Professional Documents
Culture Documents
Strategic Management in Tourism
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
CABI Publishing
CABI Publishing is a division of CAB International
A catalogue record for this book is available from the British Library,
London, UK.
Contributors vii
Preface ix
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
Ken Peattie, Cardiff Business School, University of Cardiff, Aberconway Building, Colum
Drive, Cardiff CF1 3EU, 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, eco-
nomic 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 manage-
ment 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
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 antici-
pated 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), indi-
cates 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 vicin-
ity. 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
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 exclu-
sively 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 con-
sulting 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 coun-
tries 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
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 inter-
est 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 ‘new-
ness’ 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
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 comple-
ment 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.
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Fremdenverkehr, Berne, Switzerland, pp. 6, interactions and implications. Tourism Man-
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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
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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
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 sup-
port 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
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 sim-
ply 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 expres-
sion 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 move-
ment 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
● 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 reserva-
tion 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
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 h21 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 tech-
nology.
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; con-
flict 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 ham-
pered 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 esti-
mated 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
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 govern-
ments 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 estab-
lish public/private partnerships which Policy-makers in tourism can no longer
The Marketing Environment for Travel and Tourism 35
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 under-
stand 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
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 segmenta-
tion 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
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 acqui-
sition 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
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
where PRx is perceived risk; PER is per- product will be harmful.
ceived 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
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 vari-
ables, 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
decision/
demand
Predominant family
Family travel decision decision-making style
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 rela-
tion 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 syn-
cratic 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)
Number of decisions where friends and/or relatives played total or dominant role (%)
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 infor-
mation 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’ infor-
mation 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’ moti-
vation 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 informa-
tion 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
(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 destina-
tion 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
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 mod-
els.
Decision rules 5. Elimination by aspects: like the con-
junctive 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 pres-
ent 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
Perceived
non-monetary
price
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
Reputation
Perceived
Objective monetary
price price
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 read-
ily 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.
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 sug-
gested 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
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 tour-
ism 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
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78 L. Moutinho
L. Moutinho
Table 4.1. Differences between marketing research and a 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
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 prob-
ing 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 col-
lect 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 appro-
priate. 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 forma-
tion 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
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 per-
sonal 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
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
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 bal-
ance 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 mon-
itor 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 con-
firm 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
Region
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
Factorial design prices on sales in a normal store obviously
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 experi-
ment 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, labora-
tory 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 mar- keting is its high cost.
Tourism Marketing Research 93
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 ∑ (Xi 2 X)2
adding all the time periods and dividing s2 =
i=1
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
1 20 26 19 deviation 5.74.
2 19 27 19
3 19 28 20 Confidence intervals
4 18 29 19 The mean of a simple random sample pro-
5 20 30 19 vides a good estimator of the mean of the
6 18 31 21 whole population, but it is of course highly
7 21 32 20 unlikely that it will be exactly equal to it,
8 19 33 23 due to sampling error. Thus we use an inter-
9 20 34 22 val 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
(1.9635.74) = 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- N2n
sion of our estimate of the mean at a 95% , so that our formulae become
confidence level, precision being the width N21
of the confidence interval. (In this example,
you will see that the confidence interval is σx
very large; we will discuss ways of reducing
σx̄ =
=n ! N2n
N21
and sx̄ =
s
=n ! N2n
N21
2
it when we look at more complex sampling
methods.)
! ! ! !
Thus it is possible with simple random σp = π(1 2 π) N2n pq N2n
and sp =
sampling to measure our sampling error and n N21 n N21
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
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 sub-
stituting in the equation: Difficulties with calculation of optimal
sample size
Precision = ±1.96s/=n We see above that to calculate required sam-
1 = 1.9635/=n ple size we need a value of s for absolute
precision and a value of s/X for relative
=n = 9.8 <10 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 preci-
sion for all variables, we would have to
This can be rearranged to make select the largest of all these optimal sample
sizes.
