290 econometric 293, 308–312 Hilton Hotels 142, 145, 319, 320, 331 possible future developments and consensus Holiday Corporation 146 forecasting results 296–297 Holiday Inns 8, 319, 327, 331 probability 293, 304–308 holiday sales 216 required accuracy levels 305–306 Homer’s Odyssey 49 summary of trends and forecasts 10–11 Hong Kong 32, 331 tools 142–143 horizontal diversification 277 tourism growth 4 Hoshin Kanri (policy deployment) 245 variable 308 hospitality industry 325–327, 328 Forte Hotels 135, 331 host country nationals (HCNs) 176 four-group six-study design 90 hotel general managers (HGM) 285, 286–290 frameworks 19–20, 220–221, 222, 249–250 hotel marketing budgeting 194–197 France 32 House of Quality 244–245 franchising 329–330 household size reduction 317–318 French adult training agency (AFPA) 177 households 21 friends 56–58 HR (human resource) 169–185, 182–183 future 14–15, 23, 76, 295, 296–297 human resource (HR) 169–185, 182–183 Hyatt International 207, 331

Gambia 23 GDS (global distribution systems) 162, 315 IDEFO modelling system 214 GE (General Electric) matrix 273–274 IIP (Investor in People) 179 General Electric (GE) matrix 273–274 imagery 60–63 geo-political-legal issues 328–329 Imholz travel agency 8 German dual system 180 implications of alternatives 71, 72–73 Germans on vacation 318 income 308, 318 Germany 36 increasing the price deﬁnition 157 global distribution systems (GDS) 162, 315 index of market planning effectiveness 287, 288 global hospitality ﬁrms of the 2000s 329–332 India 20, 329, 330 global tourism issues for the 21st century 11–12 individual business 176–177 global urbanization 22–23 individualism 132–133 globalization 11, 12, 315, 316–317, 325 Indonesia 22 342 Index

industry attractiveness/business strengths Japan continued matrix 273 Quality Circles 252 Infolink 133 tourism demand 26 Information 46, 58–60, 80, 118, 161, women travellers 21 information technology (IT) 27–28, 29, 162–163, JHIC (Joint Hospitality Industry Congress) 177 184 job satisfaction 174–176 infrastructural environment 32 Joint Hospitality Industry Congress (JHIC) 177 initiatives 177–181 joint ventures 331 input/output diagram for a tour/holiday judgement sampling 95 provision system 215 Jury of Executive Opinion 293, 294–295 Inspector Morse TV series 24 institutional environment 33–36 instrumental learning process 47 Kahn, Herman 4 intangibility 218 Kashmir 36 integral planning 9–10 Kathmandu 20 integrated networks 323–324 Kenya 21, 27 integrated services digital network (ISDN) 162 key cultural values 24 interactive skills 219 key-markets strategy definition 140 InterContinental Hotels 319 KLM (Royal Dutch Airlines) 320 internal rate of return (IRR) 191, 192–193 Klosters 20 internal versus external functions 264 international environment 31–32 laboratory experiments 91–92 International Labour Office (1989) 173 labour issue 328 International Symposium on Tourism in the Ladbroke Ltd 331 Next Decade, Washington DC (1979) 294 laggard-entry strategy definition 139 international tourism lagged dependent variable 309–310 changing environment 317–318 Las Vegas 15 industry, structural dynamics 321–323 latent structure analysis 109–110 management 315–333 Latin America 20, 142, 319 promotion 157–158 Latin square design 90–91 strategy 325 learning 47, 75, 268, 269 international travel 8 legal environment 34–38 international-market strategy definition 139 leisure 6–7 Internet 8, 163 Let’s Make It First Choice 178–179 Internet Travel Network 26 life cycle 55–56, 124–125, 141–144, 229, interpersonal communication 44 268–269 interviews 83–85 lifestyle 5–7, 126, 129 inventory cost curve 234 Lifestyle Network 133 inventory management 221, 222, 232–235 light-commitment strategy definition 140 