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Chapter 5 | Demand-side analysis of the hospitality marketAttitude These three elements form the basis of the consumer’s attitude. Attitude means the behaviour, tendencies and perception of the consumer. Upbringing, education and motivation play important roles in the formation of the attitude. Consumers assess everything around them based on this attitude and perception. A consumer will have to take decisions continuously in his living environment and must form an opinion on all kinds of issues. Purchasing alternatives are also assessed based on the consumer’s attitude. A consumer’s attitude changes for better or for worse the more he learns about a product. The consumer not only relies on his knowledge but also on his feeling. When creating an ad or direct mail, the hospitality entrepreneur should ask himself which element of the attitude he wants to emphasise in the message.INKIJKEXEMPLAAR ©SVHSelective perception It is not possible for consumers to observe and process all the information they receive. That’s why they select the information that reaches them. This selection is made partly consciously and partly unconsciously. This phenomenon is called selective perception: a consumer only sees what he wants to see. The consumer observes selectively and subjectively because he can or wishes only to perceive a small number of the many stimuli he receives. This depends mainly on his reading, listening, viewing and buying habits. How the consumer perceives and evaluates things (perception), other than through his own personality, is largely determined by learning processes and his attitude.Motives Perception is really about what the consumer ‘sees’ as reality and the thoughts that this ‘reality’ generates with the consumer. Perception therefore plays an important role in the communication between the supplier and the consumer. Psychology sees people as individual beings, as thinking beings with feelings. The consumer behaves rationally and emotionally. Needs that lead to a buyer’s behaviour are called motives. We distinguish between emotional motives and economic motives.Emotional motives Emotional motives arise from personal and social motives, in which feeling arguments determine the choice for a particular product. This may include: • sensory gratification; • fear, peace and relaxation; • pride; • social feeling; • prestige; • curiosity. 151

Marketing & Sales for the Hospitality IndustryEconomic motives In the case of economic motives, the sales act is preceded by a consideration of what is the wisest choice. On what can the consumer best spend his limited resources (money)? Economic motives include: • handiness; • efficiency; • reliability; • provided service; • sustainability; • savings upon purchase and use; • right value for money.INKIJKEXEMPLAAR ©SVH Pavlov The Russian Pavlov has contributed to our knowledge about the influence of learning processes on human behaviour. He rang a bell before feeding his dog. The dog ended up associating the sound of the bell with getting food, so it would already start to drool upon hearing the bell. From this, he developed the theory that behaviour can be learned (the cry of a hungry baby). The theory is based on four principles: incentive, stimulus, response and reinforcement. Incentives are the needs or the motives that cause a consumer to engage in a certain activity. A sign with ‘the coffee is ready’ and other signage at roadside restaurants are intended to stimulate consumers to enter. The response (action) is the purchase itself, which is in part determined by the urgency of these and other stimuli (time and money). A positive experience leads to reinforcement, which results in possible repetition. People keep the new knowledge and the previous experiences in mind when evaluating new observations. Advertising uses this learning theory a lot. The often applied repetition effect is an example. The consumer is, as it were, conditioned to react to certain stimuli in a certain way. Advertising is used to prevent the consumer from forgetting the conditioned responses. Just think of the 'Get away in your own country' collective advertising campaign. Advertising is aimed at the continuous appealing (causing a feeling) to certain motives among consumers.152

Chapter 5 | Demand-side analysis of the hospitality marketSocial stimuli 2. Social stimuli Most of the stimuli the consumer gets to process come from outside. Here, we distinguish between commercial and non-commercial incentives. Of the non-commercial incentives, the social stimuli play the most important role. We’ll look at these first.INKIJKEXEMPLAAR ©SVHCulture Culture A person gets their cultural background through their upbringing. As a result, many consumers are not aware of the influence culture has on our purchasing decisions. With the concept of 'culture', we mean all the values, attitudes and behaviours typical in a society. Dutch culture is characterised by terms like freedom of choice, participation and equality. A culture is constantly changing. Changes in the Dutch culture include: • increased emancipation (not only of women, but also of youth); • letting go of traditions and Christian faith; • the more individualistic attitude of people in society.Subculture These developments change the purchase behaviour of consumers. The greater freedom and independence of young people means, for example, that they can discover and develop their own trends. The rapid rise of mobile phones is an example of this. Every culture has subcultures. These are separate cultural groups which form part of the main culture. Subcultures can be based on nationality, race, religious belief, age, choice of music and choice of sport. Social class You can categorise the inhabitants of the Netherlands in social classes. Someone’s class depends on education, occupation, income, type of house, possessions, living environment, social contacts, values and standards. Social classes are hierarchical in nature; many see the class in which they instinctively classify themselves as higher or lower than that of others.Social class In addition, most people choose friends and relationships who have the same interests and thereby there are few meaningful contacts between people from different social classes. Each social class has its own spending habits, e.g. in the choice of newspaper, shops and leisure activities. Social classes have become less recognisable due to increased wealth. For example, it is quite normal for everyone to travel or to use hospitality services. This was very different thirty years ago, and these products were generally only reserved for the wealthy. 153

Marketing & Sales for the Hospitality Industry Sociology The influence of reference groups Humans are not loners and our behaviour is exposed to the influence of others. We are now in the field of sociology. This science studies people as social beings, i.e. human behaviour as part of a group.INKIJKEXEMPLAAR ©SVHFace-to-face groups People are part of many groups (family, work situation, circle of friends, sports, etc.). With these groups, we speak of face-to-face groups because the consumer has interaction with the other members of that group. Face-to-face groups are the actual groups to which the consumer belongs. These groups do not affect the behaviour of a consumer as strongly as the group to which he wants to belong. The group to which someone wants to belong is called a reference group. There are also groups to which someone absolutely does not want to belong, these are called negative reference groups. Consumers will not buy certain products in order to avoid being classified as part of a particular group.Reference group A reference group is defined as any group of people by whom someone is influenced when taking a decision. Reference groups are often situation-specific. People do not assume something from a certain group in every situation. One group affects the purchase of clothing, another group has influence on the choice of a political party, and so on. A group will influence the buying and usage behaviour of that group’s members. Consumers buy products which they think best suit the image that they want to maintain or build within a certain group. Group behaviour and hospitality industry The hospitality product is extremely sensitive to the group behaviour of consumers. Young people know exactly what type of venue that those they consider the 'right' audience go to. If a nightclub attracts a certain subculture, then other subcultures will want nothing to do with this hospitality establishment. Hospitality establishment Hospitality entrepreneurs can appropriately respond to this by playing the right music or by hiring the right personnel, namely young people that are popular within the group that the entrepreneur wants to attract. Restaurant and hotel visits are also highly dependent on the social feeling of consumers. Some restaurants are able to become a meeting place for a certain group of people. A place where you go to see and be seen. This also applies in the business world. A businessman who stays in a particularly luxurious hotel in Amsterdam appears more successful than when he stays in a cheaper chain.154

