Inkijkexemplaar_Marketing & Sales for the Hospitality_1

INKIJKEXEMPLAAR ©SVH

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry102

Chapter 4 | Supply-side analysis of the hospitality marketChapter 4Supply-side analysis of the hospitality marketINKIJKEXEMPLAAR ©SVH The chapter at a glance 1034.1 Introduction  1054.2 The market and supply conditions  1064.3 Competition strategies  1094.4 Macro and meso environmental analysis  1114.5 Facts and figures of the hospitality industry  1204.6 Conclusions  1234.7 Questions about the chapter  126For more information, exercises, answers and supportingmaterials: www.masaho.nl 103

Chapter 4 | Supply-side analysis of the hospitalitymarket Marketing and Sales for the Hospitality Industry part 1INKIJKEXEMPLAAR ©SVHMarket typeCompetition Supply-side Competition analysis analysis strategy Environment Environment meso macro analysis analysiswww.masaho.nl - Questions: email to [email protected]

INKIJKEXEMPLAAR ©SVHChapter 4 | Supply-side analysis of the hospitality market 4.1  | Introduction The first place Kim ever went out to eat with her parents, was a Chinese restaurant. It always smelled of herbs and spices and fried rice. The service was really friendly. She always ordered her favourite dish: babi pangang. Practically every Sunday evening, the whole family would go there for an hour or so to eat dinner before Studio Sport came on television. It often seemed like half the town had the same idea because there were always people they knew sitting at the other tables. When Kim went to live on her own in the city, there was also a Chinese restaurant on her street. It had the same kind of service and almost the same food on the menu, including her favourite dish. There were an Indonesian restaurant, a Greek restaurant and a Thai restaurant two blocks away. There was also a lovely tapas place around the corner that was run by real Spaniards. Marketing helps the entrepreneur to make a profit. The entrepreneur is going to sell products and services where there is a need in the market. In order to estimate future demand properly, he must keep an eye on all the supply and demand conditions in the hospitality market. Only by noticing changes in good time will he be able to take the right decisions. This chapter looks at the supply conditions of the hospitality market. The supply of hospitality products no longer comes just from traditional hospitality establishments like restaurants and hotels. A cheese sandwich from the petrol station, a meal service via the butcher, a farmer who rents out 'hotel rooms’, a supermarket that sells more than 20 different ready meals; these are just a few of the existing developments. For a restaurant owner, the same type of restaurant in the area is a direct competitor. A cafeteria is an indirect competitor of the restaurant owner, and even the meals offered by the supermarket form a certain level of competition. We begin this chapter with studying the concept of 'market'. What is meant by a market and what possible types of markets are there? Then we're going to look at how we can analyse the competition. We end this chapter with the question of how we must deal with the competition now. 105

Marketing & Sales for the Hospitality Industry 4.2  |  The market and supply conditions Many villages and cities in the Netherlands have a square with a name that includes the word 'market'. This could be ‘De Grote Markt’ or just ‘De Markt’. The square in question is likely to be a place where regular markets are/were held. A place where stalls are set up, in which people offer all kinds of goods. The people from the village can do their shopping at the market. At the end of the day, all the stalls are once again emptied and taken down. The market has ended.INKIJKEXEMPLAAR ©SVH Markets are also often mentioned in the newspapers and on television. Examples include the labour market or the coffee market. However, if you ask someone where that market is, they wouldn’t be able to say. There is no specific answer because the labour market is everywhere. There are jobs (labour demand) and there are people looking for work (labour supply) almost everywhere in the Netherlands.Concrete market The concept of 'market' has two meanings. One is the market that is organised in a particularAbstract market place and the other is the total trade in a particular product. In marketing, this is called a concrete market and an abstract market. It is a concrete market if the demanders, suppliers and the goods are all located at the same place. For example, the weekly market held in almost every village and town. The hospitality activities around the Leidseplein in Amsterdam could also be considered as a concrete market. An abstract market is the entire supply and demand for a particular product and everything that influences it. Examples include the labour market, the housing market, the foreign exchange market and the hospitality market. Market types A market consists of demanders and suppliers. The number of suppliers and the comparability of the product determine the level of competition. It’s important for the individual entrepreneur to know how many suppliers are on the market. This determines his behaviour on the market and his freedom in setting prices. If he is the sole supplier, he has a large degree of freedom in setting his price levels. He has no competitors, so all he needs to take into account is the willingness of the buyers to pay the requested price. But there are also market situations in which the entrepreneur is one of many suppliers with or without comparable products. In that case, the entrepreneur will behave quite differently on the market. Economists have described four theoretical supply situations. Practice shows that the market for some products approaches these theoretical situations, but you’ll often see differences in reality.106

Chapter 4 | Supply-side analysis of the hospitality market 1. Monopoly: One supplier with a unique product. 2. Oligopoly: A limited number of suppliers with the same product or similar products.INKIJKEXEMPLAAR ©SVH 3. Full competition: Many suppliers with the same product (homogeneous product). 4. Monopolistic competition: Many suppliers with comparable products (heterogeneous product).Monopoly Monopoly The monopoly market type has only one supplier. The monopolist’s product is unique, there are no other entrepreneurs who offer the same or a similar product. From the consumer’s point of view, you could say that there are no replacement products on the market. The monopolist has a strong position; he can charge almost any price he wants. Of course, there must be purchasers who are willing to pay the price. We see a number of monopolies in the medicine market because their products are protected by patents. Up until the introduction of mobile telephones in the Netherlands, KPN also had a monopoly. The ANWB is another example of a former monopoly in the Netherlands, but it lost its monopoly after the introduction of Route Mobiel.Oligopoly Oligopoly With an oligopoly market type, there are a limited number of suppliers. Two situations are possible.Homogeneous In a homogeneous oligopoly, the same product is offered by the suppliers. oligopoly Think primarily about suppliers of raw materials and semi-finished products. The buyers in this market can very easily compare prices because the product is the same. Price cartel This is why the suppliers keep a close eye on each other's prices. A price reduction by one supplier is directly followed by price reductions with the other suppliers. Sometimes there are mutual agreements made regarding the asking price. A price cartel is formed when agreements are made about the asking price. This is prohibited in the Netherlands.Heterogeneous With a heterogeneous oligopoly market type, comparable products are put on the market and oligopoly differentiated by the suppliers. They try to distinguish themselves as much as possible through advertising and packaging. Examples include laundry detergents and petrol. The suppliers suggest Non-price product differences that are sometimes negligible in order to prevent price wars, this is called competition non-price competition. Take advertising for washing detergent; one washes whiter than white, the other is now an even better value and the third is colour-safe. The heterogeneous oligopoly market type is often encountered in the hospitality market at the local level. Every restaurant has its own hospitality product and restaurants can differ considerably in this. Often the choice for a hospitality establishment is made based on what is offered by that business and not by the price. Another example of a heterogeneous oligopoly is three cafeterias in the same residential area. 107