investment appraisal calculations 191 linear programming 229–230 investment decision 193–194 linear structural relations (LISREL) 109 Investor in People (IIP) 179 LISREL (linear structural relations) 109 IRR (internal rate of return) 191, 192–193 Local Agenda (21) 27 ISDN (integrated services digital network) 162 local initiatives 177 Ishikawa/cause and effect diagrams 253–254 local residents 176 ISO (9000) 241–242, 247 local-market strategy definition 139 long-term thinking 10 Los Angeles 15 Japan Lotus 1-2-3 193 asset appreciation 326 Lourdes 23 asset evolution phenomenon 326–327 low cost operations 218 corporations 316 expansion 325 extended planning horizons 259 Maastricht Treaty, Social Chapter 181 hospitality industry 332 McDonald’s 14 manufacturing industry 247 McJob 169 population growth 20 Madagascar 10 Index 343

maintaining the price definition 156 media-selection strategy definition 160 Maister’s first law 243 Mediterranean 142 Maldives 27 Megatrends series of books 184 management MEI (marketing effectiveness index) 284–285 contracts 330–331 memory 46–47 of failure 245–246 mental categorization 64–68 of quality 245–247 mental imagery 60–63 skill transfer 178 Mexico 142 of variability 246–247 micro-marketing 332 managerial implications of MPI 288, 290 Microsoft’s Expedia 26 management of technology 32–33 Middle East 31, 329 MANOVA (multivariate analysis of Mintel survey 132 variance) 107 MIS (marketing information system) 79, 80 marginal analysis 199 mission statement 263–264 marginal pricing 154 MLLSA (maximum likelihood structure market analysis) 110 development 275–276 MNCs (multinational companies) 176 penetration 154, 275 modelling planning 278–281 behaviour 50–51, 73–76 segmentation 122–123, 124, 125 best practice 181 strategies 138–140 case study, competency models for employee marketing hiring 178 action plan 279 decision model 54, 56, 65–68 effectiveness 80, 284–285, 288 econometric forecasting models 308–312 environment 19–39 financial 231–232 management 121–122 five-force model 131 mix 29, 140, 195–196 perceived quality 69–70 planning 271–272, 278–281, 287, 288 process models 67–68 research 79–120 service system design 243–245 strategies 138–140, 262 strategic planning model 262–263 and technology 327–328 structural models 67 tourism-related 309 techniques 229–231 marketing effectiveness index (MEI) 284–285 behaviour 73–76 marketing information system (MIS) 79, 80 transnational 322–323 Marketing Planning Index (MPI) 283–290 Motel Security Association 33 marketing planning strategy (MPS) 280, 284, motivation 49–50, 81, 175 285–286, 290 Movenpick Hotels 329 Marriott hotel group 135, 144, 146, 327, 331 MPI (Marketing Planning Index) 283–290 mass customization 133 MPS (marketing planning strategy) 280, 284, materials requirement planning (MRP) 234–235 285–286, 290 mathematical approach to service quality MRP (materials requirement planning) 234–235 design 241 multi-unit tourist pack problem 305, 306 matrix multidimensional scaling 113, 137 Ansoff product/market expansion matrix 275 multimarket strategy definition 138 BCG (Boston Consulting Group), matrix 270– multinational companies (MNCs) 176 271, 272–273, 274 multiple regression analysis 107 cross-impact analysis, ATB cross-impact multiple-channel strategy definition 164 matrix 301–304, 303 multivariate analysis 81, 104, 106–116, 128, diversification matrix 276–277 135, 136 GE (General Electric) matrix 273–274 multivariate analysis of variance Industry Attractiveness/Business strengths (MANOVA) 107 matrix 273 Murdoch, (Keith) Rupert (1931–) 327 product portfolio matrix 270–271 maximum likelihood structure analysis (MLLSA) 110 Naisbitt, John 184 Mecca 23 National Conference of Mayors (United States of media 195, 316 America) 32 344 Index