Chapter 5 | Demand-side analysis of the hospitality marketVeblen The sociologist Veblen has designed a model that describes the group’s influence on human behaviour.INKIJKEXEMPLAAR ©SVH1. Culture 2. Subculture 3. Social class 4. Reference groups 5. Face-to-face groups 6. Family 7. Individual Veblen’s Model The influence of the different groups is represented by levels. The closer we get to the individual, the stronger the group’s influence becomes. Family influences According to Veblen, the group closest to the consumer is the family. Veblen believed that the family has a major influence on a consumer’s purchasing decisions. About 70% of the Dutch population lives as a family under one roof. A household’s consumption is strongly determined by the composition of the family. A family that consists of six persons (parents and four children) has a different consumption pattern than a family that consists of one parent and one child. The stage that the family is in also determines the consumption behaviour. 155

Marketing & Sales for the Hospitality Industry Purchasing decisions in the family It’s interesting for the entrepreneur to know which people influence the purchases within a family. We can distinguish a number of roles: • the buyer is the one who goes to the shop and pays; • the decision maker is the one who decided what item will be bought and where; • the influencer can guide the decision maker in his choice; • the users are the persons who actually consume the product. Of course, the buyer, decision maker and user can be the same person in a buying process where there is no influencer. But you often see that these roles are divided within the family. The women do the grocery shopping in many households, but a lot of items are consumed, for example, by the children. The children then often influence the choice for a particular product. Some manufacturers are good at responding to this by using advertising that appeals to children. Another example. Let’s say that a family wants to go out to eat. Parents and children (influencers) discuss which restaurant is suitable and ultimately someone must decide (decision maker). Someone has to pay after eating (buyer). The whole family is the user of this service.INKIJKEXEMPLAAR ©SVH 3. Commercial stimuliCommercial stimuli A consumer also gets stimuli to process that clearly aim to persuade consumers to buy a particular product. These are commercial stimuli. Manufacturers, retailers and hospitality entrepreneurs all want consumers to spend their money with them. These companies have a lot of money to spend on reaching and persuading the consumer. These incentives reach the consumer in various ways: advertising on radio and television, billboards, advertising on buses and signs. It’s not always clear that stimuli are commercial. When a consumer watches a programme on a commercial channel, a particular product may suddenly pop up in the programmes. The main character takes a sip of a well-known soft drink brand and shortly afterwards is the commercial break. The consumer does not recognise this incentive as commercial, but does get thirsty from it. Finally, there are also institutions that try to reach out to the consumer to change their attitude regarding a particular charity. Environmental organisations, human rights organisations and organisations for third world countries all try to change consumer behaviour. If possible, to the extent that the consumer donates money. These are also commercial incentives. They give the impression that these are not commercial incentives. They want to influence the attitude of a consumer for charities. The comparative analysis of the Consumers' Association and the consumer information from the government are examples of non-commercial stimuli.156

Chapter 5 | Demand-side analysis of the hospitality marketAttitude and perceptionINKIJKEXEMPLAAR ©SVHPreconditions ResponseMotives BLACK BOXCulture PreconditionsSocial classReference groupsFamily influencesCommercial stimuliNon-commercial stimuliPreconditionsThe consumer receives a lot of stimuli. However, the consumer will not react to every stimulus.Thanks to his selective perception, he will not even see some incentives. And the consumercannot react to everything. He has to deal with all sorts of restrictions. For example, his purchasingpower will not always allow him to buy whatever he wants. The family situation also influences thespending habits of consumers. The consideration of whether to buy something or not is largelyinfluenced by enabling factors. This can also be seen as the preconditions for consumer behaviour.the preconditions forconsumer behaviour. 157

Marketing & Sales for the Hospitality Industry 5.6 Economic aspects of customer behaviour The customer’s behaviour is of course not only determined by psychological and sociological factors. Economic aspects also play an important role. You might want to go to a restaurant every week, but you also have to be able to pay for it. The economic aspects of the customer’s behaviour revolve around the buyer’s income on one hand and around the prices that have to be paid for the products and services on the other hand. The level of income and the price of the products determine what is possible for satisfying the inexhaustible needs of the buyer to the extent possible. Changes in income and the price also lead to changes in the customer’s behaviour. It’s important for the entrepreneur to know what customer behaviour he can expect if he changes his prices or if people’s income changes. The entrepreneur has some control over the prices. That’s why we first focus on the effects of price changes.INKIJKEXEMPLAAR ©SVH 5.6.1 Price elasticity The influence of price changes on customer behaviour Buyers of a product respond to a change in that product’s price. Usually, more of a product will be purchased if it becomes cheaper. After a price drop, the number of units sold increases. If a product becomes more expensive, less of it is purchased. After a price increase, the number of units sold decreases. The consumer reacts very strongly on price changes for some products and, in that case, will buy much less of that product in the event of a price increase. Other products have a less sensitive demand. An increase or decrease in the price does not change or barely changes the number of units sold.Price elasticity of The extent to which consumers respond to a price change by purchasing more or less of a product demand is called the price elasticity of demand. The degree of change is expressed as a number. The calculation of the price elasticity is as follows: Price elasticity = percentage change in the number of units sold percentage change of price158

Chapter 5 | Demand-side analysis of the hospitality marketElastic demand Price elasticity with respect to an elastic demand Elastic demand is when the number of sold units of a product changes greater as a percentage than the increase or decrease of the price.INKIJKEXEMPLAAR ©SVHIs the percentage change in the number of units sold greater than the percentage change of the price? Elastic demand The demand strongly responds to price changes for a number of products, which include: • luxury goods; • relatively expensive goods; • goods for which there are many alternatives. Example A cafeteria owner sells milkshakes for €2 each. He sells an average of 20 milkshakes per night. So he makes a turnover of €2 x 20 = €40. The cafeteria owner decides to lower the price by 25% to €1.50. After the price drop, the entrepreneur is surprised to see that the demand has increased to 30 milkshakes per night. Through a 25% price drop, 50% more milkshakes are sold. The turnover of milkshakes is now €1.50 x 30 = €45 per night. If we only look at the turnover, the cafeteria owner made a wise decision in reducing the price. If we enter this into the formula, we get: Price elasticity = + 50% = -2 -25% If the percentage change in the number of units sold is greater than the percentage change in price, then there is a case of elastic demand! 50% is greater than 25% so this is an elastic demand. Elastic demand: % change in amount requested >% change in price If a hospitality entrepreneur has to deal with elastic demand, he should never increase the price. The consumer does not have to buy the product and will just buy less or none at all if he thinks it’s too expensive. Maybe there are too many competitors in the neighbourhood, who can offer the product for the old price. 159