Marketing & Sales for the Hospitality Industry The cafeterias keep an eye on each other's chip prices, but will profile themselves against their competitors based on the quality of their products, the chosen range and any homemade items. The more special the selection, the more freedom the entrepreneur has in determining the price. Market Development Beverage Providers Bars adapt slowly In addition to the fact that the weather gods were kind to bars in 2014, the bars increasingly distinguished themselves by communicating a clear story. They had to in order to compete with other types of entertainment on offer (e.g. festivals and events). New concepts pop up and formerly 'flat' categories like beer are becoming sophisticated by using craftsmanship. See, for example, www.craftbrewersconference.com or dutchbeerpages.com Tea and coffee shops; where will it stop? Coffee and tea shops really know how to play to the wishes of consumers, with fast high- quality coffee to-go and coffee to-stay concepts. In addition to fresh mint tea, loose (dried) tea and tea with milk (including Chai Latte) are on the up. The sector innovates based on the preferences of the young and trendy consumer. The growth of chains like Coffee Company and Starbucks is continuing. See, for example, www.coffeecompany.nl/about/ or www.starbucks.com/about-us Source: Foodservice, essentials 2015INKIJKEXEMPLAAR ©SVH Full Full competition competition A market with full competition has many suppliers, many demanders and a homogeneous (identical) product. All market players are aware of price developments. The individual demander or supplier has no influence on the price. The market determines the price. We do not encounter this market type in the hospitality industry. This market type is not attractive to suppliers. This is why hospitality entrepreneurs try to think of anything that will distinguish them from their competitors. Only the market for agricultural products consists of a homogeneous product and can contain many suppliers and many demanders. Monopolistic Monopolistic competition competition In the case of a monopolistic competition market type, you can find many suppliers offering comparable products. The more a supplier can make his product stand out from the competition and can adapt to the wishes of the customer, the more freedom he has in determining prices. This makes him less sensitive to the behaviour of the other suppliers. We primarily see this market type in the hospitality market of large cities, both in the beverage supply sector and the meal supply sector.108

Chapter 4 | Supply-side analysis of the hospitality market 4.3  |  Competition strategies Strategies are policies that a business sets out for the long term. One of the strategies should relate to the competition. How should a company deal with competition? The well-known economist Porter distinguished three principles for how a competitive advantage can be used optimally.INKIJKEXEMPLAAR ©SVHCost leadership 1. Cost leadership A cost leader beats the competition by selling cheaper products than his competitor. He will have to keep his costs low. He does this by standardising the production and service processes as much as possible and by using economies of scale. As a result, he has lower costs and can offer a price that is lower than the market average. A condition of this competition strategy is that the customers in the market are price sensitive. Fast food outlets and some bars apply this strategy particularly successfully, just like buffet restaurants and Formula-1 hotels.Product differentiation 2. Product differentiation The entrepreneur distinguishes himself from his competitors by supplying products and services with a clear added value. The price may be higher than the market average. For a hospitality business, it’s about the right combination of features that appeal most to the guest and the services that set it apart from competitors. With this competition strategy, there must be a clear and demonstrable difference with the other suppliers on the market. Many mid-level and starred restaurants prove that this strategy can be successful in practice. Focus strategy 3. Focus strategyMarket segment People use this strategy on one or several groups of customers with the same wishes and needs. A group of customers with similar wishes and needs is called a market segment. By focusing on a small part of the market, the product can be tailored exactly to the wishes and expectations of those types of customers. It is usually better to be a leader in a small market than a follower in a large market. Examples include the small breweries dedicated to speciality beers like Hoegaarden, a vegetarian restaurant and a bar that specifically focuses on young people.The atmosphere isextra important fora neighbourhood bar. 109

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry The neighbourhood bar Many neighbourhood bars are struggling to keep their heads above water. Guests are attracted to bigger entertainment centres and the hospitality entrepreneurs of local bars are struggling to distinguish themselves. Still, there are examples of neighbourhood bars that are vibrant centres within their area. What drives these enterprising bar owners is their endless enthusiasm, commitment to the area and a heart for hospitality? These bar owners keep their guests by organising regular activities such as an annual getaway or a savings bank. They also organise events that draw a wider audience in order to recruit new guests. By regularly appearing in local newspapers and using door-to-door flyers, they ensure the necessary publicity and name recognition. The atmosphere is extra important for a neighbourhood bar. There should be a warm and welcoming living room-feel where even occasional guests feel at home. Lighting is always decisive in achieving the right atmosphere. The lighting must also provide a sense of security, so not too dark. This sense of security can be strengthened by clearly indicating the location of the emergency exit and by immediately putting an end to any aggressive behaviour. The neighbourhood bar can stand out from large entertainment centres through personal attention for their guests. Radiating hospitality and cheerfulness is important here, and so is lending an ear. Finally, a local bar must offer good value for money for drinks and snacks, whereby the entrepreneur must find a balance between friendly prices and a healthy return.110

Chapter 4 | Supply-side analysis of the hospitality market4.4  |  Macro and meso environmental analysisSo far, it’s been about the theory of possible market situations and competition types. In thissection, the research possibilities of the individual hospitality entrepreneur are central. Whatshould he actually research and what resources are available to him?The entrepreneur will have to do research on different levels. He has to keep an eye on nationaldevelopments, but he will especially want to know what is happening in his immediate vicinity.In order to get a good picture of the developments in the supply side of the hospitality marketin the coming years, he will not just have to keep an eye on national developments (macroenvironmental analysis) but also on developments within the industry sector (meso environmentalanalysis).DemographicINKIJKEdevelopmentsXEMPLAAR ©SVH IntermediariesSchedule: the hospitality marketPolitical, legal, technological and economic developmentsCustomer groups Meso environment Guest Marketing policy: Socio-cultural trends distinguishing the business Other participants and suppliers formula as positively as possible from the competition when catering to the wishes of the guest Hospitality Competition business microenvironment Other suppliers Macro environment 111

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Macro environmental analysis With a macro environmental analysis, the entrepreneur wants to map out clearly what developments are current. He can use this analysis to create strategies and to assess how to deal with these changes. The following developments are listed mainly at the macro environmental level. 1. Demographic developments Demographic developments are details about the population structure such as totals, age structure, education and cultural composition. The hospitality entrepreneur will keep an eye on these developments, especially relating to his service area. Key questions include: How much will the aging population increase in the coming years and what about the declining number of young people? How the population coexists is also important. Are there many large families or many small families? Are there a lot of one person households or other types of cohabitation? Leisure activities, especially in own area Half of the leisure activities (50%) takes place within a radius of 5 km from the residential address. In particular, sports activities, hobbies, club activities and courses are done close to home. The Dutch spend about 16 euro per activity. In total, about 77 billion euros are spent on leisure activities on an annual basis. More than 15% of this is spent on consumables. Source: ContinuVrijetijdsOnderzoek 2. Political and legal developments Politics directly influence the hospitality business. The Eerste Kamer and Tweede Kamer (Upper and Lower Houses) form the legislative power of the Netherlands. People in The Hague determine, amongst other things, the amount of VAT, obligations of the employer to the employee, and the regulations governing the granting of permits. These developments can directly affect the hospitality business, just like with the deductibility of business meals. The law is important for the hospitality industry entrepreneur. The Drank en Horecawet (Beverage and Catering Act) has a strong influence on his business. It covers things like the minimum ages for alcohol consumption and the implementation of the enforcement policy. This law also covers the granting of permits. The entrepreneur will also want to stay informed of his liability towards the guests. This is also regulated in the law. For example, the Wet BIBOB (Public Administration (Probity Screening) Act) gives the government a tool to check, for example, the integrity of applicants for certain permits and subsidies or candidates for certain public contracts. This is to prevent the government from unwittingly facilitating crime.112