s
.b=n = 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 !(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 preci-
sion 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 prob-
ability 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
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 sub-
divided the population, an independent
1 N 2X
A NSi
random sample is selected from each stra- X = ∑ si
i=1
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 consider-
ably older than the rest of the group. Thus A (W j)s st.j
we can stratify the population into two sx = ∑
groups, less and more experienced holiday-
j=1 =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 stra-
tum in the whole population, this is known
0.93
as proportionate stratified sampling. Let us Stratum 1 sx = = 0.465 so sx2 = 0.22
try this with the young tourists sample. =4
There are 40 less experienced and 10 more
experienced holiday-makers, so a propor- 7.78
Stratum 2 sx = = 7.78 so sx2 = 60.53
tionate stratified sample of 10 will include 8 =1
less experienced and 2 more experienced so sx = (0.8)2 (0.22) + (0.2)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
1 2
2 standard error within a stratum we divide
A
sx2 = ∑ N 2
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 (Wj)2 s2st.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 sam-
pling 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 3 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 1 2 3 4 5
stratified sampling we can increase the pre- 2 6 7 8 9 10
cision of our estimates without increasing 3 11 12 13 14 15
sample size. Alternatively, we could use a 4 16 17 18 19 20
smaller sample than that used in unstratified 5 21 22 23 24 25
sampling, to obtain the same precision. 6 26 27 28 29 30
7 31 32 33 34 35
Disproportionate stratified sampling 8 36 37 38 39 40
9 41 42 43 44 45
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
Dimensions Census Convenience Judgement Quota Simple random Stratified Systematic Area
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 ade-
quately 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 com-
petitors, 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 corre-
lations 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
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
McDonagh et al. (1992). The aim was to the model can be gained by looking at the
measure the effect of three major environ- coefficients of determination (R2) 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
RX1 X3 = 0.488
PY2 X2 = 0.416
Overcrowding Global conservation
X2 Y2 eY2 = 0.664
PY2 X3 = 0.137
PY1 X2 = 0.316
Preserve architecture
X3
PY1 X3 = 0.376
Preserve culture
Y1 eY1 = 0.646
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
of preservation of local landscape (X1), a overcrowding, which itself is highly corre-
single indicator of overcrowding (X2), a sin- lated with the need for preserving the local
gle indicator of preservation of architecture landscape and the architectural assests of a
(X3), a single indicator of preservation of particular tourist region or locality. The con-
cultural values (Y1) and a single indicator of cern towards the preservation of cultural
global conservation of the environment (Y2). values and identity of a tourist destination is
The implication is that the single indicators highly associated with the protection of his-
X1, X2, X3, Y1 and Y2 are perfect indicators of toric buildings and monuments, which itself
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 infor-
mation (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 tour- ing’ 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 devel-
opment 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
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
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
numerous studies have shown that psycho- results; and (iii) measuring the stability of
graphics do provide some additional the segments over time.
information over and beyond the demo- Psychographic segmentation is an
graphic profile. This, of course, does not approach to tourism market segmentation
imply that lifestyle analysis should replace based on personality characteristics of con-
demographics. Although it is very useful in sumers. In contrast to other ways of market
developing copy and message strategy, psy- segmenting, psychographics examine the
chographics alone, without additional actual motives for travel behaviour and offer
guidelines in selecting the media, cannot answers about why people travel, allowing
help deliver the proper message, in a proper the tourism managers to focus their efforts.
manner, to the proper target. Today, it has As mentioned above, psychographic seg-
become quite clear that a combination of mentation is an ‘a posteriori’ type of
pyschographic and demographic data offers segmentation. Target segments are selected
still greater insights into traveller preferen- based on the results obtained from some of
ces. Further proof of this point are the the multivariate statistical methods, making
questionnaires used in psychographic the usual methods of result control highly
research, which always include a set of recommendable.
demographic variables. Segments based on psychographic vari-
The second question in assessing the ables provide travel marketers with valuable
value of psychographics has been the information for planning, designing, posi-
dilemma of whether the variables employed tioning and distributing tourism products,
are overly general for a meaningful segmen- for promoting and advertising them, as well
tation in tourism. Psychographic variables as for creating copy appeals and selecting
can be considered as subjective variables the proper media. Psychographics also ena-
that are usually measured in surveys and ble the identification of certain segments of
interviews. Recently, it has been recognized tourists, as well as helping to better define
that such personality (subjective) variables the majority of potential consumers, and in
are not very well suited to explaining spe- that way achieve a better effectiveness of
cific behavioural differences. Thus, marketing and promotional budgets. In a
psychographic as general-level segments are competitive environment it is a useful stra-
useful for marketing communication pur- tegic marketing tool.
poses, while specific-level segments are
useful for product improvement. Psycho-
graphic segmentation is of most value when Targeting
it can predict underlying trends and changes
in society which will lead to major shifts in
The target market decision is the choice of
demand for goods and services. However,
which consumers in a product-market
there is a lack of studies in which tourist
towards which a company will aim its mar-
consumer behaviour is linked to general life-
keting programme positioning strategy. This
style variables.
decision is one of management’s most
In psychographic segmentation, as else-
demanding challenges. Should a company
where, the research results, or the output,
attempt to serve all that are willing and able
largely depend on what the researcher has
to buy or selectively focus upon one or more
selected as the input. In contrast with demo-
subgroups? Gaining an understanding of a
graphic analysis, in psychographics there do
product-market is essential to making the
not exist standard categories for different
target market decision. Central to this task is
types of tourists. It is left to the researcher to
defining and analysing the competitive
decide about the input and to create the
arena. The steps in selecting a target market
dimensions from his own point of view.
strategy are as follows:
This reveals the already mentioned ques-
tions of (i) labelling the groups (‘a posteriori’ 1. Decide how to form niches in the
segmentation); (ii) control of the research product-market.