Marketing & Sales for the Hospitality Industry Guests become more price conscious when they have a lot of alternatives in the market to satisfy a need. Therefore, the hospitality entrepreneur can reduce the price (within certain margins). With elastic demand, this will always lead to revenue increase because the guest is price conscious. Price elasticity with respect to inelastic demand For some products, the percentage of number of units sold does not change much with a price change.INKIJKEXEMPLAAR ©SVH Is the percentage change in the number of units sold smaller than the percentage change of the price? Inelastic demand.Inelastic demand The quantity sold will remain quite stable. This is called inelastic demand. Inelastic demand is especially applicable to: • necessary goods; • relatively cheap goods; • goods for which there are few alternatives. Example A publican sells 100 glasses of beer per night. One glass of beer costs €1.50. Turnover per night is 100 x €1.50 = €150. The publican thinks that the turnover is a bit low and increases the price by 10% to €1.65. As a result, he only sells 95 glasses of beer a night. The requested amount drops by only 5%, while the price is increased by 10%. The turnover rises to 95 x €1.65 = €156.75. If we enter this into the formula, we get: Price elasticity = - 5% = -0.5 +10% If the percentage change in the number of units sold is smaller than the percentage change in price, then there is a case of inelastic demand! This is inelastic demand because 5% is smaller than 10%. Inelastic demand: % change amount requested < % change in price Certain rules apply for an entrepreneur who notices that the demand for his product is inelastic. He should never decrease the price because he will not sell more of his product. In that case, he sells the same amount of the product but at a lower price. Which is unwise. He can (within a certain margin) increase his price without having a big decline in sales. This would allow him to increase his turnover.160

INKIJKEXEMPLAAR ©SVHChapter 5 | Demand-side analysis of the hospitality market Demanders will only accept a price increase if there are few alternatives, such as a businessman who needs to spend the night at an airport. How much should a glass of beer cost? Dutch consumers complained about the high prices in the hospitality industry after the introduction of the euro. Hospitality entrepreneurs were thought to have doubled the prices and were profiting too much. How should a hospitality entrepreneur actually establish his prices? The selling price of a product is determined in part by using the purchase prices and, of course, the number of millilitres that you can tap into the glass. The difference between the sales price and the purchase price is the gross profit. The amount of the gross profit is determined by the entrepreneur. The amount of the total turnover (and therefore gross profit) is also determined by the frequency of customer visits to a hospitality establishment. The repeat guest looks at what the entrepreneur offers his guests. This is where the entrepreneurship comes into play. This entrepreneurship is also reflected in the cost. It costs money for an entrepreneur to add atmosphere, cosiness, ambiance, good music or a high level of service to his hospitality establishment. Conversely, this also applies to the guest. He visits your business because it has something to offer him and he will have to be prepared to pay the prices that the business charges. The above reasons are why the price of a glass of beer can differ between various hospitality establishments. 5.6.2 Income elasticity Consumer income increases in times of prosperity, and we see that income remains stagnant or even decreases in economically bad times. These changes in consumer income have consequences for their spending habits. It is known, for example, that consumers will try to save a lot more in bad economic times. They will set aside their money for when it’s really necessary. While the same consumers easily take out loans and spend all their money during periods of economic growth. An income change affects the number of units sold of a product. 161

Marketing & Sales for the Hospitality IndustryIncome elasticity The income elasticity is a number that indicates the strength of consumer response to an income change regarding the purchase of a particular product. income elasticity = percentage change in number of units purchased percentage change of incomeINKIJKEXEMPLAAR ©SVH There are three types of goods. Inferior goods 1. Inferior goods These are goods of which less is purchased if income rises, or more is bought if income drops. For example minced beef, pork belly and cheap bread. Note: The quality of these products is not inferior, but we call them inferior goods because they are purchased less when income increases. In the hospitality industry, you would refer to the products from a cafeteria as examples of inferior goods.Necessary goods 2. Necessary goods These are goods that a person needs to stay alive. In numbers, necessary goods are bought just as often or a little more when income increases. Luxury goods 3. Luxury goodsThreshold goods Goods are called luxury goods when the consumer spends more on them as a percentage than the percentage change in the income. A certain level of income is required in order to purchase some goods. These are called threshold goods. Luxury goods could include holidays, speed boats, expensive cars, and a visit to a fine-dining restaurant can also be considered as a luxury good. Engel's law Ernst Engel was a statistician who did research in the nineteenth Century on consumer spending. His Engel's law is based on budget statistics. From these statistics, Engel drew the conclusion that as income increases: • people spend more in euros but less as a percentage on food; • the percentage spent on housing and the household remains the same; • the percentage spent on clothing, transportation, recreation, health and education increases. In summary, when income increases, a greater percentage of the income is spent on secondary necessities and a lower percentage on basic necessities.162

Chapter 5 | Demand-side analysis of the hospitality market 5.6.3 Cross elasticity We have seen that less is sold of certain products if the price rises, or more is sold if the price drops. But if the price of one product changes, it may affect the quantity demanded of another product. Cross elasticity of demand is when a price change for one product has consequences for the demanded amount of another product.Cross elasticityINKIJKEXEMPLAAR ©SVH If the price of a restaurant’s daily menu drops, more people will probably visit the restaurant. This affects the demand for drinks. The price drop of the meals will result in higher turnover for the drinks. There are two types of goods where the price change for one product leads to changes in the number of units sold for another product. Cross elasticity = percentage change in the number of units sold of the other product percentage change in the price of the one product When a price change of one product leads to a requested quantity change of another product, this is referred to as cross elasticity. If a price change of a product does not affect the quantity requested of another product, these are called independent (neutral goods) products. We can distinguish two types of goods regarding cross elasticity: Complementary 1. Complementary goods goods These are goods that complement each other, such as a meal and wine or a car and petrol.Substitution goods 2. Substitution goods These are competing goods that satisfy the same needs, such as coffee and tea, meat and fish, or potatoes and rice. 163

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INKIJKEXEMPLAAR ©SVHChapter 5 | Demand-side analysis of the hospitality market 5.7 Questions about the chapter 1 What is meant by consumer behaviour? 2 What buyer groups exist in the hospitality industry? 3 During a business lunch, the establishment will have to take account of the wishes and expectations of the business guest. State five. 4 Guests judge a business based on expectations. These are classified into four categories. What are they? 1 2 3 4 5 What stimuli influence a consumer’s behaviour? 1 2 3 165

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry 6 The customer’s behaviour is of course not only determined by psychological and sociological factors. Economic aspects also play an important role. You might want to go to a restaurant every week, but you also have to be able to pay for it. Describe the following economic concepts: Price elasticity Income elasticity Cross elasticity166

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Chapter 6 | Market SegmentationChapter 6Market segmentationINKIJKEXEMPLAAR ©SVH The chapter at a glance 170 6.1 Introduction  171 6.2 How to segment 173 6.3 Segmentation analysis 181 6.4 Segmentation strategies 184 6.5 Market segmentation and product differentiation 186 6.6 Customer analysis 189 6.7 Questions about the chapter  191 For more information, exercises, answers and supporting material: www.masaho.nl 169

Chapter 6 | Market Segmentation Marketing and Sales for the Hospitality Industry part 1INKIJKEXEMPLAAR ©SVHMarket seg-Pros mentProduct differ- Market seg- Requirements entiation mentationAnalysis & How?strategieswww.masaho.nl - Questions: e-mail to [email protected]