Chapter 4 | Supply-side analysis of the hospitality marketThe municipalityThe municipality is an important partner for the hospitality industry. In most municipalities,a hospitality establishment requires an operating permit. Granting this permit allows amunicipality to place demands on managers and business practices. A beverage andcatering regulation permit is required for hospitality businesses that want to sell alcoholicbeverages. Depending on the situation, a terrace permit, slot machine permit, waiverhospitality business operating hours, sufferance rights and an environmental permitmay also be required. The municipality also sets a zoning plan per area. It is always wiseto review this in order to find out what is and is not permitted and what, if any, futuredevelopments there may be.INKIJKEXEMPLAAR ©SVH3. Technological developmentsA smart entrepreneur keeps an eye on technological developments. Especially the developmentsthat he can use in his establishment, such as a new computer system for the cash register or theautomatic tap systems.4. Economic developmentsThe economic situation of the country influences the spending of the guests. In bad economictimes, the entrepreneur might have to deal with declining sales. Included under economicdevelopments are income, unemployment, the rise of large companies in the industry and the like.Figures 2015 Figures PeriodKey indicatorsNumber of inhabitants 16,909,135 February 2015Economic growthUnemployment, seasonally adjusted 0.8% 4th quarter 2014Consumer confidenceInflation 7.2% January 2015Victimisation crimeHealthy or very healthy 2 March 2015 0.4% March 2015 18.9% 2014 80.3% 2013Source: http://www.cbs.nl/nl-NL/menu/cijfers/default.htm 113

Marketing & Sales for the Hospitality Industry 5. Socio-cultural trends Socio-cultural trends are all the various developments in society. For example, the attention to health, fashion trends, nightlife behaviour, time allocation, mobility, habits and individualisation. In the hospitality industry, you can see that: • the spontaneous consumer plays an ever bigger role (people do what they want/need at the time); • consumers want gain, convenience and enjoyment; • guests want to be pampered in a pleasant environment; • consumers are more aware (in terms of environment, health, finances, time and geography); • more than ever, consumers are willing to pay for quality; • consumers want 'eatertainment' (eating should be fun).INKIJKEXEMPLAAR ©SVH Implementation of the macro environmental analysis Putting the analysis on paper is a difficult task for many entrepreneurs. It is necessary for every entrepreneur to have an idea of the macro environment that has a major impact on the opportunities and threats for the hospitality business in the coming years. He will have to use publications as much as possible. He can get information at Statistics Netherlands (CBS), the Netherlands Board of Tourism and Conventions (NBTC), the Netherlands Institute for Social Research (SCP) and Foodstep. It is also important for the hospitality entrepreneur to stay up to date on current developments. The hospitality entrepreneur can stay up to date just by reading the newspaper and the trade magazines, such as Misset Horeca and a website like www.foodinspiration.nl. Meso environmental analysis For the macro environmental analysis, the entrepreneur barely has to step outside his business. It’s quite a different matter for the meso environmental analysis. For the meso environmental assessment, the hospitality entrepreneur has to study the industry developments and get a good picture of his immediate environment. Service area The hospitality entrepreneur will first look at the suppliers of hospitality products in his service area. He also examines the history and opportunities of his service area. A different service area applies for each type of hospitality establishment. A cafeteria often has a residential area or a village as its service area. A bistro or a theme restaurant usually gets guests from a city or from one or more village centres. The service area of a mid-level or luxury restaurant is usually much bigger. Depending on the strength of the business formula (e.g., a renowned kitchen), the average distance guests will travel can be as much as 25 km.114

INKIJKEXEMPLAAR ©SVHChapter 4 | Supply-side analysis of the hospitality market 115

Marketing & Sales for the Hospitality Industry After the hospitality entrepreneur is aware of the number of competitors in his service area, he will want to know what kind of supply situation he is in. The hospitality entrepreneur will want to stand out from his competitors. He can only do this if he knows exactly how his competitors’ business formulas compete with each other. The hospitality entrepreneur will need to map his competitors exactly in order to deal properly with the competition. The meso environmental analysis also includes a detailed analysis of the demand side. We will discuss this analysis in the next chapter. Supply analysis Naturally, the hospitality entrepreneur wants to identify his competitors. In doing so, he will not only pay attention to the direct competitors (the same business type), but also to the indirect competition. The entrepreneur will have to look further than just the location where he is established. He must also pay attention to the surroundings. Given the mobility of the guests, there is also a certain amount of competition to be expected from hospitality establishments elsewhere in the region. The first task of the entrepreneur is to map the number of hospitality establishments in his service area.INKIJKEXEMPLAAR ©SVH Supply data [companies], Municipality: Zwolle 2001 2006 2013 250 287 315 Hospitality and catering companies, total [companies] 94 97 111 Beverage sector, total [companies] 50 51 56 Fast food sector, total [companies] 54 54 58 Restaurant sector, total [companies] 5 5 5 Hotel sector, total [companies] 44 78 79 Catering/canteen, total [companies] Example The city of Zwolle had fewer hospitality establishments in 2001 than in 2013. The number of restaurants increased by 4, and the number of hospitality establishments supplying drinks increased by 17. There has also been a striking increase in the number of catered canteens in Zwolle. From 44 in 2001, to 79 in 2013. This is a national trend. Increasingly more companies have their canteens run by a caterer.116

Chapter 4 | Supply-side analysis of the hospitality market The next question that the entrepreneur should ask is: How has the supply developed in the last five years? He will then look at the history of his establishment’s location. You can see how the supply changed in this small city between 2001 and 2013. Looking at the number of restaurants, you will see that there has been an increase. Four new restaurants opened in 2008. The three Michelin star restaurant De Librije is in Zwolle. It will be interesting to see if the award of this third star will affect the supply of restaurants in the city of Zwolle.INKIJKEXEMPLAAR ©SVH He will also want to know how much revenue potential flows to businesses outside his service area. The hospitality entrepreneur can compare supply data of his supply area to the average density of hospitality establishments in the Netherlands. Making this comparison can allow a starting entrepreneur to see which market areas offer good opportunities for locating his business. Where is the most room in the market? We distinguish two concepts: Oversupply Oversupply: There are more hospitality establishments in the service area than the averageUndersupply density in the Netherlands. Many large cities have a regional function, creating an extra supply of hospitality establishments. Places with tourist attractions are also appealing to hospitality entrepreneurs. Undersupply: There are fewer hospitality establishments in the service area than the average density in the Netherlands. If we compare Zwolle’s data with the Dutch average, it becomes noticeable that there are many company canteens located in Zwolle in comparison with other cities. This could be because Zwolle is a logistics hub, which makes it attractive to many companies as a distribution centre or headquarters. This would allow more larger business premises in Zwolle than in other cities and therefore more company canteens. Zwolle also has a lot of party catering. We can tentatively conclude that Zwolle is not a big tourist attraction, there are far fewer companies established in the hotel sector than average. The supply of restaurants in Zwolle is less than the Dutch average (5.1 per 10,000 inhabitants compared to 6.5 per 10,000 inhabitants). The growth in the supply per 10,000 inhabitants in the Netherlands does not apply in Zwolle. 117

Marketing & Sales for the Hospitality Industry Supply data [companies], 2013 Zwolle the Netherlands 27.9 28.3 Hospitality and catering companies per 10,000 inhabitants [companies] 9.8 11.1 Companies in beverage sector per 10,000 inhabitants 5 6.1 [companies] Companies in fast food sector per 10,000 inhabitants [companies] 5.1 6.5 Companies in restaurant sector per 10,000 inhabitants 0.4 1.7 [companies] Companies in hotel sector per 10,000 inhabitants [companies] 7 2.6 Catered company canteens per 10,000 inhabitants [companies] ExampleINKIJKEXEMPLAAR ©SVHDirect competition The analysis of the direct competition Companies with a similar product range or similar services in the same target group are each other's direct competitors. The hospitality entrepreneur can assess the competition based on the following points: • Characteristic description of the 6 Ps. • What are the strengths and weaknesses of the direct competitors? • How does the competitor distinguish themselves positively in the market? • How do the competing hospitality entrepreneurs profile themselves? • What competitive advantage does your own business have? place of presenta- product personality price promotion business tion policy own + ++ - +- - business - ++ A + +- +- + B ++ -+ C - -+ ++ D ++ ++ - +++ A through D = direct competitors Competition analysis118

