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In recent years, most of the growth in the hospitality industry has occurred
in chain operations or in the industry’s corporate segment. The hospitality
industry leaders, such as Marriott International, Hyatt, Hilton, McDonald’s,
Subway, Choice International, and Starwood Lodging, continue to increase
their share of the market at the expense of smaller chains and independent
operators. While independent operators have continued to prosper, especially
in the food service sector, the marketplace is much more competitive.
An increased level of competition has meant greater emphasis on marketing.
No longer is it possible for an individual to open and operate a food
service facility successfully on good food alone. To ensure a steady flow of
customers, a hospitality manager must possess a thorough understanding of
marketing. Without the marketing management skills the hospitality industry
demands, a hospitality manager is less likely to achieve success today.
With this continual change and increased competition, what are the marketing
functions that a successful hospitality manager must fulfill? This
chapter introduces basic marketing definitions and concepts, including the
marketing mix, the marketing environment, the marketing management
cycle, and the role of marketing within the operation of a hospitality and
tourism organization.
Marketing Defined
The term marketing encompasses many different activities, and it is necessary
to discuss some of the terms used in the definition of marketing, and
throughout the text. First, the term product refers to all of the goods and
services that are bundled together and offered to consumers. For example,
computers and automobiles are sold as tangible goods, but they include
warranties and service contracts as part of the overall product. Therefore,
the term product refers to both goods and services, but it is often thought
of as a good or commodity. Nearly every product sold includes both tangible
and intangible elements. Another term that is used to refer to the
product as a bundle of goods and services, and eliminate the confusion, is
the product–service mix.
A service is defined as an intangible product that is sold or purchased in
the marketplace. A meal purchased at a fast-food restaurant or an occupied
room in a hotel is considered a part of the service segment. Why? Simply
stated, after the meal is consumed and paid for or after the individual checks
8 chapter 1 the functions of marketing
Marketing encompasses
merging, integrating, and
controlling supervision of
all company’s or
organization’s efforts that
have a bearing on sales.
The goods and services
that are bundled together
and offered to consumers.
Product–service mix
A bundle of goods and
services offered by an
An intangible product that
is sold or purchased in
the marketplace.
out of the hotel, the individual leaves the facility and does not have a tangible
product in exchange for the money spent. This individual has consumed
a service that is a part of the hospitality and travel industry, one of the largest
service industries.
Each year, millions of individuals spend billions of dollars vacationing
and traveling for business and pleasure; when the trip is over, nothing tangible
remains. To more clearly reflect the role of service industries, such
as the hospitality and tourism industry, the definition of marketing can be
expanded to include references to services. This will eliminate the confusion
caused by the semantic differences between products, goods, and
services, discussed earlier. According to the American Marketing Association,
“Marketing is an organizational function and a set of processes for
creating, communicating, and delivering value to customers and for managing
customer relationships in ways that benefit the organization and its
The vast majority of hospitality establishments, however, are operated
to generate a satisfactory return on investment in the form of profits or
excess revenue. These profits are used to pay dividends to stockholders and
are reinvested by the organization to promote expansion and further development.
Even nonprofit hospitality operations, such as selected hospitals,
nursing homes, college or university hospitality operations, and government-
run hospitality operations must be concerned with marketing. Managers
of nonprofit operations must still understand the wants and needs of
their consumers and provide goods and services at a satisfactory level to as
many individuals as possible. A universal concern of all hospitality managers
is the financial condition of the organization. Whether a manager is
trying to achieve a 20 percent annual return on investment (ROI) or is
instead aiming to break even on a very limited budget, the overriding concern
is still financial.
Another factor that any definition of marketing must include is a focus
on the exchange that takes place between a producer and a consumer. In
order for an exchange to take place, both parties must receive something
they are satisfied with. In most cases, consumers give producers money in
exchange for products and services that meet the consumers’ wants and
needs. However, the exchange can include anything of value to the parties.