Chapter 6 | Market Segmentation 6.1  | Introduction Sunday is the busiest day at Peter’s bistro. The rush begins early in the day. People in the area like to spend their free time cycling or walking, and they visit Peter’s bistro mostly to enjoy a delicious cup of soup or a sandwich. Peter often organises afternoon jam sessions where jazz musicians play nice music and many other guests enjoy their playing. Dinner time begins relatively early for Peter on Sunday. This is mainly due to the families with children. They stop by for a quick meal before Studio Sport begins and the children go to bed. Peter wistfully recalls his weekend trip to Berlin. Hotel Michel Berger was an excellent hotel in which to relax and unwind. It seems like months ago.INKIJKEXEMPLAAR ©SVH The demand side of the hospitality industry consists of many people. They have quite differing wants, needs and behaviour. The market is heterogeneous and this can make it difficult for the hospitality entrepreneur to understand. The market is unclear. In order to better understand the customer, the hospitality entrepreneur can divide the market into groups of customers. These groups are called sub-markets.Market segmentation Market segmentation is the division of the total market into homogeneous sub-markets. A Market segment homogeneous market segment consists of persons who more or less have the same wants and desires. It can be assumed that they will react in much the same way to the marketing tools such as a price reduction or quality improvement. Marketing concept Market segmentation makes visible the differences in needs and wants in the demand side of the market. A good segmentation analysis provides more insight into the composition of the demand side. In order to segment, the hospitality entrepreneur must collect information about the behaviour, wants and desires of potential consumers. The entrepreneur must take into account the wishes of the guest in every decision he takes. In short: segmenting forces the use of the marketing concept!Target group Based on a good segmentation analysis, the hospitality entrepreneur determines on which market segments he wants to focus. The market segment that the entrepreneur is going to work with is called his target group. A product for everyone is a product for no one. It is usually pointless for a small business owner to want to satisfy the need of the entire demand side of the market. A product for everyone is a product for no one. It doesn’t make much sense for a small business owner to divide his available time and energy on market segments where he has few or no opportunities. 171

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry That is why it makes more sense to align his marketing efforts with those market segments that can provide longer-term profit. The segmentation analysis must indicate which segments have the most opportunities for this. Segmenting is nothing new. Forms of market segmentation have been around for ages. Just think of barbers for men and ladies hair salons. Due to differences in purchasing power and buying need, the entrepreneur adapted his market approach to his different customers. The increased prosperity, the rise in level of education, the individualisation of society and increased competition are major causes of applying market segmentation on a large scale. Why segmenting The knowledge and insights in this chapter should make clear that market segmentation allows for the better putting into practice of the marketing concept and forms the basis for successful entrepreneurship. Market segmentation has the following advantages for the hospitality entrepreneur: a. segmenting leads to better insight into the composition of the demand side of the hospitality market; b. segmenting leads to the quicker identification of changes in the demand side of the market; c. segmenting causes the entrepreneur to more quickly adjust his business formula to the wishes of the guest (there is better alignment of the supply with the target group); d. the hospitality entrepreneur is better able to detect ‘gaps in the market’. A gap in the market is a market segment on which no provider has yet specifically focused; e. segmenting improves competitiveness; f. segmenting prevents waste. Requirements for a market segment Market segments that qualify as a target group must meet certain requirements. A market segment must provide sufficient profit for the hospitality entrepreneur. A potential market segment will meet the following standards. a. The segment must be measurable. It should be possible to get information about the size and composition of the segment. This is necessary for calculating the maximum achievable turnover. b. The segment must be accessible to communication. The segment must be accessible via promotion (e.g. advertising). c. The segment must be sufficiently large. The segment should be large enough and have sufficient buying power. It must be economically justifiable to align the marketing activities specially with this segment. In assessing the potential market segments, we must realise the purpose of segmenting. The mar- ket segmentation strategy should lead to less waste of the marketing activities and the segmenta- tion should allow for the more goal-oriented use of the market.172

Chapter 6 | Market Segmentation 6.2  |  How to segment Markets can be segmented in different ways. Different possibilities apply for each product and for each business. Someone’s social class can determine the hospitality establishments he visits, but this social class plays no role in what he eventually orders. It is common in marketing to divide the market into homogeneous groups according to the following characteristics: a. geographical characteristics; b. demographics; c. socio-economic characteristics; d. socio-psychological characteristics; e. purchasing behaviour characteristics. We will discuss these characteristics one at a time.INKIJKEXEMPLAAR ©SVH a. Geographical characteristics A restaurateur probably does not focus on all potential guests throughout the Netherlands, but on guests in a more or less geographically defined area around where his establishment is located. A cafeteria often has a neighbourhood or a village as its service area . An exclusive restaurant will have to be able to attract its guests from a much larger geographic area. In general, you could say that the more specialised a business is, the bigger the geographical sales area should be in order to be profitable.Cebuco area Cebuco area A Cebuco area is a tool for the hospitality entrepreneur to divide the market geographically and is the classification of the Netherlands according to NDP Nieuwsmedia (www.ndpnieuwsmedia.nl). A Cebuco area is an area designation where a particular newspaper is read most often. You can then better reach your audience by advertising in that daily paper. Regional differences Hospitality entrepreneurs with a successful business formula who want to increase sales using branches, often discover that this is not so easy. Each region has its own customs, preferences and buying habits. The location that a restaurateur chooses for his business also determines, for example, what gets put on the menu. Although the Netherlands is a small country, there are considerable regional differences in the consumption of food and beverages. For example, the consumption of beer differs strongly by province. The preferences for fish, beef and pork also vary by region. People who live in the city often have other wishes and needs than the people in the countryside. 173

Marketing & Sales for the Hospitality Industry b. Demographic characteristics Demographic Segmenting based on demographic characteristics is related to the composition and the characteristics development of the population. Demographic segmentation is when a market is divided into subgroups according to age, gender, race, size of the household and similar factors.INKIJKEXEMPLAAR ©SVH The advantage of this type of segmentation is that the segments found are usually sufficiently large and easily accessible. It is also fairly easy to obtain information about these segments (e.g. from the CBS). This is why these characteristics are often used for market segmentation. Age Market segments are often based on age. Age can be a clear indication of the consumption pattern, especially in the hospitality industry. If a hospitality entrepreneur decides to target young people, then the entrepreneur must constantly take note of changes in tastes, beliefs and attitudes. He must also pay attention to the current ‘in’ trends. The hospitality entrepreneur should also keep an eye on the aging of his current target group that may no longer fit into his business formula, which means that the hospitality entrepreneur has to find new customers. Think of a discotheque that focuses on young people of around the age of 18. This discotheque will continuously have to find new customers within the target group because the current visitors will go to another place after a few years. So there is an ongoing recruitment of a new public. Seniors market Many elderly people are healthy, active and fairly well-off. They have a lot of free time and are really interested in travel and comfortable living. A large group of Dutch people is older than 55 years. It is expected that this number will rise sharply in the coming years. The elderly will increasingly determine social life. They have relatively large assets or relatively little or no mortgage. The children no longer live at home, so the elderly have more to spend. When they leave the labour market, they are still vital and can and want to do a lot. Hospitality entrepreneurs will increasingly have to take into account the requirements of the elderly in their business formula. The elderly have extensive experience and are critical con- sumers. They are not easily tempted into impulse buying and are less susceptible to fads. Quality plays a bigger role. They are difficult to approach through advertising because they especially value business information. They do not want to be regarded as 'elderly'. They are price-conscious and sensitive to discounts. Better availability and accessibility, better service and friendly service are listed at the top of the wish list regarding the hospitality industry. Segmentation, product improvement, product innovation and communication are keywords for successfully working with the seniors market.174