Chapter 4 | Supply-side analysis of the hospitality marketIndirect competition The analysis of the indirect competition After the hospitality entrepreneur has studied his direct competitors, he will also want to know the strengths of his indirect competitors. How much revenue flows to other business types? The hospitality entrepreneur will never be able to determine precisely the extent of the indirect competition. He can make an estimate and ask himself the question of whether this type of competition is increasing or decreasing, so he can adjust his policy based on this data.INKIJKEXEMPLAAR ©SVH He must keep an especially close eye on hospitality establishments with a business type similar to his own. This means that a mid-level restaurant will keep an eye on theme restaurants, luxury restaurants and any bistros. The customers who go to these business types could just as well be coming to his restaurant. Why aren’t they? Which indirect competitor is strong and why? 119

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry 4.5  |  Facts and figures of the hospitality industry Differences CBS, Foodstep and other parties The hospitality industry plays an important role in the Netherlands. The hospitality industry contributes to the economy, is a major employer and provides entertainment. Because of the hospitality industry’s role in the economy, there is a need for good figures on size, growth and developments of the sector. This is important for the sector and for the policy. CBS, Foodstep and other parties compile statistics about the hospitality industry and the food service channel. These figures partly reflect sales trends, but there are also differences. What are the differences? 1. Scope differs First of all, the scope of the statistics and publications from CBS and Foodstep differs. CBS produces sales statistics for the hospitality industry, i.e. hotels (including overnight stays), restaurants and bars. Foodstep reports on the entire food channel, including consumables sold by service stations and in retail trade, day recreation companies, sports and on transport. 2. Goals and target groups differ CBS target groups include the industry and consumers, but also policy makers and scientists. Foodstep’s target groups are parties in the chain, manufacturers/suppliers, wholesale/agents, and the individual points-of-sale, chains and operators possibly under the umbrella of trade associations. CBS measures the sales development of industries. This information is important for the industry itself. CBS also determines the volume growth of the industries and the economy as a whole. This is particularly important for macro-economists and policy makers. Foodstep’s objective is to map the growth and developments in the entire food chain by all industries as a policy compass for the food service industry. The information comes mainly from the food service chain itself, namely from wholesale and hospitality chains, caterers, private ongoing research into out-of-home visits and consumer spending, private research into product use in hospitality and catering, and statistics from CBS and trade associations. 3. Classification differences CBS uses the Standard Industrial Classification (SBI). This is an internationally agreed hierarchical classification of economic activities. CBS bases the SBI of a business on that company's registration with the Chamber of Commerce. A centre of gravity approach applies to this. For example, this means that a business that operates 75% restaurant activities and has catering activities or sells souvenirs for the other 25%, shall be classified in the Restaurants SBI. Foodstep is based on an industry-own outlet database. Foodstep uses the Data Outlet database as the industry population, which together with Datlinq (and more than 40 suppliers in food service) is kept up to date with several hundreds of thousands of contacts on an annual basis. Data Outlet classifies sales points at address level, which are translated into the industry classification used by Foodstep. This is in line with Koninklijke Horeca Nederland, Veneca and FSIN. Foodstep120

INKIJKEXEMPLAAR ©SVHChapter 4 | Supply-side analysis of the hospitality market looks beyond just the traditional hospitality industry. Hospitality facilities in companies with another main activity (recreation, retail, sports) are also measured as hospitality values. 4. Source differences CBS uses VAT registers and survey techniques. The Tax Authority VAT registers are the basis of the current sales and volume estimates of CBS for small and medium-sized companies. CBS also conducts surveys of large companies on a quarterly basis. The net sales data that CBS obtains in this way are analysed quarterly in order to determine the growth for that period. The growth figures are then given a weighted aggregate (taken together) to reach a growth rate per quarter by industry. CBS uses the total net sales. Foodstep uses sources on product use and consumer spending. Foodstep is based on consumer spending on food, drinks and tobacco in food service with the exception of room rental, entrance fees and guest accommodation, including VAT. 5. Subject differences CBS measures sales, price and volume. CBS publishes sales developments, volume developments and price developments in the hospitality industry on a quarterly basis. Foodstep measures purchasing, sales and consumer spending. Foodstep reports sales in consumer value and volume per product group on 4-weekly basis. It is primarily about value developments for the entire food service and the underlying market segments. Foodstep maps the volume developments for major product groups like coffee, tea, soft drinks, beer, chips, snacks, etc., down to the level of brand, type and packaging per channel. CBS: indices and growth figures. CBS publishes both year-on-year developments and seasonally adjusted quarter-on-quarter developments. Foodstep: developments without seasonal adjustment. In its Food Service Monitor, Foodstep reports on the value development of out-of-home food and drinks. The year-on-year development is determined based on a fixed group of sales outlets. No seasonal adjustment is applied to this. 6. Averages exist, average companies do not The figures released by CBS and Foodstep are averages for various industries. The results of the underlying companies will typically deviate from these averages. By definition, some of the companies do worse than average and some do better. If several companies do relatively quite well, there will be more companies below average and vice versa. 121

Marketing & Sales for the Hospitality Industry Sale and cost indication: luxury restaurant SALES per year x 1,000 euro % of sales Total sales: 350 100% Meals/food: 220 63% Beverages: 116 33% Other hospitality activities: 14 4%INKIJKEXEMPLAAR ©SVH LABOUR (in years) KEY FIGURES (on annual basis) 5,800 euro Unpaid employees:  1.0 Food and drink sales/m2: 64,100 euro Paid employees:  4.5 Sales per employee (in years): 23.100 euro Total number of employees:  5.5 Gross wage per paid year:  COSTS per year (x 1,000 euro) (percentage of sales) Min Max Min Max Total PURCHASES Meals/food 95 108 27 31 Beverages 61 71 28 32 (% sales meals/food) Other activities 28 32 24 28 (% beverage sales) STAFF COSTS up to. 6 6 40 40 (% sales other activities) Wages and social costs Payment to third parties 103 114 29 33 Other staff costs 98 108 28 31 0000 Total OTHER COSTS 5612 Housing/premises costs Selling costs 43 68 12 19 General costs 3 35 7 10 (no rent, depreciation and interest) CAPITAL EXPENSES with RENTING 7 13 2 4 Building rental 3 20 4 6 Depreciation Interest 29 69 8 20 CAPITAL EXPENSES with 20 40 6 11 PROPERTY 9 24 37 Depreciation 06 02 Interest 19 45 6 13 Example of a sales and cost analysis 15 30 4 9 5 15 1 4 Source: Article CBS/Foodstep122