Before there was a monetary system, people would barter, or exchange goods
and services rather than money. There are still companies that engage in
bartering today. For example, PepsiCo chose to exchange its soft drink
product with a company in Mexico for wine and other products to avoid
incurring the foreign exchange risk associated with the peso, which was
devalued at the time.
introduction to marketing 9
A process of exchanging
goods and services rather
than money.
The Marketing Process
The process of marketing can be best understood by examining the diagram
presented in Figure 1.1. As you can see, the target market, or those groups of
consumers that the firm chooses to target with its marketing efforts, is at the
center of the process. The marketing concept is based on the premise that
firms determine customer wants and needs and then design products and services
that meet those wants and needs while at the same time meeting the
goals of the firm. This concept is an extension of earlier concepts that focused
on the production process as a means to design products and services, or the
selling of already produced products and services. Today, most firms realize
the value of customer input in the new product design process. Chapter 2
looks at the issues unique to marketing services, Chapter 3 focuses on the
behavior of hospitality consumers, and Chapter 4 discusses the process of
choosing target markets and positioning products in the market.
In Figure 1.1 the first layer around the target market, or consumers, is
referred to as the marketing mix. The marketing mix has four components:
price, product, place, and promotion. These are often referred to as the four
P’s of marketing, and they are the variables that managers can control. Firms
will manipulate the marketing mix variables to formulate strategies that are
10 chapter 1 the functions of marketing
Marketing concept
The marketing concept is
based on the premise
that firms determine
customer wants and
needs, and then design
products and services that
meet those wants and
needs, while also meeting
the goals of the firm.
Marketing mix
The first layer around the
target market, or
consumers, is referred to
as the marketing mix. The
marketing mix has four
components: price,
product, place, and
promotion, which are
often called the four P’s
of marketing. Managers
can control those
Social Technological
figure 1.1 • The marketing mix.
combined in a marketing program for a product or service. This program is
the basis on which the firm’s products and services compete with the offerings
of other firms in the competitive environment. The marketing mix will
be discussed in more detail later in this chapter. The product component is
covered in Chapters 7 and 8, the place (distribution) component is covered in
Chapters 9 and 10, the promotion component is covered in Chapters 11
through 15, and the price component is covered in Chapter 15.
The outside layer of the diagram represents the external environments
that influence the marketing process. The state of the economy, trends in society,
competitive pressures, political and legal developments, and advances in
technology all affect the performance of a product or service. Firms cannot
control these environments, but they must monitor the changes and trends in
the respective environments and look for opportunities and threats. Later in
this chapter, the different environments and some of the current trends that
affect hospitality and travel firms will be examined in more detail.
Firms must continually monitor environments and make changes in their
marketing programs. The marketing management cycle involves marketing
planning, marketing execution, and marketing evaluation. This cycle is discussed
briefly in this chapter, and Chapter 5 covers the marketing planning
process in depth. To be successful in marketing planning, firms need to conduct
research and collect information that can be used to evaluate their programs.
Chapter 6 discusses the marketing research process used to gather
information to be stored in marketing information systems and used to make
marketing decisions.
The Emergence of the Marketing Concept
If a hospitality organization is to market its product–service mix successfully,
it is essential that the marketing concept be thoroughly understood
and fully implemented. Understanding the marketing concept is not difficult,
but implementing it may prove to be very challenging for management.
Simply stated, the marketing concept is a consumer-oriented
philosophy that focuses all available resources on satisfying the needs and
wants of the consumer, thereby resulting in profits. As an old rhyme states,
“To sell Jane Smith what Jane Smith buys, you’ve got to see things through
Jane Smith’s eyes.”