Chapter 6 | Market SegmentationStage in the family cycleAlthough age is a good way to segment, it appears that the developmental stage of a family is abetter variable for explaining the buying behaviour. The development of the family situation oftenoccurs in leaps. Each stage is characterised by a different purchasing behaviour. This also appliesto spending in the hospitality industry.INKIJKEXEMPLAAR ©SVHThe family life-cycle has the following stages:1. the young single person;2. young married, no children;3. young married, with children;4. long-term married, with children;5. long-term married, children no longer at home;6. elderly.A 30-year-old bachelor has a very different spending pattern (due to other needs) than a 30-year-old father. Marital status and family composition form a meaningful basis for market segmentation.Life-cycle stage Purchasing behaviour 1. discotheque and cafeteria visit, sport canteen, youth café, ready meals 2. often eating away from home at a bistro, often out visiting others,extensive home cooking 3. few visits to hospitality establishments (due to children), other eatinghabits 4. more often on holiday, eating out more often, spending more time onthemselves 5. excellent market for services, many day trips, long-distance travel 6. higher demands on nutrition, do not go out oftenLifestyle and media-use students anticipate general trendsStudents play a leading role in the market for young people. Their world revolves aroundmultimedia and online contacts and is way ahead of what marketers can expect from therest of the population.Students place technology first in every facet of life – such as maintaining social contacts,meeting new people, working and shopping. It does not support their culture, it is theirculture.A surprisingly large share of students reject traditional media. A survey in the UK found thatthree quarters of the students would rather give up their TV than their computer.Students lead the way in maintaining social networks via the Internet. In the week leadingup to the research, 51% visited a social networking site. Three quarters said that theInternet is important for maintaining friendships or family ties. 175

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry Other demographic factors In addition to age and the stage in the family cycle, there are other factors with which the market can be demographically segmented. For example, segmented by gender (male or female). The consumption behaviour of men differs from that of women. Certain products are bought more often by women (Martini, Coebergh and the like) while other products are enjoyed more by men (Whisky, Jägermeister, etc.). Religion is another demographic variable. Muslims are not allowed to consume alcohol and pork, and no strict Protestant would go to a hospitality establishment on Sunday. There are different such rules for every religion. Demographic factors like culture and race can also be used to segment. c. Socio-economic characteristics A country’s population can be divided into layers. We call these layers social classes. The following are taken into account for the division: job, level of income, education, type of house in which a person lives, living environment and standing in the community. It makes sense that income level affects consumer spending habits. A person can have many needs but meeting these needs has to be financially viable. The neighbourhood in which one lives also affects the consumer purchasing behaviour; keeping up with the Jones’ still applies in the Netherlands. People with the same profession also tend to have the same need patterns. Consider, for example, lawyers, doctors or people working in banking. These professional groups are known to socialise amongst themselves in their private lives and certain income and expenditure patterns are associated with this. The advantage of segmenting based on socio-economic characteristics is that this is objective and measurable. This way of segmenting is widely used in marketing. Social classes differ in purchasing behaviour. Spending patterns are especially reflected in the purchase of magazines and newspapers, shopping behaviour, how leisure time is spent, saving habits and spending patterns. d. Socio-psychological characteristics Prosperity in the Netherlands greatly increased after the Second World War. The differences between the rich and the poor became smaller. Incomes moved increasingly closer to each other and the difference in characteristic consumption behaviour was no longer so obvious. This is why segmenting using socio-economic characteristics is less effective. Many entrepreneurs now segment based on socio-psychological characteristics. Examples of socio-psychological characteristics include consumer attitude, standards, values and lifestyle. The disadvantage of this method of segmenting is that the socio-psychological characteristics176

INKIJKEXEMPLAAR ©SVHChapter 6 | Market Segmentation Time allocation per person per day How consumers spend their time has been a subject of research for years. CBS comes out with data every three years. It is striking, for example, that men from the ages of 25 to 44 spend the most time on paid work and education, namely 5 hours and 12 minutes, while men from the ages of 45 to 64 spend only 3 hours and 12 minutes on this per day. Please note that these are averages. Women from the ages of 25 to 44 work an average of 2 hours and 33 minutes. The free time spent in a hospitality establishment also differs. The 18 to 24 age group spends by far the most time here (men 53 minutes per day, and 36 minutes per day for women of this age). Compared to people of 65 or older, this is quite a difference (men of 65 and older an average of 10 minutes per day, women of 65 and older an average of 18 minutes per day). 177

Marketing & Sales for the Hospitality Industry are rather vague and difficult to measure. On the other hand, demographic and socio-economic characteristics give little insight into the buying motives. That’s why people try to use a combination of these characteristics. For example, segmentation can be done based on age, lifestyle and social class.INKIJKEXEMPLAAR ©SVH Lifestyle Lifestyle segmentation Socio-psychological characteristics are especially reflected in the lifestyles of consumers. People try to describe the consumer’s personality. Lifestyle is the way someone spends his time and money. In describing someone’s lifestyle, we look mainly at the following factors: • Demographic factors: age, income, place of residence. • Activities: How does a person spend his time? What are his hobbies? What sports does he play? What are his recreational pursuits? How many hours does he work? • Interests: What are his interests? What media does he read? Does he like culture? How important is home to him? How important is his work for him? Where does his family fall in all this? • Opinions: What does he think about himself, society, politics, the economy, saving, environment and the future? Adoption speed As new products appear on the market, the public must first get used to that product before it is bought. Yet there are people who are very early in accepting and buying new products. They are the trend (fashion) setters. It will become clear that this has to do with lifestyle. The speed at which groups of consumers accept and buy new products is called adoption speed. There are five categories of buyers: 1. Innovaters About 2.5% of consumers are prepared to be the first to buy new products and/or services. We also call them consumption pioneers. They often have a high income and are highly educated. 2. Early adopters The 'early adopters' follow pretty quickly with buying new products if they notice that the innovators respond positively. About 13.5% of consumers are early adopters. These consumers are often socially oriented, trend sensitive and are described as opinion leaders. 3. Early majority L iterally translated: the early majority. This group consists of 34% of consumers. The product is accepted by the market. This group compares the information and prices of the various products and looks for the usefulness of the new product.178