Chapter 4 | Supply-side analysis of the hospitality market4.6  | ConclusionsThe art of entrepreneurship is to convert all the information into an understanding of the market.The hospitality entrepreneur must draw conclusions from the research data that he has collectedand compiled into tables and charts. He can make new plans based on these conclusions. Thehospitality entrepreneur must learn to draw conclusions from those figures and convert them into amarketing strategy.INKIJKEXEMPLAAR ©SVHInternal analysis What do we do well What do we do less wellExternal analysis Strong points Weak pointsOpportunities Exploit ImproveThreats Grow Lean towards the strengths Defend Avoid Compete using strengths Get out of the market Seek collaborationFrom the Hospitality Entrepreneur/Manager Qualification file Context The hospitality/bakery entrepreneur is at first just an operator of one or more businesses. In many cases, he is the owner of the business (or businesses). Depending on the size of the business and the number of businesses/locations, the entrepreneur is more or less involved in the operational management and business operations. In large companies, the hospitality/bakery entrepreneur is not the owner of the business (or businesses), but he instead runs a business or branch.Professional attitudeTypical of the professional attitude of the hospitality/bakery entrepreneur is that he focuseson four aspects: Commercial effectiveness: he is guest, customer and market-oriented,has insight in business organisation and is organisationally aware. He must also have along-term vision, supported by financial and technical arguments. The hospitality/bakerentrepreneur is a trailblazer and an innovator. He is open to innovations and developspioneering ideas. He dares to take risks and can act in uncertain situations.Result of the occupational groupThe hospitality/bakery entrepreneur achieves the main objectives of the business, suchas generating profit and providing continuity. The hospitality/bakery entrepreneur isresponsible for the business operations, determines the policy (strategic) and ensures thatthe established policy is implemented (operational). Depending on the size of the business,he works almost on a daily basis on the execution of the day-to-day work. 123

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry The entrepreneur/manager generates market analyses. Description The hospitality/bakery entrepreneur generates market analyses. He maps (potential) guests/customers, (purchasing) behaviour of the target groups and competitors. He uses information about political, legal, demographic and social developments to map the future situation. He uses this analysis to assess threats and opportunities for the organisation. He points out opportunities for improvement and formulates proposals for improving the market position and turnover of the business. Result A continuous realistic picture of the current and future market situation and opportunities and threats for the business. Behaviour • Collects information from various sources about guests/customers, competitors and important developments and innovations in the hospitality industry, determines the importance of this for the business and analyses the information. • Continues to follow the market and identifies the (financial) threats and opportunities for the company. • Writes concise and logically structured proposals for improvement actions, investments and/or innovations. • The underlying competences are: Analytical, entrepreneurial and commercially operating, formulating and reporting. The entrepreneur/manager carries out commercial activities Description The hospitality/bakery entrepreneur profiles himself positively within his network and positively promotes and presents the business in different ways. He uses various activities to ensure the name recognition of the business. He maintains relevant information through various media. He keeps up to date on the activities and developments at suppliers and fellow competitors. On the basis of information obtained and initiatives of employees, he takes promotional-related decisions such as placing an advert, dispersing promotional leaflets, vouchers, press releases, having an own website, webvertising, industry fairs, etc. He discusses decisions with employees and carries out improvement proposals in the business processes. Result Substantiated proposals and decisions on improvement actions to be implemented, investments, new production methods or products in order to improve the market position, image and name recognition of the business.124

INKIJKEXEMPLAAR ©SVHChapter 4 | Supply-side analysis of the hospitality market 125

Marketing & Sales for the Hospitality Industry 4.7  |  Questions about the chapter 1 In the hospitality industry we (also) speak of the market for ‘demanders’ and ‘suppliers’. What do we mean by this? 2 Name the four theoretical supply situations and explain these using an example. 1 2 3 4INKIJKEXEMPLAAR ©SVH 3 How should a business deal with competition? Porter distinguishes three basis points for making the most of a competitive advantage. What are they? 4 The hospitality entrepreneur will have to do research on different levels. What is the difference between an analysis of the macro environment and an analysis of the meso environment? Analysis macro environment: Analysis meso environment:126

INKIJKEXEMPLAAR ©SVHChapter 4 | Supply-side analysis of the hospitality market 5 The hospitality entrepreneur can assess the competition on the basis of five points: 1 2 3 4 5 6 What stimuli influence a consumer’s behaviour? 127

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry128

INKIJKEXEMPLAAR ©SVH

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry130

Chapter 5 | Demand-side analysis of the hospitality marketChapter 5Demand-side analysis of the hospitality marketINKIJKEXEMPLAAR ©SVH The chapter at a glance 1335.1 Introduction  1335.2 Customer groups 1355.3 Stages in customer behaviour  1415.4 The buying process in different sales situations  1495.5 How does a consumer make his choice?  1505.6 Economic aspects of customer behaviour  158 5.6.1 Price elasticity  158 5.6.2 Income elasticity  161 5.6.3 Cross-elasticity  1635.7 Questions about the chapter  165For more information, exercises, answers and supportingmaterial: www.masaho.nl 131

Chapter 5 | Demand-side analysis of the hospitalitymarket Marketing and Sales for the Hospitality Industry part 1INKIJKEXEMPLAAR ©SVHCustomer be- haviourCustomer De- Buying process groups mand-side analysis Elasticity Purchasing behav- iour Stimuliwww.masaho.nl - Questions: e-mail to [email protected]

Chapter 5 | Demand-side analysis of the hospitality market 5.1  | Introduction Peter can finally make his dream come true. The local hotel-restaurant has become available in the village where he lives. The current owner has made a mess of it and now wants to sell as soon as possible. The business has an area of more than 400 m2. The village is near a big city. In addition to the local population, a lot of commuters also live there. Peter is currently a manager of a bistro in a neighbouring village. He also really wants to start a nice bistro in his own village. The villagers seem to still have money to spend. In addition to the butcher, the baker and the local supermarket, there are three hairdressers and two beauty salons. The cars that park in the centre of the village during the weekly grocery shop are nice, mid-level cars. The hospitality industry also does well in the surrounding villages.INKIJKEXEMPLAAR ©SVH In the previous chapter, we indicated how we get a picture of the supply side of the hospitality market. We have seen that the hospitality entrepreneur has to pay a lot of attention to the behaviour of his direct competitors. The wishes and needs of the guests are the starting point for every hospitality entrepreneur (the marketing concept). The hospitality entrepreneur will need to know his customers well and be able to predict their future behaviour. We begin this chapter with a description of the three customer groups in the hospitality industry and then examine the behaviour of the individual guest. Why does a guest act a certain way?Consumer behaviour This chapter is about customer behaviour. It is about the consumer, in particular. Consumer behaviour is the human behaviour related to the acquisition of goods and services.Behavioural scientist It is important to know why people visit a hospitality business. What led to the choice of one business over another? Who influences that choice? The entrepreneur must ask countless questions to gain insight into the guest’s behaviour. Fortunately, the entrepreneur can use research of behavioural scientists in answering these questions. Behavioural scientists are individuals active in the fields of psychology, sociology, economics and anthropology (ethnology). Each of these scientists study human behaviour in their own way. The theoretical knowledge of scientists can help the hospitality entrepreneur by explaining consumer behaviour.Consumer behaviour is thehuman behaviour relatedto the acquisition of goodsand services. 133

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Prosperity in the Netherlands Statistics Netherlands (CBS) provides the most current information about the prosperity of households and individuals in the Netherlands. The prosperity position is shown based on income, expenditure and assets. The figures show that the economic crisis that has gripped the Netherlands since the end of 2008 has also affected the prosperity of the population. Starting from 2010, the purchasing power decreased three years in a row and the risk of poverty increased. However, the average household has 15 percent more to spend than in the early 1990s despite the loss of purchasing power over the last few years. Furthermore, household wealth almost halved between 2008 and 2012. The portion of households with mortgage debt higher than the property value tripled in that period. As a result of the crisis, household spending on goods and services decreased even more and consumer confidence also declined until 2013. There are also positive developments despite all these economic setbacks. Consumer confidence rebounded as of the beginning of 2013. The risk of poverty or social exclusion in the Netherlands is also the lowest out of all European Union member states. Examples of new themes in Prosperity in the Netherlands 2014 are the (pension) incomes of the elderly and the income developments of self- employed individuals with and without staff. It can be seen that, of the 65+ households, almost a tenth are barely above the minimum AOW (state pension). On the other hand, 55 percent have supplementary income on top of the AOW of at least 1,000 euros per month. It also shows that of the employed persons, the self-employed without staff is the most vulnerable group. Their average personal income is lower than that of regular employees and significantly lower than that of self-employed with staff. In addition, they invest the least in their own private social security. More figures about the different components of material prosperity can be found on StatLine, the electronic database of CBS (www.cbs.nl). Source: www.cbs.nl/NR/rdonlyres/5D87FF45-3EBE-488A-AC98-11AE08902FE1/0/ 2014welvaartinNederlandpub.pdf134