130 L. Moutinho
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
level of human involvement in the produc- in 1991. This form of benefit-related seg-
tion process. The challenge posed by mentation has been studied in depth by
inseparability is arguably stronger for the Vavrik and Mazanec (1990) who also refer to
destination marketer than for the service it as a posteriori segmentation. Using multi-
product marketer, due to the lack of control variate statistical techniques, individuals
which is exercised over the many suppliers are aggregated into groups which seek sim-
of the tourism product. The multitude and ilar benefits. This kind of analysis is useful,
diversity of tourism suppliers in the destina- as the tourism manager is likely to be inter-
tion makes quality control and cohesion a ested in determining which group or
difficult task. segments would support a given product
category; how the segments differ in their
responsiveness to a range of product offer-
Positioning in Other Tourism Sectors ings (brands, destinations, etc.) within that
category; and how they differ in their expec-
Key players from the hospitality and tour tations (Calantone and Mazanec, 1991).
operating sectors have pursued major repo- Several distinct brands were created
sitioning and product development under the Forte umbrella. One of the overall
strategies. Both the processes and the results aims of the Forte re-branding exercise was to
of these strategies provide potential insights provide reassurance to customers when
for the regional tourist boards (RTBs). The choosing hotels in different destinations
development of ‘Courtyard’ by the Marriott (Connell, 1994). In other words, the re-
hotel group pioneered the use of new branding of hotels attempted to reduce
research and product development techni- consumers’ perceived risk when purchasing
ques. The development process involved a Forte product. Two further objectives of
the following stages: selection of a product the Forte re-branding exercise were, firstly,
development team; environment and com- to offer a clear position in an expanding
petitor analysis; customer analysis; idea international market and, secondly, to help
generation; product refinement; product employees identify themselves better with
positioning; and monitoring of results. The the company and to make them understand
environment and competitor analysis iden- their contribution towards the corporate
tified a gap in the market. The remaining effort. This second objective recognizes the
stages were underpinned by extensive con- inseparability of the production and the
sumer research, based around defining consumption processes and the integral part
preferred product attributes and benefits. which hotel staff represent in the delivery of
Seven sets of attributes were identified: the overall product. Connell observes that as
external factors; rooms; food-related servi- a result of the re-branding Forte is now able
ces; lounge facilities; services; leisure to communicate the differences between
facilities; and security factors. A range of brands to make it easier for customers to
individual product attributes were devel- choose the hotel they need.
oped within each of these sets. A range of Any repositioning process will require
multivarious and inferential statistical ana- change, particularly in the culture of the
lyses were used by Marriott, including organization and management attitudes. It is
conjoint, cluster analysis, multidimensional to some extent a ‘chicken and egg’ situation
scaling and multiple discriminant analysis. as many companies cite organizational fac-
The exercise has proved a success for Mar- tors when talking of the benefits of
riott with the Courtyard brand expanding repositioning. Clear product positioning
from three test hotels in 1983 to more than must be an integral part of any destination
200 in 1994. marketing strategy, due to the inherent char-
Forte Hotels also harnessed internal and acteristics of the destination product and the
external expertise to research the market increasingly complex needs of the tourist.
and identify key benefit-seeking market seg- Key players in the hospitality, tour operator
ments as part of their restructuring process and airline sectors have pursued successful
136 L. Moutinho
positioning strategies which have been ment are making use of methodologies that
driven by effective market segmentation and are quite common tools in marketing such as
brand management (Alford, 1998). those relating to segmentation and percep-
tual mapping approaches. Methodologies
such as multidimensional scaling, cluster
Building Perceptional Maps analysis, and other techniques have been
extensively used in market analyses.
There are different market-preference pat- Multivariate analyses are widely used in
terns such as clustered, diffused and strategic marketing because of the wide vari-
homogeneous preferences. In some cases, ety of flexible analytical techniques
the basis market-preference pattern shows available to analyse large and complex data-
distinct preference clusters, called natural sets. They can be defined simply as the
market segments. A company in this market application of methods that deal with rea-
has three options: (i) position itself in the sonably large numbers of measurements (i.e.
centre hoping to appeal to all the groups variables) made on each object in one or
(undifferentiated marketing); (ii) position more samples simultaneously. What follows
itself in the largest market segment (concen- is a brief description of how some of those
trated marketing); and (iii) develop several techniques can be used to help analyse mar-
brands, each positioned in a different seg- keting management problems related to
ment (differentiated marketing). segmentation, targeting and positioning.
In contrast, in a diffused preference mar-
ket, a company faces three different options: Cluster analysis
(i) to tap preferences of one of the corners, a Cluster analysis provides a set of procedures
single-niche strategy, which is useful for that seek to separate the component data
small companies; (ii) two or more products into groups. The goal in such applications is
can be introduced to capture two or more to arrive at clusters of objects that display
parts of the market, a multiple-niche strat- small within-cluster variation relative to the
egy; and (iii) to tap the middle of the market, between-cluster variation. The goal in using
a mass-market strategy. A product located in cluster analysis is to identify a smaller num-
the centre minimizes the sum of the dis- ber of groups such that objects belonging to a
tances of existing preferences from the given group are, in some sense, more similar
actual product. It will minimize total dis- to each other than to objects belonging to
satisfaction. other groups. Thus, cluster analysis
If a company enters into a market con- attempts to reduce the information on the
taining a large entrenched competitor, whole set of n objects, to information about,
instead of entering with a me-too product, or say, g subgroups where g < n.