Chapter 6 | Market Segmentation 4. Late majority The late majority follows only after a broad expanse of the public has purchased the product. About 34% of consumers belong to the late majority. The product is well known and accepted and will soon disappear from the market. This group of consumers is suspicious of innovation. They only buy the product out of economic necessity. The people who fall under this group, often have mid-level incomes. 5. Laggards The final 16% of consumers are the last to participate. They lag behind the trends and are usually conservative buyers. This group often has few social contacts and a low income.INKIJKEXEMPLAAR ©SVH e. Purchasing behaviour characteristics (purchasing motivation)Purchasing behaviour When we want to segment the demand side of the market based on purchasing behaviour characteristics characteristics, we look at arguments to which the consumer is particularly sensitive as regards the sale of a product. Some consumers buy the same product year after year (brand loyalty), whilst other consumers are very sensitive to service. There are also consumers for which the price is the main selling point.Purchase frequency Another purchasing behaviour characteristic is the number of times a product is purchased (purchasing frequency). In many consumer research surveys, we encounter the search for arguments of why consumers buy something. The questions are designed so that the interviewers get insight into the purchasing behaviour. The providers in the market want to know the right reasons for why a product is purchased. Once the reason is known, people can respond to it using the marketing tools. Type of use : business/private Level of use : none/light/heavy Frequency of use : occasional/regular Benefits sought : status/prestige/price/efficiency/atmosphere Spending : high/moderate/low/none Price sensitivity : high/low/indifferent Quality sensitivity : high/low/indifferent Service sensitivity : appreciated/indifferent Advertising sensitivity : strong/weak/indifferent 179

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Chapter 6 | Market Segmentation 6.3  |  Segmentation analysisSegmentation analysis It has been noted several times in this chapter that when the entrepreneur wants to segment, he must first carry out a good segmentation analysis. A segmentation analysis should give more insight in the market segments. The hospitality entrepreneur can use this method to better select and work with his target group.INKIJKEXEMPLAAR ©SVH The segmentation analysis in three steps 1. The search for the possible differences in desires, needs and behaviours of existing and/or potential guests. Many hospitality entrepreneurs have an idea of what type of visitors make up the client base. They divide the guests into business people, private individuals and tourists. If the hospitality entrepreneur finds that he earns the most turnover from business people, then he can very easily say: 'I'm going to segment the market and focus on business people.' Unfortunately, this is not a segment! Which business people? Where are the businesses located? What do these business people want from the establishment? Why do they come to the business? How often do they come to the business? How much do they spend at a time? What are the positions of the business people who visit the establishment? In short, the hospitality entrepreneur will need to collect much more information in order to segment. The hospitality entrepreneur will primarily have to look for differences in communication, purchase and usage behaviour. The consumption conditions, in particular, can be very different, also within the business guest group. The hospitality entrepreneur will want to collect information about the previously mentioned features from which he can choose (geographical, demographic, socio-psychological, socio-economic and purchasing behaviour characteristics). Since it is impossible to know everything, the hospitality entrepreneur will select a limited number of features important to him. 2. Determine the extent of homogeneous segments. The hospitality entrepreneur will need to know the size of his target group and whether it is possible to get the necessary turnover from this target group. The hospitality entrepreneur will have to determine how large the segments are within the chosen target group. Segmenting with a too small number of consumers does not qualify as a target group. Of the selected segments, information must be known about the purchasing power and spending habits. Only through using this information can the hospitality entrepreneur forecast his turnover. 181

Marketing & Sales for the Hospitality Industry 3. What are the special needs of a chosen target group? The hospitality entrepreneur has selected the target group and determined that this group is economically interesting. Now he’ll have to find out to what parts of the business formula the target group is most sensitive. Is it the price, the decor, the quality of the meals or something else? What does the target group expect from the business?INKIJKEXEMPLAAR ©SVHBenefit segmentation The hospitality entrepreneur has to respond to these expectations. He will especially have to emphasise the benefits the target group is looking for when choosing a hospitality business. This is also called benefit segmentation. This means trying to attract and bring in a market segment by focusing on the positive features important to the market segment. Market segmentation matrix The hospitality entrepreneur can also use a market segmentation matrix to understand the type of guest that makes up his target group. To this end, he lists his facilities and asks himself which guests would want to use them. The supply of hospitality is then compared with the demand for hospitality. Take a motel, for example. A motel’s service mix consists of: 1. guest rooms; 2. restaurant (self-service); 3. restaurant (full-service); 4. entertainment (swimming pool, children's playground); 5. meeting rooms. A motel’s guest mix consists of: a. individual business people; b. families on holiday; c. day trippers; d. conference participants; e. professional drivers; f. group travellers (buses). By putting the services mix and guest mix in a table (matrix) and indicating to what extent the guests use the facilities, the motel owner gets a good understanding of his target group. The motel owner now knows on which segments he will mainly have to focus and which segments need more work. The extent to which guests use services is indicated using an ‘x’.182

Chapter 6 | Market Segmentation  Service mix1.INKIJKEXEMPLAAR ©SVH guest roomsGuest mix 2. restaurant (self-A individual business people xxxx x service) 3.B families on holidayx xx restaurant (full-service) 4.C day trippersxx x x x entertainment (swimming pool,D conference participants xx xx xx xx xx children's playground) 5.E professional driversxx xx meeting roomsF group travellers (busses) xx xx xx moderate use xx intensive use 183

Marketing & Sales for the Hospitality Industry 6.4  |  Segmentation strategies A business that chooses to align its business formula to a homogeneous group of customers opts for market segmentation. We define market segmentation as the division of the market into buyer groups. The entrepreneur will try to find the customers that respond in the same way to the tools of the marketing mix. When an entrepreneur opts for a particular market segment, this becomes his target group.INKIJKEXEMPLAAR ©SVH Once the entrepreneur has mapped these groups, there are three ways he can deal with the market segments: a. The entrepreneur aligns his business formula with one market segment. This is called a concentrated marketing strategy. b. The entrepreneur chooses several target groups and focuses his marketing activities on them. Compiling a different marketing mix for each target group is called a differentiated marketing strategy. c. The entrepreneur tries to serve multiple market segments. He approaches the entire market as a whole and with one marketing mix. The term used for this is an undifferentiated marketing strategy. Concentrated Concentrated marketing strategymarketing strategy The entrepreneur aligns his business formula to one market segment. All marketing efforts are then focused on his target group. In this case, the target group is the same as the market segment. The entrepreneur who opts for concentrated marketing wants to be big in a small market. He can stand out from his competitors by being big in a small market. By using a business formula that the entrepreneur is very good at in order to work with the target group, the foundation is laid for a successful business. The entrepreneur can completely adjust his business formula to the specific wishes of his market segment. The entrepreneur should be careful to choose a market segment with a future. It must be a segment with growth potential and sufficient profit opportunities. The concentrated marketing strategy is in the same line as the focus strategy that was discussed earlier in this book. The concentrated marketing strategy approaches the market from the demand side, while a focus strategy is more known as a competitive strategy and approaches the market from the supply side.184