INKIJKEXEMPLAAR ©SVHChapter 5 | Demand-side analysis of the hospitality market 5.2  |  Customer groups As already indicated in Chapter 1, we distinguish three customer groups within the hospitality industry. Private guests, business guests and tourists. Each group has its own specific wishes and expectations. We will look at each customer group in this section. Private guest The most important group of guests in the Dutch hospitality industry consists of private individuals. By private individuals we mean people who use hospitality services at their own cost from the home-work situation to provide for their own needs. The private guest often needs a motive to go to a hospitality establishment. The reasons for visiting a hospitality establishment can range from celebrating a birthday to meeting friends. Research shows that atmosphere and cosiness are the main reasons for choosing a particular hospitality establishment. The decor, location and staff attitude and behaviour can add to the atmosphere. The private guest has many options from which to choose thanks to the large range of hospitality establishments and guest mobility. Because of this, guests are critical and price sensitive. Business guest Important business events such as dinners, meetings, appointments, conferences and staff outings often take place in a hospitality establishment. A formal meeting is concluded with an ‘informal’ meal or cocktails. It is preciselyduring these moments that contacts are made and issues resolved. A hospitality establishment is the ideal place for this. A good business formula can respond to this by giving guests space and tranquility so that they can talk undisturbed and negotiate in a representative environment. A business guest who invites business partners will want to maintain a certain image. For a businessman, the choice for a certain hospitalityestablishment is therefore definitely not random. The hospitality establishment will have to radiate an atmosphere or a prestige that fits with the company of the business guest. Due to the limited supply of these types of hospitality establishments, the businessman has few alternatives and is therefore less price sensitive than the private guest. Higher prices will not be as much an issue with a businessman because visits to hospitality establishments are business expenses. 135

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Business guest About 30 percent of all hospitality spending is business-related. Reason enough for a hospitality entrepreneur to focus on this target group. It is a group with specific requirements. Here are a few tips for a hospitality entrepreneur who wants to focus on the business market. 1. Time Many business guests are in a hurry, especially at lunch. It’s a good idea to ask how much time the guest has available. Guarantee that they can eat during this time and back it up. The servers can facilitate this by recommending certain dishes. 2. Goal A business guest comes to a hospitality establishment for a reason. He's there with a goal. Help the business guest achieve this goal. He often wants to make an impression on his business relationships. Show that you know him. His relationships will then get the impression that they’re dealing with someone important. 3. Who makes the reservation? It is often not the business guest who makes the lunch or dinner reservation. The executive secretary will be tasked with making a reservation ‘somewhere’. Make sure she knows your name. Send her a brochure or flyer. Or maybe you can invite secretaries and assistants to an informative lunch so they can become acquainted with your company. 4. Parking It’s not that enjoyable walking outside in your nice neat suit. Make sure there is plenty of parking at your place of business. Consider your guest’s limited time. 5. Mobile phones The business guest also needs to be reachable at all times. But if there is one thing that is a nuisance in a restaurant, it’s ringing mobile phones. If you have the space in your restaurant, it could be a good idea to have a private calling area that provides the opportunity to copy, fax and e-mail. This gives the callers some privacy and provides a peaceful atmosphere to the rest of the guests. 6. Networks Try and get the leading entrepreneurs in your area as guests. Once it becomes known that they lunch with you, the rest will quickly follow. Because networking is especially important in this market. 7. Retention It is easier to retain a good business relationship with a guest than to recruit a new guest. Business guests want certainty. Once you’ve won their trust, you’ve gained regular guests.136

Chapter 5 | Demand-side analysis of the hospitality marketThe touristTourist guests are people in the hospitality establishment’s service area for day trips or overnightleisure activities. The hospitality entrepreneur must be aware of the recreational possibilities in hisservice area for day and overnight leisure activities and be able to estimate what this could meanfor his business. How big is the tourist attraction value in the service area? How can the hospitalityentrepreneur respond to this part of the market?DEMOGRAPHICKEXEMPLAAR ©SVHTourist behaviour differs from the behaviour of the private guest. They are away from home andmust eat, drink and possibly sleep elsewhere. Tourists are also less aware of alternatives regardinghospitality services in the area. When visiting a pub or restaurant, the tourist will make a selectionbased on features visible to him.While a businessman almost always reserves his hotel room in advance, there are generally threepossibilities when regarding a tourist hotel guest: either the accommodation was booked in advancewith a travel agent, or the guest found the hotel themselves on the internet, or the tourist looks for aroom when at the location and is a ‘walk-in’, whereby external features often determine the choice. Ahospitality entrepreneur has to be aware of this and respond accordingly. During the weekends andholidays, a business hotel depends on the tourist market.Tourists in general are an interesting customer group for hotels and restaurants. Due to their needto eat and drink somewhere else and the fact that they are less aware of alternatives in the area,tourists are less price sensitive than private individual guests. This is especially true for foreignguests. Increasingly more holidays are being booked, with the number of short stay holidaysincreasing sharply.The five preconditions of ECONOMIC destination marketing AFFORDABILITY SO INKIJ CIO-CULTURALFAMILIARITY &AVAILABILITY TECHNOLOGICALIMAGING VISITORS AND SPENDING FOR THE DESTINATION ACCESSIBILITY EXPERIENCE ECONOMIC Source: NBTC Holland Marketing, 2013 DEMOGRAPHIC 137

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Destination Holland The Europeans, Americans and Japanese were the main international travellers in the past decades. Many future international travellers will be from emerging or growth markets such as Brazil, Russia, India and China. They will increasingly also visit Europe and the Netherlands. The mix of international travellers will change drastically. This causes a big challenge for suppliers in correctly responding to this development. These ‘new' tourists clearly differ on various points compared to visitors from developed travel markets. Travel for tourists from emerging markets is a luxury that not everyone can afford. Travel will become accessible in the coming years for an increasingly large part of the middle and upper classes. The desire to travel exists. Tourists from the emerging markets are especially looking for experiences that increase their status. In the developed markets, travel is already achievable for larger groups. Many Europeans and Americans can afford to travel several times a year. The tourists in this case are looking for a unique experience. An ageing population in the coming years will give rise to an increase in the number of active pensioners, who have the time and money to go out. The prosperous baby boomers will thereby be major drivers of growth in international tourism in the coming decades. After 2030, the rising costs of an ageing population (pensions, health care, etc.) and a higher dependency rate (share of inactive relative to working population) will cause a reversal. Seniors will have less to spend and this will result in less international travel. In the developed travel markets, trips are often booked online (by the travellers themselves) where there is strong need for customisation. This is in contrast to the emerging travel markets which in many cases use the organised travel companies. In China, this is partly dictated by legislation on visa provision. Tourists from the emerging markets who are travelling internationally for the first time usually choose the beaten path. Europe, with its great diversity (culture, shopping etc.), is seen as an attractive part of the world to visit. And the Netherlands is part of such a European trip that brings them along as many must-see attractions as possible. Seeing a lot in a short time is the credo. Shopping and culture (old masters) are also important. It is expected that these new travellers will make the transition from group tours to individual trips relatively quickly. In the developed travel markets, short breaks such as city breaks or weekend breaks to a hotel in the countryside will become more popular in the coming years. Personal development will become more important. Indulging in a hobby or passion during the holidays, learning something new, doing something for others and getting to know new people will become more important reasons for travel. These tourists increasingly want to have contact with the local population or experience the place like a138