National Tourism Association 332 Organization for Economic Co-operation and National Tourism Organizations (NTOs) 33, 309 Development (OECD) 176, 332 national tourist offices (NTOs) 157–158 organizational quality assessment 252 National Vocational Qualification (NVQ) 179 origin markets, Azores 300 national-market strategy definition 139 origin population 308 NDL 132 Oxford 24 NDL’s Lifestyle Selector 133 near-to-home syndrome 13 net present value (NPV) 189–191, 192–193 Pacific 4, 142, 319, 331 Netherlands 320 Pacific Rim Leisure, Australia 329 networks 323–324 Pacific Rim market 32 neural networks (NN) 116–118 package holidays 5 New York 23, 24, 32 Pan American Airways 319 new-product strategy definition 148–149 parent country nationals (PCNs) 176 Newly industrialized nations (NICS) 327, 328 Pareto analysis 253–254 niche markets 130–131, 332 Paris 20 NICS (newly industrialized nations) 327, 328 Park Lane Hotels, Hong Kong 329 Nikko 331 path analysis 108 NMS (non-metric multidimensional path diagram 115 scaling) 113, 137 patterns 123–124, 228, 319–321 NN (neural networks) 116–118 PCNs (parent country nationals) 176 non-sampling errors 98 penetration pricing definition 156 non-metric multidimensional scaling perceived quality 69–70 (NMS) 113, 137 perceived risk 51–54 Nordic school 243 perceived value 69, 71–72 North America perceptional maps 136–138 ageing populations 317 perceptions 45–49, 246 Commonwealth Hospitality of Canada 329 perishability 29, 217 North American school 243 personal/self focus 13 population growth 20 personality 44–45 tourism experts 295 PEST (Political, Economic, Social and Technical Northern Ireland 34 factors) 17–18 Norway 4 physical environment 26–29 Nova Scotia 294, 295 physical items versus service elements 219 NPV (net present value) 189–191, 192–193 PI (profitability index) 191–193 NTOs (National Tourism Organizations) 157– Pillsbury 331 158, 309 PIMS (Profit Impact of Marketing Strategy) 247 NVQ (National Vocational Qualification) 179 planners 9–10 planning and development 33 planning model 262–263 observation methods 85–87 planning process 263 occupancy 188 PLC (product life cycle) 141–144, 274–275 OECD (Organization for Economic Cooperation policies and Development) 176, 332 energy 29 oligopoly, UK 201 Hoshin Kanri (policy deployment) 245 Omni chain 331 implications 27–29 Open University’s, definition of a system 212 policy dimension of human resource operating systems 218–221 issues 176–181 operations control 236 public sector policies 3–4 operations management 221, 222, 238 regional 3–4, 142 definition 211–217, 237 policy deployment (Hoshin Kanri) 245 Operations Management Association (UK), Political, Economic, Social and Technical factors annual conference (1989) 227 (PEST) 19–20 opinion leadership 43–44 political aspects 9 opportunities 176, 305, 306, 324–325 political environment 34–38 opportunity losses 305, 306 population optimal sample size 99–100 ageing 317 Index 345

population continued profit maximization in competitive as an explanatory variable 310 conditions 199–200 growth 317 profit and sales 189, 201, 202 movements 20 profitability 195–196 origin 308 profitability index (PI) 191–193 size 98 programmable versus non-programmable study 94 services 219 United Nations (UN) 22–23 promotion Porter, Michael 131–132 expenditure strategy definition 159 portfolio analysis 268, 269–274 international tourism 157–160 positioning 134–135, 218–219 mix strategy definition 159 post-purchase evaluation 76 new technologies 31–32 preference structure 73 proven systematic approach to the planning and Preview Travel 26 management of activities 251–252 pricing pruning-of-marginal-markets strategy backward 153 definition 140 competitiveness 