Chapter 6 | Market SegmentationINKIJKEXEMPLAAR ©SVH Trends Children’s Market Segment It seems so obvious. There are about 200,000 babies born in the Netherlands every year. Many young parents now both work. The average hospitality establishment offers few options for parents with young children. This market segment is not very popular because other guests can become quickly bothered by young children. The servers are also not crazy about children because they often get in the way. The background music is drowned out by noisy children. And the most important reason: you don’t earn anything from children. Increasingly more entrepreneurs are starting to think otherwise. They create a special area in the restaurant for children. The young family as a target group. Trends/Tips: 1. Parents are looking for healthier tasty dishes for their children. Respond to this. 2. Serve children half-portions of all dishes for half the price. You offer children more choice by serving more small dishes. 3. Don’t provide the traditional children's menu as an option, it gives children ideas. Talk with them and promise an ice cream if they eat all of their meal. 4. Find out what children like and don’t like: crunchy vegetables or, for example, help with decorating. There is nationwide action for promoting cooking for children. Those who wish to be kept informed can subscribe for free to the Variatie op de Kaart newsletter. See variatieopdekaart.nl and kinderenlekkerdehelft.nl. Source: Misset Horeca 185

Marketing & Sales for the Hospitality Industry Differentiated Differentiated marketing strategymarketing strategy The entrepreneur chooses two or more market segments and compiles for each target group a marketing mix specifically aligned to each.INKIJKEXEMPLAAR ©SVH More than one business formula is often used within a hospitality business, with each having its own target group. The hospitality entrepreneur’s qualities determine whether these business formulas can function efficiently and do not damage each other. There must be multiple target groups in the Dutch accommodation sector to be able to make a profit. Conference-resort hotels have developed special meeting facilities for the business market and special facilities for the tourist market to use during bad weather. A conference-resort hotel will approach both target groups in a different way. It will approach the tourist market using travel agencies and maybe some mass media, but would rather use direct mail to advertise its product to the business market. Undifferentiated Undifferentiated marketing strategymarketing strategy In this case, the entire market is worked with the same marketing mix. Businesses that use this strategy try to use what the segments have in common. The reasoning of these businesses is that there are more similarities than differences. Once a business has studied the needs of the most important market segments, it tries to find selling points applicable for the largest group. The marketing mix is aligned to the largest group of customers. In this way, the entrepreneur primarily hopes to benefit from economies of scale in purchasing and personnel. Please note that this marketing strategy is based on the demand side and that the entrepreneur must know his customer groups well. Undifferentiated marketing is commonly used in mass products. For example, a lunchroom on a busy shopping street will see every passer-by as a potential guest and try to appeal to all these people. Otherwise too much turnover will be missed out on.186

Chapter 6 | Market Segmentation 6.5  |  Market segmentation and product differentiation This chapter discusses the technique of market segmentation. We studied the strategy of product differentiation in a previous chapter. These two strategies can be successful, but they each have a very different basis. We approach the market segmentation strategy from the demand side of the market. While we approach the product differentiation strategy from the supply side of the market.INKIJKEXEMPLAAR ©SVH Product differentiation With product differentiation, the entrepreneur looks at the business formulas of competitors. He will create his own business formula so that it stands out from those of his competitors. Profiling By adding additional capabilities to fulfil the wishes of the customers, he can distinguish himselfPositioning distinctly from his competitors. We call this profiling. Market segmentation As mentioned previously, an entrepreneur who applies the market segmentation strategy approaches the market from the demand side. The entrepreneur chooses a target audience and then looks at their wishes. These wishes form the basis of his business formula. He targets a particular audience for his business formula. This is called positioning. An entrepreneur primarily positions himself in the market using the promotion marketing tool. He uses promotion to consciously choose a certain position in the market. The entrepreneur will look to his competitors when establishing his business formula. And the entrepreneur will choose a business formula different from those of his competitors. So there is a bit of product differentiation with the market segmentation strategy.the entrepreneur will choosea business formula differentfrom those of his competitors. 187

Marketing & Sales for the Hospitality Industry STRATEGY CHOICE choice of target group and business formula are the most important decisions that a hospitality entrepreneur makes for the long termINKIJKEXEMPLAAR ©SVH MARKET SEGMENTATION PRODUCT DIFFERENTIATION approach to the market from the approach to the market from the supply demand side side POSITIONING PROFILING concentrated marketing strategy distinguish the business formula as differentiated marketing strategy much as possible from the competition in the eyes of the guest undifferentiated marketing strategy188

Chapter 6 | Market Segmentation 6.6  |  Customer analysis If you see a target group as purchasers of a particular product, you can create an analysis of your current guest (customer) file based on this. These customers have more or less the same wishes and needs. The guest/customer is increasingly the main focus point within the contemporary marketing concept. The customer analysis is therefore a very concrete way to understand guests and to align the strategy of a business to this (see section 6.1). The customer analysis is part of a situation analysis and is used to map the external environment of a business (see section 6.3).INKIJKEXEMPLAAR ©SVHCustomer analysis The following questions are used in this analysis to distinguish the customers who visit the business or any potential customers. The Ws of Ferrel et al. (1999) give a good indication of what the customer analysis has to answer. Who Who are the current and potential customers? (Characteristics see section 6.2) What Where? What do the current and any potential buyers do with the products of the When business? Why (1)? Why (2)? Where do the current and any potential buyers buy the products? When (time of day, days in the week/weekend, season) do the current and any potential buyers buy the products? How often? Why do the current customers and any potential buyers buy the products? What is important for the customer in this? What does the customer want? Why not? Implementation of customer analysis 1. Segmentation - Which groups exhibit similar behaviour? Describe these groups! 2. User situation(s) + possible values + the importance of them 2.1 General values 2.2 Product-specific values 3. For what purpose do the customers use the product? What general and product-specific values are important to them? 4. Performance (current) - Provides insight into the current performance. How well does the product work? Does it have a distinctive character? 5. Future (expectations) - Will there be changes in the near future? 6. Customer satisfaction - Is the customer satisfied? 189

Marketing & Sales for the Hospitality Industry SWOT SWOT stands for: Strengths, Weaknesses, Opportunities and Threats. In Dutch, these are also called: Sterktes, Zwaktes, Kansen and Bedreigingen. The results of an internal analysis by the business indicate the strengths and weaknesses of the marketing tools (place, product, price, promotion, presentation, personality). An external analysis focuses on the surroundings of the business. What opportunities and what threats are caused by external factors. The company has little control over this, but these factors can affect the business operations. Think of road work being carried out that reduces access for shoppers, or an increased flow of people when an event takes place locally. A SWOT analysis shows how the entrepreneur manifests himself in the current situation. A SWOT analysis is important for the development of the business because it provides knowledge and insight. Through a SWOT analysis, the entrepreneur will get a clear overview of where he stands now and of any future opportunities/threats. The customer analysis also shows the opportunities and threats that can be used for the SWOT analysis and for establishing the resulting strategic policy (see section 6.4).INKIJKEXEMPLAAR ©SVHSWOT analysis A SWOT analysis is important for the development of the business because it provides knowledge and insight.190