Chapter 5 | Demand-side analysis of the hospitality market'local'. Not visiting the usual places (tourist traps), but exploring special places with a 'local'(social travelling). Internet and social media make this new form of travel easier.Opportunities Destination HollandHow can businesses optimally exploit the opportunities provided by visits from internationaltourists to the Netherlands? It is important first to understand five preconditions andthemes that play a role in the marketing of a destination:1. The destination must be easily accessible and open.2. There should be sufficient capacity available (including accommodation).3. The supplied product must be affordable (good value for money).4. The destination must be sufficiently interesting, there must be something to do.5. The destination must be sufficiently known. ECONOMIC SO AFFORDABILITY DEMOGRAPHICPLAAR ©SVH INKIJKEXEM CIO-CULTURALFAMILIARITY &AVAILABILITY TECHNOLOGICALIMAGING VISITORS AND SPENDING FOR THE DESTINATION ACCESSIBILITY EXPERIENCE ECONOMIC DEMOGRAPHIC The five preconditions of destination marketingAll these preconditions influence the visitors and their spending in the destination to agreater or lesser extent. They are in turn influenced by the external environment. Themodel above shows what this looks like.Source: NBTC Holland Marketing, 2013 139

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry140

Chapter 5 | Demand-side analysis of the hospitality market 5.3 Stages of customer behaviour A customer is someone who buys a product or service from a provider. Before anyone buys a product, he will first have to realise that he has a need. Then he collects information about that product. He moves on to purchase once he has collected enough information. You buy a product to use or consume.INKIJKEXEMPLAAR ©SVH The sufficiency of the product will be apparent after the sale. If it is insufficient, that person will not buy that product the next time or will buy another product. If he is satisfied, then there is a good chance of a repeat purchase or repeat visit.Customer behaviour Customer behaviour is roughly divided into three stages; within these stages are several steps that the customer must take to reach his purchasing behaviour. Communication behaviour Awareness: The consumer is aware of a certain need, desire or problem and experiences this as a deficiency. Interest: The market offers several options for satisfying a need. The consumer orients himself, gathers information and passes on this information. Purchasing behaviour Evaluation: Evaluation of the alternatives (choices). Out of all the products/services offered, the consumer will determine which best satisfies that need. Decision: Of all alternatives, there will be one that comes out on top. The choice will be made. Usage and consumption behaviour Confirmation After making a choice, the buyer will assess whether the selected product/ service actually provides what he expected. Awareness of a need You have to have a need in order to proceed with purchasing behaviour. A need can best be described as a feeling that something is necessary or that you really want it. A need shall proceedNeed to purchasing behaviour when the need is experienced as a lack of something and there is an urge to rectify that lack. Psychologists distinguish between conscious and unconscious needs. Waking up in the morning and being hungry. This is a consciously experienced need. You sometimes get the urge to eat when you’re at the station and smell pizza or chips. Apparently, the smell makes you aware of a feeling of hunger. A consciously experienced need is called a manifest need. An unconsciously experienced need is called a latent need. In the case of a latent need, you need an incentive to become aware of that 141

Marketing & Sales for the Hospitality Industry Manifest need need. Such environmental incentives are called stimuli. They are a stimulus to proceed with need Latent need gratification. Stimuli The consumer experiences many incentives. Incentives to buy certain products, but also incentives to not buy other products. Certain stimuli influence a consumer’s thoughts and feelings.INKIJKEXEMPLAAR ©SVH Types of needs A person has several types of needs and motives. An urgent need is a motive if there is enough time and money available to gratify that need. A known classification of types of needs is the division into primary and secondary needs. Primary needs are needs necessary to stay alive. These include hunger, thirst, shelter, and so on. Secondary needs are needs that arise to make life more enjoyable. These include things like entertainment, nice clothes and going out. The psychologist Abraham H. Maslow researched human needs and motives. He uses the following division in his hierarchy of needs: Primary needs 1. PhysiologicalSecondary needs Human beings have a natural desire to stay alive. Therefore they need things like oxygen, water, food, sleep, reproduction, etc. These are the primary needs of life. Maslow 2. Safety People want to protect the life they have. That’s why they need safety, protection, certainty and security. 3. Love/belonging Man is not alone in the world. People need contact with others, friendship, love, conviviality and affection. 4. Esteem People want to be someone within a group. That’s why they need recognition, success, status and the like. 5. Self-actualisation People want to develop. This is why they need knowledge, insight, development and personal growth.142

INKIJKEXEMPLAAR ©SVHChapter 5 | Demand-side analysis of the hospitality market According to Maslow, these are divided hierarchically in order of importance. People want to develop themselves but the condition for that is that the previous needs are sufficiently met. You don’t think about self-development when you’re hungry. You encounter the next need once the previous need is fulfilled. Maslow sees man as a never satisfied being. People always strive for more. Self-development Appreciation Love/belonging Safety Physiological needs Maslow’s hierarchy of needs 143

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Application of Maslow's hierarchy of needs Trendwatcher Vic van Hattum, who works for InBev Nederland, has applied Maslow’s time- honoured need pyramid to the hospitality industry. 5. Knowledge and insight 4. Status and respect 3. Social acceptance 2. Safety 1. The basis The pyramid’s foundation is a good and reliable product, a clean business and a pleasant environment. This basis must be good enough to go to the next level. For example, pay attention to the speed at which drinks, snacks or meals are served. Having to wait too long always scores in the top 10 of guest annoyances. Safety is the most important prerequisite for the healthy operation of a hospitality business. In our hectic society, guests seek out a sense of security and certainty. The hospitality industry must act as a safe haven. This is why you should avoid dark corners in your business. Nip arguments in the bud. The safety of women and children should be the highest priority; make guests aware of unsafe situations for their children (steps, sharp objects and the like). Man is a social animal and the hospitality industry is an excellent meeting place. Social contact is the main reason many people go out. The person in the hospitality establishment has the status of guest. But note, he/she will have to follow the house rules! Every person aspires to status and respect. Every person wants to be taken seriously and treated as someone of value, especially when paying, such as in the hospitality industry. Avoid all forms of discrimination. Confirm the (perceived) status of the guest, pay them compliments and ask positive questions. Avoid being overly familiar. When in doubt, always choose for a slightly more formal approach ('Good evening' and ‘Sir/Madam’). Knowledge and insight are at the top of the pyramid. The hospitality guest is more curious than ever and also knows a lot more about products, preparations, trends and developments. Provide additional information on the menu about origin, background and ingredients. Always take guest questions and comments seriously, even the less informed ones. Make sure your employees have sufficient knowledge. Also use your website to provide additional information.144