200–204 psychographic segmentation 5, 125–129, 327 flexible 154 public sector policies 3–4 increasing the price definition 157 purchase 75–76 in less competitive conditions 200–204 maintaining the price definition 156 QE2 (Queen Elizabeth 2) 145 marginal 154 QFD (quality function deployment) 244–245 methods 152–153, 155 qualitative effects, dummy variables 309 own price 308–309 qualitative research 81 penetration pricing definition 156 quality reducing the price definition 156 assessment 252 rooms 31 Bridge model 240 skimming pricing definition 156 control 252, 253–254 strategies 155–157 costs categories 245 substitute prices 309 improvement 247–254 surrogate for quality 69, 70 top management role 247–250 principle components analysis 108–109 management 245–247 probability 94–95, 96, 293, 304–308 development 254 problem children (or question marks) 270, 271 evolution 250–253 procedures 94–95, 96, 295, 297–298 perspectives 241 process control diagram 236 strategic approach 242–243 process flow diagrams 215–216 theory and practice 253–254 process life cycle 229 Quality Circles 252–253 process models 67–68 quality function deployment (QFD) 244–245 PRODIGY 32 Quality Inns 319 product Quality International 330 design strategy definition 148 quantitative techniques 228–231 development 141, 276 Quattro-Pro 193 elimination strategy definition 148 Queen Elizabeth 2 (QE2) 145 image formation 48–49 question marks (or problem children) 270, 271 information by-products 31 questionnaires 82–85, 248–249, 295, 297–298 life cycle 141–144 queuing 228, 246 mix 141 queuing theory 230 overlap strategy definition 147 quota sample 95 portfolio matrix 270–271 positioning strategy definition 147 repositioning strategy definition 147 Radisson Hotel Group 329 scope strategy definition 147 Ramada Inns 319 strategies 146–149 randomized block design 90 product life cycle (PLC) 141–144, 268–269, rate of return 151, 153 274–275 rating scale 302 Profit Impact of Marketing Strategy (PIMS) 247 re-engineered behaviour 13 346 Index

re-engineering from the bottom up 177 SCEPTICAL 19–20, 36 re-order point (ROP) 233 scheduling 221, 222, 235 reducing the price definition 156 School of Service 178 reference groups 19, 43, 54–58 Schumpeter’s theoretical propositions 322 regional accommodation 307 Scotland 115–116, 170, 179–180, 192 regional initiatives 180–181 see also United Kingdom (UK) regional policies 3–4, 142 Scottish Tourism Research Unit (STRU) 169, regional-market strategy definition 139 175, 179 regulations 4, 34–37, 328–329 Scottish Vocational Qualification (SVQ) 179 relative market share 270 search behaviour 58, 62–63 relatives 56–57–58 seasonal variations 5 remuneration and reward 173–174 segmentation 121–129, 131–132, 136, 268, 327 reschedule activities 226 selective perception 45–46 research follow-up 118 self-concept 44–45 revenues 155, 189, 203 self-image 44–45 risks 28, 51–54, 53, 134, 135 self-related imagery 61 Ritzer family, Chicago 331 semi-structured direct data collection 82–85 ROP (re-order point) 233 seminar 295, 297–298 Royal Caribbean 178 service Royal Dutch Airlines (KLM) 320 delivery 222, 244 RTBs 135 industry 217–218 rural development 29 operations design 220 quality 239–245, 247–254 system design 243–245 SABRE (computerized reservation system) 28, Service Quality Management 212 32 SERVQUAL 249–250 Sabre’s Travelocity 26 simulated test markets 93 Saison, Japan 331 simulation packages 230–231 sales 216 simultaneity 217–218 sales and profit 201 Singapore 294, 295 sales and profits 202 Single European Market 32 sales-revenue-maximizing (SRM) model 202– single-minded strategy definition 138 204 situation analysis 300–301 samples and sampling skew loss functions 306–308 basic concepts 93–100 skills 172–173, 