Clearly, it is difficult to sell something to someone who has no need for
it. If the firm adopts a consumer-oriented marketing philosophy, however,
the product–service mix will be designed in direct response to unsatisfied consumer
needs. As a result, very limited actual selling will be necessary. In such
introduction to marketing 11
Marketing program
Firms will manipulate the
marketing mix variables
(e.g., price, product,
place, and promotion) to
formulate strategies for a
product or service that are
used to form a marketing
External environments
The environments that
influence the marketing
process. The state of the
economy, trends in
society, competitive
pressures, political and
legal developments, and
advances in technology
reflect external
environments and affect
the performance of a
product or service.
Marketing management
The marketing
management cycle
involves marketing
planning, marketing
execution, and marketing
Marketing research
A process used to
collect information about
consumers and markets.
Marketing information
systems (MIS)
The structure of people,
equipment, and
procedures used to
gather, analyze, and
distribute information
used by an organization to
make a decision.
instances, supply and demand are in balance, and both the consumer and the
hospitality providers are satisfied.
Table 1.1 illustrates the two different philosophies of the marketing concept
that are often practiced in the hospitality and tourism industry. One demonstrates
the actions of a manager who applies the marketing concept; the
other demonstrates actions that are not consistent with the marketing concept.
The key question to ask when trying to distinguish between the two
approaches is whether consumers are given priority, or whether the operation
is run to suit the needs of the employees, management, or owners.
A manager of a hospitality operation has a difficult series of daily challenges.
First, a manager is expected to successfully satisfy the needs of the hospitality
consumers. Second, the owners expect a manager to maintain the level
of expenses within certain predetermined limits that are usually defined in
actual dollars or as a percentage of sales. Third, a manager is expected to generate
a satisfactory return on investment (ROI) for the owners.
This return might be the break-even point in a nonprofit operation or a
10, 15, or 20 percent rate of return in a commercial operation. Whatever the
expected return, a manager is faced with a series of difficult objectives to
achieve, and these objectives often conflict with one another. Even in the
most successful companies, there are limited resources that must be used to
accomplish seemingly unlimited goals and objectives. Regardless of how well
the company has performed in the past, owners and senior management will
always expect a little more in the future. Guests develop ever-increasing
expectations for all aspects of the product–service mix. Owners want
increased profits, and the employees want a little more each year. The manager’s
task is to balance the three objectives mentioned in the preceding
paragraph. Managers often view profitability as the single most important
objective of the firm. Yet for the long-term financial well-being of the firm,
profits may not be the most important objective. It is quite possible, as many
shortsighted owners and managers have demonstrated, to achieve high levels
of short-term profitability at the expense of long-term consumer satisfaction
and long-term profits. After a period of time, however, consumers will
perceive that they are not receiving a high level of value for their money, and
the operation will develop a reputation for being overpriced and/or offering
poor service. As a result, the number of patrons is likely to decline, and so
will profitability.
By contrast, if management establishes a consumer orientation and places
customer satisfaction as the number one priority, the firm’s products and services
are more likely to meet customers’ expectations. As a result, they will return
more frequently to the hospitality operation, and this will have a positive influence
on long-term sales and profits. In addition, by telling their friends and
12 chapter 1 the functions of marketing
acquaintances about their positive experiences, satisfied consumers are likely to
influence others to patronize the establishment. This word of mouth passed on
by satisfied customers can become a very important part of a firm’s promotional
efforts. It doesn’t cost anything, yet it can be a very powerful influence on sales,
and as sales increase, so does profitability. Experience shows that when the marketing
concept is understood and applied by all of a firm’s employees, substantial
changes have often been made in the establishment’s manner of operation,
and the financial results have often been improved significantly.
Marketing versus Selling
Many hospitality managers engage in activities that they incorrectly refer to
as marketing. Many people confuse advertising or personal selling with marketing.
Although such activities are without question a part of the marketing
function, alone and unsupported they cannot be referred to as marketing.
Marketing refers to the entire process that is illustrated in Figure 1.1. Advertising
and personal selling are merely forms of promotion, and promotion
is just one component of the marketing mix. Managers engaging in activities
of this type are merely attempting to sell their products and services.