Chapter 6 | Market Segmentation6.7  |  Questions about the chapterINKIJKEXEMPLAAR ©SVH1 Name three characteristics of tourists as guests and the business guest.2 What is market segmentation?3 Why should a business segment? a. The business must make the guest/customer feel like a king. b. Segmenting leads to better insight into the composition of the demand side of themarket. c. In order to respond at any time to changes in the demand and supply sides of the market. d. Segmenting leads to better understanding of the supply side of the market.4 Market segments that qualify as a target group must meet certain requirements. What are they?5 State a business formula that clearly shows on what group of guests it focuses (positioning). Substantiate your choice.6 State a business formula that clearly shows how this business distinguishes itself from the competitors (profiling). Substantiate your choice.7 What is segmentation analysis?8 A segmentation analysis consists of three steps. What are they?Segmentation analysis DescriptionStep 1Step 2Step 39 What is the difference between market segmentation and product differentiation? 191

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Chapter 7 | Market research and sales forecastChapter 7Market research and sales forecastINKIJKEXEMPLAAR ©SVH The chapter at a glance 1967.1 Introduction  1977.2 Functions of market research 1997.3 Compiling market data 2027.4 Research techniques 2047.5 Market and sales forecast 2097.6 Calculating a sales forecast 2127.7 Questions about the chapter  218For more information, exercises, answers and supportingmaterial: www.masaho.nl 195

Chapter 7 | Market research and sales forecast Marketing and Sales for the Hospitality Industry part 1INKIJKEXEMPLAAR ©SVHFeaturesSales forecast Compile data ResearchMarket forecast Techniqueswww.masaho.nl - Questions: e-mail to [email protected]

Chapter 7 | Market research and sales forecast 7.1  | Introduction After 1 1/2 years, Peter’s business is going well. 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. He has also had a lot of support from his apprentice from the hotel school. Not only did the apprentice help in the kitchen, he has also gotten to know the village. What other businesses are in the neighbourhood? What types of businesses are they and would there be a reason for them to eat out or could there be a need for someone to stay overnight in a hotel? The apprentice has also done research with the current guests of the business.INKIJKEXEMPLAAR ©SVHMarket research A hospitality entrepreneur who wants to apply the marketing concept will soon notice that market research is indispensable. The entrepreneur can use market research to quickly identify changes in the demand and supply conditions. Good market knowledge is worth its weight in gold. Reliable and up-to-date market knowledge gives the entrepreneur an edge over his competitors. It reduces uncertainties and increases the chances of making the right decisions. The hospitality entrepreneur must know his market area and target group through and through. In the chapter on market segmentation, we saw that the hospitality entrepreneur wants to know his target group’s spending habits. What is the purchasing behaviour and what the specific wishes are etc. In the chapter on competition, we saw that the hospitality entrepreneur keeps a close eye on his competitors. Who are the competitors in the market, what are their strengths, on what target group(s) or market segments do they focus etc.? The entrepreneur gets all this information through market research. Requirements for market research High demands are placed on market research outcomes because they form the basis for all sorts of decisions taken by the hospitality entrepreneur. Market research must take place regularly because changes often only become clear over time. The entrepreneur should then also have data from several years at hand. Market research must be objective. This means that market research cannot be not prejudged and steered in a specific direction. Market research should be reliable because the entrepreneur takes decisions based on this research. If an entrepreneur wants to carry out reliable research, he should know something about statistics. The entrepreneur must also realise that carrying out market research must be economically justified. This means that the cost of the information should be less than the expected profit from the decision to be taken. For small hospitality establishments, this means that the entrepreneur must carry out the market research himself because outsourcing it is often far too expensive. 197

Marketing & Sales for the Hospitality Industry Market research in practice The hospitality entrepreneur can bring market research into practice in two ways. We discuss them here.INKIJKEXEMPLAAR ©SVH 1. Special research The entrepreneur may decide to do special research (or have it done) when making important decisions. To be eligible for funding, the bank usually requires a business plan, whether or not carried out by an external expert. The entrepreneur can also use special research for his decisions on strategic issues, such as choice of target group, composition of the business formula or the feasibility of major investments. Management 2. Permanent recording of company and market datainformation system The hospitality entrepreneur can get a lot of information from his own records and POS data. In this way, the entrepreneur can analyse his business results daily, weekly, or monthly in order to align his policy to it. The entrepreneur must also keep track of the most important demand and supply developments in his service area. It’s a good idea for him to do this regularly and to record this market data. A management information system (MIS) helps the entrepreneur to process this personal data and retrieve it quickly when needed. A management information system helps the entrepreneur to process this personal data and retrieve it quickly when.198

INKIJKEXEMPLAAR ©SVHChapter 7 | Market research and sales forecast 7.2  |  Functions of Market Research The main function of market research is to prepare for decisions. In order to make the right decision, market research must offer the right information. Market research can also be a good tool to evaluate a business formula and to try out new ideas (experiment). These are the three functions of market research. We will discuss the functions one by one. The informative function The market for hospitality services is constantly changing on both the demand side and the supply side. It is well known that where there are changes, there are also opportunities. But the hospitality entrepreneur must first identify these changes. The entrepreneur will search for factors that influence the market’s development. Since the hospitality entrepreneur wants to know the changes in the market on the demand and supply sides, he must collect data from both sides of the market. The market’s size and structure are the basic information for the entrepreneur. The size (quantitative) is measured in number of (potential) customers, in the number of products to be sold and in possible sales figures. The market’s composition consists of two sides. The demand side is characterised by means of a segmentation analysis. And the supply side is described by a market type (monopoly, oligopoly etc.). The more suppliers and demanders in a market, the more complex the structure. This makes researching more difficult for an individual hospitality entrepreneur. The informative function of market research aims to be able to respond at any time to changes in a market’s demand and supply situation. The information may relate to: • increased supply; • actions of competitors; • new competitors; • changes in consumer behaviour; • the overall economic development; • demographic changes. The evaluating function Because of the quickly changing market conditions, the management will need regular evaluations. By comparing operating results to the stated marketing goals every month, the entrepreneur will gain insight into the effectiveness of the marketing tools. The evaluative function of market research is primarily a periodic assessment of the marketing policy. Market research with an evaluative function aims to optimise the impact of marketing activities. 199

INKIJKEXEMPLAAR ©SVHMarketing & Sales for the Hospitality Industry The strength-weakness analysis of the hospitality establishment’s marketing mix compared to the marketing mix of the main competitors is an example of market research with an evaluative function (see page 101). The experimental function Market research with an experimental function is used by the entrepreneur to test in advance possible innovations in his company. He could have an entire business formula tested or small parts of the business formula. Certain parts of the marketing mix can be tested separately in the marketing practice, such as by using a taste test, a price perception test or a packaging test. Following this testing, a product’s taste can be adjusted, the pricing changed or the packaging improved. Testing the entire marketing mix often takes place on a test market, so that the marketing mix can be changed if needed before working on the whole market. Large fast-food and hotel chains use a so-called ‘pilot store’ for adjusting the business formula. A ‘pilot store’ is a test branch where new products or even a new decor are tried out. A ’pilot store’ is a test branch where new products or even a new decor are tried out.200