178, 219 cluster sampling 102–104 skimming 154–155 judgement 95 skimming pricing definition 156 methods 105 multivariate 104, 106–116 small and medium sized enterprises optimal sample size 99–100 (SMEs) 173, 175, 183, 329, 331–332 population 94 smart customers 30 probability procedures 94–95, 96 SMEs (small and medium sized procedures 94–100 enterprises) 173, 175, 183, 329, 331–332 sample frame 94 Smith, Chris 179 sample path analysis results 115–116 Social Chapter of the Maastricht Treaty 181 sample selection 94–95 social class 43 sample size 98–100 social environment 20–23 selection 100 Social Milieus concept 126 stratified sampling 100–102 socio-demographic changes 5 symbols used in sampling 97 sociocultural aspects 5–7 unit 94 Solomon Four-Group 90 SARA 331 South Africa 34, 35 SAS International Hotels 329, 331 Southern Pacific Hotel Corporation, satisfaction dimension 76 Australia 331 SBU (strategic business units) 147, 261–263, Space Mountain 29 267–268, 270–274, 277 SPC (Statistical Process Control) 247, 252 scaling 113, 135, 137 spreadsheets 192–193 Index 347

SRM (sales-revenue-maximizing) model 202–204 systems Stakis hotels 227, 235 definition 212 standard market tests 92–93 design 218–219 standards 92–93, 221–225 map of a tour operating company 212–214 Stanford Research Institute, California 5–7 and system boundaries, helicopter view 214 stars 270, 271 tour/holiday provision system 215 statistical designs 90–91 transformation process 214–217 Statistical Process Control (SPC) 247, 252 view 212–214 Steps to success 176 stimuli 47, 48–49, 73, 75, 81, 86 strategic business units (SBU) 147, 261–263, tactical planning 259–260, 278–281 267–268, 270–274, 277 target market (TM) 122–123, 129–133, 196–197 strategies TAT (thematic apperception test) 84–85 business 261–262 taxation 26 characteristics 260–263 technical environment 29–33 corporate 261 technical skills 219 development 260–262 techniques 81, 106, 228–231 distribution 163–165 technology diversification 276–277, 329, 332 acceleration 12 expansion 275 aspects 8–9 global hospitality firms of the 2000s 329–332 communications 30 growth 274–276 developments 14–15 implementing international tourism 325 environment 321 marketing 262 flood 327 single-minded strategy definition 138 management 32–33 strong-commitment strategy definition 140 and marketing 327–328 stratified sampling 100–102 new 31–33 Strengths, Weaknesses, Opportunities, Threats as a substitute 32 (SWOT) 264–266, 277, 278, 285, 287, 290 telecommunications 8, 316 strong-commitment strategy definition 140 telecommunications industry 184 STRU (Scottish Tourism Research Unit) 169, thematic apperception test (TAT) 84–85 175, 179 tiger economies 172 structural dynamics 321–323 Times, The 207 structural models 67 TM (target market) 196–197 structured-direct data collection 82–85 Tokyo 32 structured-indirect data collection 82–85 top management role, quality study population 94 improvement 247–250 subcontracting 226 Total Quality Companies 251 subjective rating scale 302 Total Quality Control definition 251 subsidies 34–37 total quality management (TQM) 247, 248, substitute prices 309 252–253 summary of multivariate data analysis 116 total shares of nights spent by foreign summary of trends and forecasts 10–11 tourists 300 Superhost, Canadian hospitality programme 179 total thoughts 48–49 superservice industries 184 total-market strategy definition 138–139 supplier rationalization 30 tour operator system 213 supply and demand 4–5 tour operators 160–162 survey design 248–249 tour/holiday provision system 215 sustainability 181, 182–183 Tourism in the Next Decade, International SVQ (Scottish Vocational Qualification) 179 Symposium, Washington DC (1979) 294 Sweden 4 Tourism Training Scotland 179–180 Switzerland 4 TQM (total quality management) 247, 248, SWOT (Strengths, Weaknesses, Opportunities, 252–253 Threats) 264–266, 277, 278, 285, 287, 290 Trans World Airways (TWA) 319 symbols used in sampling 97 transformation process 214 system-structural approach to service quality Transformational Total Quality definition 253 design 241–242 transnational initiatives 180–181 348 Index