with a single-segment product, it can intro- One of the major problems in strategic
duce a succession of products aimed at marketing consists of the orderly classifica-
different segments, providing that the com- tion of the myriad data that confront the
pany has the necessary resources. Each researcher. Clustering techniques look for
product entry will create a loyal following classification of attributes or subjects on the
and take some business away from the major basis of their estimated resemblance. Cluster
competitor. The company should try to find analysis is an exploratory method that seeks
market gaps where there is more profit patterns within data by operating a matrix of
potential and less risk. independent variables. Usually objects to be
The techniques of market segmentation, clustered are scored on several dimensions
product positioning and perceptual map- and are grouped on the basis of the likeness
ping represent early applications of of their scores. The primary value of cluster
methodologies such as cluster analysis analysis lies in the preclassification of data,
which are now thought to have some poten- as suggested by ‘natural’ groupings of the
tial for identifying strategic groups. data itself. The major disadvantage of these
Researches in the area of strategic manage- techniques is that the implicit assumptions
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 gen-
erated into an order of preference. Conjoint
Multidimensional scaling analysis then assigns a value to each level
Multidimensional scaling, unlike the other and produces a ‘ready-reckoner’ to calculate
multivariate methods, starts with informa- the preference for each chosen combination.
138 L. Moutinho
Conjoint analysis can be used to design various aspects of marketing strategy are lis-
packaging, establish price, rank a hypothet- ted below:
ical product against existing competitors
already in the market and suggest modifica- ● Market scope. For example, a tourism
tions to existing products which would help company may serve an entire market or
to strengthen a product’s performance. dissect it into key segments on which to
It seems that various types of marketing concentrate its major effort.
planning models and other procedures ● The geographical dimensions of a mar-
using judgemental estimates in a formal ket. A company may focus on a local,
manner might benefit from the utilization of regional, national or international mar-
conjoint models in additive or, more gen- ket.
erally, polynomial form. Moreover, buyer ● Time of entry into a market. A tourism
preferences for multiattribute items may company may be the first among the first
also be decomposed into part-worth evalu- few, or among the last to enter a mar-
ations in a similar manner. Potential areas of ket.
application for conjoint analysis include ● Commitment to a market. This commit-
product design, new product concept ment can be to achieve market
descriptions, price–value relationships, atti- dominance, to become a major player in
tude measurement, promotional congruence the market, or merely to play a minor
testing and the study of functional versus role in it.
symbolic product characteristics. The out- ● Dilution of a part of the market.
put of conjoint analysis is frequently In summary form, the following 16 strategies
employed in additional analyses. Since constitute the major market strategies that a
most studies collect full sets of data at the company may pursue. The presentation
individual respondent level, individual structure of these strategies follows the same
utility functions and importance weights framework of analysis: definition, objective,
can be computed. This fosters two addi- requirements and expected results.
tional types of analyses: (i) market
segmentation; and (ii) strategic simulation 1. Single-minded strategy
of new factor-level combinations. Definition: Concentration of efforts in a
single segment.
Correspondence analysis Objective: To find a segment currently
Correspondence analysis is a visual or being ignored or observed inadequately
graphical technique for representing multi- and meet its needs.
dimensional tables. It can often be Requirements: (i) Serve the market
impossible to identify any relationships in a wholeheartedly despite initial difficul-
table and very difficult to account for what is ties; (ii) avoid competition with
happening. Correspondence analysis unrav- established firms.
els the table and presents data in an Expected results: (i) Low costs; (ii)
easy-to-understand chart. This technique is higher profits.
particularly useful to identify market seg- 2. Multimarket strategy
ments, track brand image, position a product Definition: Serving several distinct
against its competition and determine who markets.
non-respondents in a survey most closely Objective: To diversify the risk of serv-
resemble. ing only one market.
Requirements: (i) Careful selection of
segments to serve; (ii) avoid confronta-
Dimensions of Market Strategies tion with companies serving the entire
market.
Market strategies deal with the perspectives Expected results: (i) Higher sales; (ii)
of markets to be served. These perspectives higher market share.
can be determined in different ways and the 3. Total-market strategy
Segmentation, Targeting, Positioning and Strategic Marketing 139
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
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
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
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 highSuitable 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)
economic circumstances (e.g. inflation, price during the initial stage of a prod-
unemployment), etc. uct’s life.