Chapter 5 | Demand-side analysis of the hospitality market Interest The consumer is aware of a need and is open to information about satisfying this particular need. The market offers multiple solutions for the satisfaction of needs. A consumer often does not know exactly what options there are for sale in order to satisfy that need. A supplier in the market must therefore make sure that the right information reaches the consumer. Of course, the supplier never knows when someone will ‘discover’ his need. It is important for a supplier that he has the right information available to the consumer at the right time and at the right place. The right time is difficult to determine. That is why a lot of advertising is repeated and why the consumer is inundated with information. Therefore a hospitality entrepreneur will want to know about the consumer’s sources of information and which of these sources are important for the consumer.INKIJKEXEMPLAAR ©SVH Evaluation There are many solutions possible for satisfying a need. The consumer will not weigh all the alternatives; he won’t be aware of some possibilities and will immediately reject others. The consumer will set out all the acceptable possibilities before him. He will evaluate all the alternatives based on the information obtained. He selects a few serious contenders from all the options.Evoked set This is called the ‘evoked set’ of the consumer. The term ‘evoked set’ refers to the options (brands, shops and hospitality establishments) that are considered for the purchase of a particular product/ service. This is usually not more than two to four options. You could equate ‘evoked set’ with ‘favourite choices’. An entrepreneur must ensure that his product is amongst the alternatives. That’s why it is necessary for the potential buyers to know the product. The product can become an acceptable choice through the transfer of the right information. Eventually, the product must belong to the group favourite choices. The entrepreneur can accomplish this by using the right sales pitch.The term ’evoked’ set’ refersto the options that areconsidered for the purchase ofa particular product service. 145

Marketing & Sales for the Hospitality Industry Decision The consumer has a number of options. Eventually, he chooses one. What led to the decision to choose that product? Which product best corresponds with his wishes? What successful hook did the seller use?INKIJKEXEMPLAAR ©SVH Black box Psychologists try to get clarity about what people do with the stimuli they receive. This is not easy. It’s difficult to explain and predict precisely what’s going on within someone. This is why human thinking is also presented as a black box. We know what’s going into it (stimuli) and what comes out (certain behaviour or response), but what exactly happens in the black box is a bit of a mystery. Stimuli Black box Response Stimulus response model ConfirmationCognitive dissonance After the sale, the consumer experiences, consciously or unconsciously, whether the selected product indeed offers what he wanted. The consumer has a certain feeling with the product. The consumer assesses the purchased product keeping in mind the expectations generated in the buying process. If a purchase does not meet the expectations, there is cognitive dissonance. This means that the expectations you had before the sale do not correspond with the experiences with the product after the sale. The greatest chance of cognitive dissonance occurs when the price of the product is high in relation to the buyer’s income. The number of choices available can also reinforce the sense of cognitive dissonance. There is a good chance of cognitive dissonance when a buyer can choose from many options. Every other choice could have been a better purchase than the deliberate purchase.146

Chapter 5 | Demand-side analysis of the hospitality market Products that are visible to others have a greater chance of cognitive dissonance. These products tell others something about the buyer’s taste and preferences. The chance of cognitive dissonance is greater when the sales process did not go well due to insufficient or inaccurate information, or hasty decisions.INKIJKEXEMPLAAR ©SVH Selective FeedbackPerception BLACK BOXStimuli Awareness Interest Evaluation Decision Confirmation Shortcut due to experience, repeat purchase The buying decision process 147

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Wows and killers Guests assess a business based on expectations. Either consciously or unconsciously, they form an impression of their visit. Important for the final assessment is the feeling that guests have regarding the value for money. Do I get something for my money? A guest also compares the product provided by the hospitality establishment with the same product consumed at home (much cheaper). The hospitality establishment has to add the experience, perception, a gathering place, recognition and status in order to justify the difference in price with the product from the supermarket. The job of bridging that gap in price falls with the employees. They provide the added value. Guests assess their visits in four categories. 1. Wows Top experience. Beyond all expectations. A visit where everything comes together regarding the product, personnel, public and ambiance. 2. Positive experiences Contribute to the good feeling about the business. Guests know why they like coming here: smooth service, free bar snacks, cheerful barkeeper, good music and a well prepared meal. 3. Negative experiences Not a reason to stay away, but you are not really happy about it. Dirty toilets, waiting too long for your drink, overflowing ashtrays, too loud music and a draught because the door doesn’t shut properly. 4. Killers A disastrous experience, which ensures that the guest never returns! Ignored by staff, a brawl in the establishment, a stolen jacket or severe diarrhoea after eating a tuna sandwich. Source: Inbev148

INKIJKEXEMPLAAR ©SVHChapter 5 | Demand-side analysis of the hospitality market 5.4 The buying process in different sales situations The stages discussed in customer behaviour are quite theoretical. These are only apparent to the consumer with special purchases. Most consumer purchases are repeat buys, whereby the individual stages are not as easy to distinguish. Of course, it makes a difference whether it’s a car being purchased or a hamburger. We distinguish three distinctive sales situations: 1. Extended Problem Solving Buying Behaviour (EPS) This is a situation where people are aware of a need but are uncertain how to satisfy this need. The purchase decision involves a lot of deliberation. This situation reflects all the stages of customer behaviour. First, the consumer is aware of the need, then searches for options to satisfy the need, then assesses the alternatives, after which the final decision is made. Finally, the consumer will use the product. Frederique and Herman are very happy together and decide to get married. They want to throw a party, which in their eyes should have a certain kind of glamour. They go looking for a suitable restaurant in which to have the party. They ask five businesses for brochures and visit several restaurants. They eventually come to a decision. 2. Limited Problem Solving Buying Behaviour (LPS) In this situation, a decision must be taken that has often been taken before or that is less important to the customer. The consumer takes the time for this, but does not visit/consider all the suppliers. Esther is going to a party and decides to buy some new clothes. On Friday, she goes shopping in the city with her friend Irene. The two friends decide to go to Esther's favourite store first. Esther tries on several outfits in that store and then reserves one. She’s not sure yet. After visiting three shops, Esther is certain. She wants to buy the outfit at the first shop. It is Evert's birthday. He’s turning 40. He suggests going out to eat with his family. After the suggestion, a number of hospitality establishments are listed. After consultation, Evert makes a reservation at a particular restaurant. 3. Routinised Buying Behaviour (RBB) Many customer purchases are routine. The purchases are made often and the customer knows exactly what he wants and why. The need is often recurring and the customer knows exactly where he can satisfy that need. A lot of steps are skipped in the buying process, allowing the consumer to skip to the decision making stage. Previous experiences with the product also play a role in this. This relates to the evaluation stage of the previous purchase. Examples of routinised buying behaviour include the weekly grocery shop, visiting the local pub and a visit to a cafeteria. 149

Marketing & Sales for the Hospitality Industry 5.5 How does a consumer make his choice? The important question for companies that focus on consumers is: How does a consumer make his choice? Every resident of our country is a consumer. Every consumer makes his choice in his own way. One consumer is very rational, the other is particularly susceptible to emotional arguments.INKIJKEXEMPLAAR ©SVH Perception Stimuli that consumers have to process every day are experienced, processed and evaluated differently by every consumer. This is called perception. How consumers reach their buying behaviour in the long run is unclear. Psychologists speak of the black box. This section examines all kinds of stimuli that influence consumer choice. We distinguish three types of stimuli. Personal and psychological stimuli, social stimuli and commercial stimuli. Personal and psychological stimuli come from within, social stimuli come from the consumer’s immediate environment and commercial stimuli are directed towards consumers by businesses in order to sell more products (e.g. advertising). We are going to discuss these stimuli one by one. 1. Personal stimuli Preconditions Response 2. Commercial stimuli BLACK BOX 3. Social stimuli Preconditions Personal and 1. Personal and psychological stimulipsychological stimuli A consumer has to process a lot of impulses. Some of these impulses come from within. A consumer gets various values as part of his upbringing, some of which he goes along with and some that he resists. In any case, many inner factors influence the buying behaviour. Attitude and perception An attitude is made up of three elements: • knowledge (cognition) • feelings (affection) • action orientation (conation)150