transnational model 322–323 United States of America (USA) continued transnational tourism 177–178 hospitality firms 326 transport and transportation 15, 30, 32, 319–320 hospitality industry 326 travel labour supply 328 behaviour 42 National Conference of Mayors 32 booking sites 26–27, 162–163 roots in Eastern Europe 31 decision model 54, 65–66 tourist market analysis 124 decision-making 52, 55, 56–58 United States Census Bureau 21 intermediaries 162–163 US Travel Data Center 32 motivators 49–50 unstructured indirect data collection 82–85 technology 32 unstructured-direct data collection 82–85 Travel Association of America 8 Travel Industry Association of America 26–27 vacation planning 58, 59 Travel and Tourism industry 184 vacation tourist process 56 trends 3–16, 309 Valencia, Spain 295 Trusthouse Forte 135, 331 value 69, 71–72, 118 TWA (Trans World Airways) 319 value-marketing strategy definition 149 Twarfs (two-workers-also-rearing-kids) 22 values 43 variability management 246–247 variables 268, 309–310, 312 UAL (United Airlines) Inc. 163, 319 vertical diversification 276–277 Ultraswitch 327 Victorian ‘Grand Tour’ 23 Ulysses factor 49 Vive en Accor seminar 178 United Airlines (UAL) Inc. 28, 163, 319 United Kingdom (UK) British citizens social classification 132 waiting 228 British hotel and catering industry 172 Waldorf-Astoria, NY 145 British seaside holiday 23 Wales 115–116 Department of National Heritage 170, 173, war 12, 31 174–175 Welcome All 179 hotel groups 285 Welcome Host International 179 hotel owners 326 Welcome Management 179 hotels 194 Western Europe 18, 172, 317 households 21–22 Western International Hotels 145, 319 Joint Hospitality Industry Congress (HIC) 177 Westin Hotels 145, 319 Let’s Make It First Choice 178–179 Whole Person Tours 22 levels of employment 25–26 William Hunt Holdings, Hong Kong 331 oligopoly 201 women travellers 21 Open University’s definition of a system 212 work measurement methods 224 Operations Management Association, annual work standards 221–224 conference (1989) 227 worked example, MPI 286–288 recent initiatives 180–181 workforce 226–227, 328 statutory minimum wage legislation 179 working capital 188–189 yield management systems 207 Working Time Directive, 48 Hour 180–181 see also England; Scotland World Expo, Vancouver 179 United Nations (UN) population fund 20, 23 World International and Wharf Holding 331 United States of America (USA) World Tourism Organisation (WTO) 4, 7–8 American Airlines, APOLLO 28, 32 World Travel and Tourism Council American Baldridge award 252 (WTTC) 169, 318 American Disabilities Act 22 World Travel and Tourism Environment American middle class 24 Research Centre (WTTERC) 318 American tourists 22, 300 World Travel and Tourism Human Resource Americans 10, 295 Centre, global database 176 diversification issue 331 World Wide Web 30, 162–163 dominance 325 WTO (World Tourism Organisation) 4, 7–8 Goldilocks Economy 26 WTTC (World Travel and Tourism government subsidies 34 Council) 169, 170, 176, 181, 318 Index 349

WTTERC (World Travel and Tourism Yugoslavia 32, 34 Environment Research Centre) 318 YUPs (young urban professionals) 5 www.bestfare.com 31

ZBB (zero-base budgeting) 196–197 yield 155 Zeitgeist 169 yield management systems 188, 206–207 zero-base budgeting (ZBB) 196–197 younger people 22 zone of tolerance 249–250