Objectives: (i) To serve customers who
With the increase in computerization, an
are not price conscious while the mar-
increasing number of hotels and restaurants
ket is at the upper end of the demand
analyse the profitability of operations by
curve and competition has not yet
individual menu items, meal periods (e.g.
entered the market; (ii) to recover a sig-
breakfast vs. banquet business), or catego-
nificant portion of promotional and
ries of menus. A ‘profit and loss’ account for
research and development costs
every meal can be developed. This approach
through a high margin.
is particularly suitable for relatively small
Requirements: (i) Heavy promotional
establishments and enables the manager to
expenditure to introduce product, edu-
keep an eye on the profitability of the restau-
cate consumers, and induce early
rant business (Meidan, 1994).
buying; (ii) relatively inelastic demand
at the upper end of the demand curve;
Dimensions of pricing strategies (iii) lack of direct competition and sub-
Strategically, the function of pricing has stitutes.
been to provide adequate return on invest- Expected results: (i) Market segmented
ment. Thus, the timeworn cost-plus method by price-conscious and not so price-
of pricing and its sophisticated version, conscious customers; (ii) high margin
return-on-investment pricing, have histor- on sales that will cover promotion; (iii)
ically been the basis for arriving at price. opportunity for the firm to lower its
Pricing is an important part of marketing price and sell to the mass market before
strategy. Despite the importance attached to competition enters.
it, effective pricing is not an easy task, even 2. Penetration pricing
under the most favourable conditions. A Definition: Setting a relatively low price
large number of internal and external vari- during the initial stages of a product’s
ables must be studied systematically before life.
price can be set. For example, the reactions Objective: To discourage competition
of a competitor often stand out as an impor- from entering the market by quickly tak-
tant consideration in developing pricing ing a large market share and by gaining a
strategy. Simply knowing that a competitor cost advantage through realizing econo-
has a lower price is insufficient; a price strat- mies of scale.
egist must know how much flexibility a Requirements: (i) Product must appeal
competitor has in further lowering price. to a market large enough to support the
This presupposes a knowledge of the com- cost advantage; (ii) demand must be
petitor’s cost structure. highly elastic in order for the firm to
In the dynamics of today’s environment, guard its cost advantage.
however, where unexpected economic Expected results: (i) High sales volume
changes can render cost and revenues pro- and large market share; (ii) low margin
jections obsolete as soon as they are on sales; (iii) lower unit costs relative to
developed, pricing strategy is much more competition due to economies of scale.
difficult to formulate. This section now pro-
vides a composite of pricing strategies for Perspectives on pricing strategies: price
products. Each of five strategies is examined strategies for established products
for its underlying assumptions and rele- 3. Maintaining the price
vance in specific situations. Definition: The price is kept at exactly
the same level.
Perspectives on pricing strategies: price Objectives: (i) To maintain position in
strategies for new products the marketplace (i.e. market share, prof-
1. Skimming pricing itability, etc.); (ii) to enhance public
Definition: Setting a relatively high image.
Segmentation, Targeting, Positioning and Strategic Marketing 157
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.
product development, research, etc.) should umes than single service providers. Second,
be determined. For tomorrow’s tourism mar- given the high price elasticity of demand for
keting strategies, the name of the game will, international travel, the ability of tour opera-
above all, be how to achieve a sustainable tors to obtain low cost charters is crucial
competitive advantage. and, finally, tour operators can arrange pack-
ages that can be mass marketed on the basis
The evolving role of tour operators of their brand name and quality assurance.
Tour operators function as intermediaries in In other words, tour operators are able to
the tourism distribution system linking pro- reduce economic distance (low cost char-
ducers and consumers. Their expertise in ter), cultural distance (providing complete
packaging tourism products allows for more packages), and increase quality of host ser-
offerings to a wider range of tourists. Tour vices (brand name and quality assurance).
operators handle all the details of foreign The resistance component of demand is
travel allowing the foreignness of the desti- thereby reduced, resulting in an increase in
nation to be observed but not truly total demand.
experienced. Tour operators often negotiate Another important role of tour operators
discount fares for package tours with metro- is as a gatekeeper of information. Tour
politan enterprises. operators provide information about desti-
The ability of tour operators to combine nations even if travellers do not choose to
travel products and offer them to customers use their services. This source of informa-
at prices generally lower than those avail- tion can be considered as an induced image
able to individuals provides travel economy formation agent critical to the perceptions
and convenience for a significant segment of travellers hold about different destination
tourists. Product packaging and selling areas. Murphy (1983) agrees that informa-
through operators represents a significant tion dissemination by tour operators
portion of the international travel business. contributes to the image travellers hold
A tour operator will have more influence in about certain areas. McLellan and Foushee
the travel decision process and hence (1983) argue that country images to a great
become more important both to the traveller extent work to influence the image held by
and destination area the greater the distance tour operators and ultimately their clients.
from point of visitor origin to destination. The role tour operators provide by distribut-
They are often the first and most influential ing information organizes the information
link in the tourist flow chain. search process for the individual. External
The dependence of developing countries sources of information are minimized for the
on foreign tour operators derives fundamen- individual if they choose to use the services
tally from the expertise of these operators as of a tour operator.
producers and wholesalers of tourism- In most industries the supplier or pro-
related services, their knowledge of the ducer has full or at least decisive control
market, particularly the international mar- over the product including pricing, quality
ket, and their access to the relevant and the manner in which it is distributed.
complementary services whereby a total Tourist service providers are an exception.
package of tourism-related services can be According to Hawkins and Hudman (1989),
provided. For example, tourists depend on the distribution sector of tourism is much
tour operators as sources of, presumably, stronger and travel intermediaries have far
expert information about product quality greater power to influence and direct con-
and consumption expectations. sumer demand when compared with their
We can identify three areas where tour counterparts in other industries. The dis-
operators provide necessary services to both tribution channel in tourism creates the link
travellers and developing countries. Tour between the producers of tourism services
operators are considered specialists in mar- and their customers. Often tour operators
keting and distribution of tourist-related are the distribution link and the channel
services and can achieve higher sales vol- between producers and consumers of inter-
162 L. Moutinho
national tourism products. Since tourism Travel intermediaries and the impact of
products are experiential and consumed on information technology
site, tour operators are an integral link in the Computer reservation systems affiliated
distribution system (Morrison, 1989). with vendor airlines have become known as
Unlike other products which flow from pro- global distribution systems (GDSs) and
ducer to consumer, tourists flow to the those affiliated with non-vendor airlines are
product. This inverted distribution system called computer reservation systems (CRSs).
relies on intermediaries to perform much All GDSs provide important electronic dis-
more than simple delivery services. tribution channels for a variety of travel
In competing for customers, tour opera- products. Travel agents are the most ubiqui-
tors must include destination attractiveness tous travel intermediaries varying in size
as one of the intangible qualities they market from multinational, multi-branch mega-
(Whipple and Thach, 1988). However, the agencies to small, independently owned
operators are concerned about the overall offices.
tourism experience for their clients and this Travel agencies have an unusual relation-
can be affected by inefficient in-country ser- ship with the Internet. It is both a threat
vices. Also, difficulty in obtaining services, since it could remove much of their busi-
which have higher than expected prices, ness, but it also provides additional
may lead to destination substitution. Tour- business opportunities. Some travel agen-
ism demand could be increased by reducing cies offer services on the World Wide Web,
economic distance for tour operators. The giving them a much broader geographic con-
more difficult it is to obtain needed informa- sumer base than if they operated
tion, reserve domestic airline space or book traditionally. Travel agents can also use it as
blocks of hotel rooms, the more time- an important research tool in addition to
consuming and expensive it becomes for their GDS. This may be particularly impor-
tour operators. tant in the future as some travel products
Questions that need to be addressed become available only via the Internet. Of
immediately include: United States travel agents, 60% use the
Internet to research products and destina-
● Are there measures which can be under- tions, 55% use it to receive e-mail from
taken to improve the services for clients, and 23% use it to make bookings for
international tour operators? clients. In addition, 29% have set up a home
● Are there opportunities for govern- page on the Web and 42% access news
ments in particular and all developing groups through the Internet (Harris, 1996).
countries in general to provide informa- Tour packages are traditionally distrib-
tion and assistance in obtaining needed uted using brochures. Computers can assist
services directly to tour operators, in in-house brochure creation with the use
thereby reducing dependency on metro- of desktop publishing software. Brochures,
politan enterprises? however, represent a significant expense for
● Are tour operators’ expectations of dis- agents and so many are looking to distribute
count fares and preferential bookings brochures to agents electronically using
realistic and in keeping with sustain- high band width data communications
able development policies? lines, thus allowing full colour pictures and
● What role does the government and pri- text to be transmitted to an agent’s terminal.
vate sector play in the provision of Integrated services digital network (ISDN) is
services to international tour opera- an example of a technology that could facili-
tors? tate electronic brochure distribution.
Reservations are then transmitted back to
As an operator increases their business in the tour operator reservation system directly
the country they are more likely to be con- from the travel agent’s terminal.
fronted with increasing problems of Electronic distribution of tour packages
securing adequate services. can also be done with CD-ROMs, videotext,
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
(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.
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Part Three
Functional Management in Tourism
6
Human Resource Issues in Travel and Tourism
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; tour-
ist 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
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
three sectors of the travel and tourism indus-
the industry.
try, namely: air transportation,
● Rewards and benefits/compensation.
hotels/lodging places and eating/drinking
● Recruitment, retention and staff turno-
places.
ver.
● Education and training, both within col-
leges 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 addi-
tion, 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. remuner-
ation, 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
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
This case reports on how Sofitel (the luxury hotel brand of Accor) North America sought to re-
engineer 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).
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 tour-
ing 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
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
underpinned by assumptions about
be followed in formulating and operational-
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 encapsu-
lated 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
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
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.
Baum, T. (1995) Managing Human Resources in
and low labour turnover, as exemplified by
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
Experience: A New Introduction. Cassell,
travel and tourism is to take up its putative
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
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Human Resource Issues in Travel and Tourism 185
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7
Financial Management in Tourism
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 air-
craft 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 budget-
ing 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 invest-
ment 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 5 PVNCF 2 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 5
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
£1000 receivable in 3 years time would have year, the present value will be 36,000 2
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 5 PVNCF 2 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 periods, one must recognize the need for
NPV 5 + + +
(1+k) (1+k) 2
(1+k) 3
(1+k)4 periodic injections of capital for replace-
ment or renovation, but these will simply
A5 reduce the net inflow in the years of occur-
+ 2 NINV
(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
A B C D E F G H I
2.
3.
5.
6.
7.
8.
10.
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 5 NPV 5 PVNCF 2 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
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
1-2-3, QUATTRO-PRO and EXCEL. These may entered in cell I4: 1G4/2A4 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 ‘5’ 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 2£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
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
ERC 5 IPC 2 B/C
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 5 Q(P 2 D 2 c) 2 F 2 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 5 total profits;
probably not be sufficient to cover the Q 5 quantity of units sold;
£200,000 cost of the campaign. Hence, it P 5 hotel list room rate;
will be useful, not merely to establish an D 5 discount, trade allowance or com-
order of preference in the relative expendi- mission;
ture on the different media, but also to find a c 5 service production variable cost,
cut-off point below which the expected such as labour;
return for expenditure in the next medium F 5 fixed costs, such as property tax and
proposed is quite simply unprofitable. managerial salaries;
M 5 marketing costs associated with the
strategy in question;
Marketing mix and profitability
(P 2 D 2 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 2 D 2 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
£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 cau-
tion 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
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 (P2c) 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 (P2c) 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 5 fixed cost and Q 5 output, we
linear functions of output. Each service unit can write:
provided is sold at a common price which
Total cost 5 f 1 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
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 (5 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 2 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 5 80 2 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).
80 0 0 664 2664
78 1 78 648 2570
76 2 152 632 2480
74 3 222 616 2394
72 4 288 600 2312
70 5 350 584 2234
68 6 408 568 2160
66 7 462 552 290
64 8 512 536 224
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
2 39 78 40 38
0 40 0 24 224
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 5 80 2 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 spe-
cific 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-
ing little profit to be gained from the fore ARGE is (50% 2 0.8) 5 40%.
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 (r2s2c) exceeds (1 2 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-
vious paragraph is related to frequency and c
p*n 5 (crm equation 1)
occupancy, in so far as a room which is (r2s)
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
data which will enable accurate computa- (r2s2c)
1 2 p*n 5 (crm equation 2)
tions of probability to be performed. To (r2s)
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 5 r 2 (s 1 c) lized for one-third of the nights in the year to
where: C 5 the expected contribution of an break even; any greater frequency of occu-
incremental available room; r 5 the pancy will yield a positive contribution.
occupancy-variable revenues; s 5 the The second equation gives the demand
occupancy-variable (servicing) costs; and c level equivalent to the probability that
5 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
contemplated capacity of n rooms as fol- (75 2 30 2 15)
1 2 p*n 5 5 0.67 (the
lows. Let: (75 2 30)
ECn 5 expected contribution of the nth same as 1 2 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 5 Pn (r2s2c) 2 (1 2 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
rate of £60 instead of the usual £75. The percentage is 25/40 2 100% 5 62.5%. The
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.
5 0.5
(60 2 30) In hotels, as with airlines, yield manage-
ment 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,
% Yield 5 2 100%
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
yield is 100% 2 (270 2 68)/(360 2 85) 5 raise them when it is buoyant, and to bal-
100% 2 18360/30600 5 60%. The ARGE ance the demand from the business and
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 5 75% yield can be greatly improved in this way. It
2 68/85 5 60%. has become a practical proposition to fore-
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 con- cept 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 man-
agement works. Hotels adopting the systems Conclusion
and techniques have reported record increa-
ses 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.
Coltman, M. (1994) Hospitality Management
have been adopted in some yield manage-
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.
Orkin, E.B. (1988) Yield Management – What,
the former allocation which comprised: C,
How and Why, CKC Report. Chervenak
A, B, G and E. The inclusion of D ahead of G
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
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 sys- tems, 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
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
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
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
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
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.
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).
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 stan-
dards. Work standards are measures of
effort, usually specified in terms of time Operations Management Decisions
taken at a reasonable level of work per-
formance, 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 per-
form 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
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 approa-
ches 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
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
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
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.
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
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 pro-
gramming 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 air-
port 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
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 cus-
tomers 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
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 mon-
itored. 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, per-
haps 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
H. Maylor
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
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 neg-
ative 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 facili-
ties) 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 expecta-
tions 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:
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
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 pro-
viding 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
● equipment, fixtures and fittings are
adopted by the organization. It does not
modern looking;
mean to say that it is the right definition,
● facilities are visually appealing;
only that it is the one that has been used. For
● neat and professional employees;
the service manager, the key issue here is
● materials are visually appealing;
avoiding putting their own views of the
● fixtures and fittings are comfortable;
service above those of the customer. It is not
● equipment and facilities are easy to
unusual to find a customer survey ques-
use;
tionnaire that reflected a manager’s
● equipment and facilities are generally
preferences from the service, rather than
clean;
that of the customer. One of the ways to
● variety of food and beverages meets
avoid this is through the use of frameworks,
guests’ needs;
adapted for the particular customer service
● services are operated at a convenient
experience in question.
time.
The major framework for the evaluation
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
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,
quality maintenance and quality
would be focused on the later incident in a
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 ‘hol-
istic’ 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
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 con-
sider 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
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 con-
tinuous improvement of different elements
Conclusion of the service offering is required.
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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 mar-
keting 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
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
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 con- tinuation.
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
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 ques-
tion. 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 analy-
sis 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 state-
ment 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
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
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 indi-
cates 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 advan-
tage 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
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 divid-
ing 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.
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.
1
The circumference of the circle represents
EN
Market attractiveness
High
RE
Low
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
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 demo-
graphic 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 diver-
sification 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
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 indus-
try 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 cus-
tomers 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
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
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
The Marketing Planning Index (MPI) would appear to be comparable with sam-
ples 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.
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
Fig. 11.1. Procedural steps for developing the index of marketing planning effectiveness. Adapted from
Meidan et al. (1992).
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 Peer group Sub totals *Hotel Y Hotel Y Sub totals Strategic gap
Variables score Weighting MPI (A) score Weighting MPI (B) (B–A)/A
*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 dimen-
sion, 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.
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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
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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-
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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
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and strategic marketing planning on hotel Manager Canada 32(5) (May), 25–26.
12
Demand Modelling and Forecasting
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 fore-
cast 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
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
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
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 2 n matrix for developing an estimated located on São Miguel, 25% on Terceira,
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 vot-
1983 227,682 7.5
ing at the extremes to justify their positions.
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
ions usually converge and the median value 1989 317,114 11.9
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) fore-
casted 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.
6
18 Critical: Essential for success
16 Major: Major item for success
14 Significant: Positive, helpful, but not essential effect Enhancing
12 Slight: Noticeable enhancing effect
0 No effect
6
12 Slight: Noticeable inhibiting effect
14 Significant: Retarding effect Inhibiting
16 Major: Major obstacle to success
18 Critical: Almost insurmountable hurdle
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.
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
of problem, suppose that a regional tourism EOL(A3) 5 0.1(0) 1 0.9(8) 5 £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
The conditional opportunity losses under S1 could be chosen, and if P(S1) is exactly 0.625
(high sales) and S2 (low sales) are shown in either A2 or A3 could be chosen. These ‘indif-
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) 5 EOL(A2)
State of nature Letting P(S1) 5 P, we have:
6P 1 0(1 2 P) 5 3
Act S1 S2 P 5 0.5
Similarly:
A1 6 0 EOL(A3) 5 EOL(A2)
A2 3 3 0P 1 8(1 2 P) 5 3
A3 0 8 P 5 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 S2 problem, the same act (act A1) would be
obtains, however, act A1 becomes the best chosen if P(S1) were, say, 0.1, as would be
course of action. Act A2 is a kind of ‘hedging’ 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) 5 0.1(6) 1 0.9(0) 5 £0.6 mil- planning problems, the quantity of beds
lion allocated may vary more or less continu-
EOL(A2) 5 0.1(3) 1 0.9(3) 5 £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).
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.
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 vari-
able. 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 varia-
ble 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 differ-
ent 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
Martin and Witt 1988c 1 OLS 0.969 2.819* 11.242* 1.053 10.0221 10.150*
10.0342
(data
1965– 2 CO 0.953 2.756* 10.708 0.600 10.204*1
1980) 3 CO 0.987 1.292* 10.037 10.755* 10.109*2
4 CO 0.896 4.923* 10.932 11.250 2.803* 10.0401 10.122
5 OLS 0.776 0.372 10.355 10.364 0.156 10.0422 10.018
6 CO 0.897 2.431* 10.198 10.428
7 CO 0.991 4.550* 10.235 1.859* 0.130 10.258*1
10.619*2
Witt 1980 14 OLS 0.969 1.386 10.199 10.049 10.0558 0.908* 10.165
(data 0.0919
1964– 0.15710
1972) 0.15211
0.145–1.01512
Median valuesa 2.4 10.5 10.7 1.8 1.6 1.1 10.11 10.1 0.1
10.22
10.57
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 accu-
rate 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
sensitivity of demand to exchange rate chan- Forecasts of tourism demand are crucial for
ges. The fairly high absolute values obtained planning purposes. In this chapter, a range
for the price elasticities again support a pri- of tourism forecasting methods has been
ori expectations regarding the luxury nature outlined which can be applied in a wide
of foreign tourism. variety of situations.
With regard to substitute prices, travel
cost appears in 6 of the 14 models but desti-
nation 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
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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,
loss of cultural heritage, increased crime
is ‘pushing’ transnational corporations in
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 net-
work 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,
1983, pp. 25–26).
Globalization of the Travel and
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 dis-
similarities 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
international hotel firms, managers need a share, or worse the opportunity to survive.
global mindset because the world-class serv-
ice 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 man-
agers 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
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
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 opportu-
nity 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 mar-
ket 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, organ-
izations 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
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
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