The product–service mix is composed of all the tangible and intangible
products and services that make up a hospitality operation. The product–
service mix includes the food, beverages, guest rooms, meeting facilities, tabletop
appointments, and personal attention by service personnel, as well as a
host of other tangibles and intangibles. Advertising or personal selling performed
alone focuses only on the hospitality operation’s product–service mix,
and the goal is to convince the consuming public to purchase and consume a
portion of the product–service mix. Little consideration is given to the needs
and wants of the consuming public; instead, the hospitality manager is hoping
that a sufficient number of consumers will patronize the operation to allow
the operation to achieve its financial objectives.
The hospitality and tourism industry, especially the foodservice segment,
is filled with examples of operations that have failed because the owners
created operations they liked or “always wanted to operate,” yet the owners
and managers failed to consider fully the needs and wants of potential
consumers. The results are predictable: low volume, poor sales revenue, and
frequent bankruptcy. Because this mistake is so prevalent in the foodservice
segment, restaurants have one of the highest failure rates of any type of business
in the United States. In some instances, the failure rate of new independently
owned restaurants may reach 90 percent in the first 12 months of
14 chapter 1 the functions of marketing
Word of mouth
A spoken communication
that portrays either
positive or negative data.
The difference between selling and marketing is very simple. Selling
focuses mainly on the firm’s desire to sell products for revenue. Salespeople
and other forms of promotion are used to create demand for a firm’s current
product(s). Clearly, the needs of the seller are very strong. Marketing, however,
focuses on the needs of the consumer, ultimately benefiting the seller
as well. When a product or service is truly marketed, the needs of the
consumer are considered from the very beginning of the new product development
process, and the product–service mix is designed to meet the unsatisfied
needs of the consuming public. When a product or service is marketed
in the proper manner, very little selling is necessary because the consumer
need already exists and the product or service is merely being produced to
satisfy the need.
A brief example will illustrate the critical difference between selling
and marketing. If you had asked many successful hospitality owners in the
middle 1980s if they thought that an operation specializing in coffee and
tea beverages, as well as baked pastries, sandwiches, salads, musical CDs,
and a retail coffee selection, made available in a casual atmosphere in which
customers could relax and enjoy conversation, could be successful, many
would not have been positive. They might have provided many reasons
that the concept could not work, or could not be scaled to multiple units.
How wrong they might have been. What began as a single Starbucks™ in
1971 located in Seattle has grown significantly. Today, Starbucks™ has
6,566 company-owned stores and 3,729 licensed stores that operate in more
than 40 countries.

Marketing managers have used the term marketing mix for a long time. The concept
of the marketing mix has gained universal acceptance. It is important for
hospitality marketing students to understand this concept, both conceptually and
strategically. This section outlines the major components of the traditional marketing
mix, and the next section covers the hospitality marketing mix that was
offered as an alternative for the industry. We will explain the similarities and
differences between the two approaches. A successful hospitality organization is
one that focuses on the needs and wants of the consumers and markets the product–
service mix of the operation. Management of this type of operation involves
integrating the components of the marketing mix into a marketing program that
will appeal to potential consumers and meet the goals and objectives of the firm.
The following sections will introduce the components of the marketing mix,
which will be discussed in more detail in Chapters 7 to 14.
The Traditional Marketing Mix
The marketing mix, many believe, consists of four elements, often called the
four P’s of marketing:
16 chapter 1 the functions of marketing
To remain competitive, hospitality organizations must keep up with the ever-changing
market. Courtesy of The Melting Pot.
PRICE. The price component refers to the value placed by a firm on its products
and services. Some of the decisions involve pricing the product line, discounting
strategies, and positioning against competitors.
PRODUCT. This component refers to the unique combination of goods and
services offered by a firm to consumers. The product includes both the tangible
and intangible elements of the service offering. Product decisions involve
product attributes such as quality, the breadth and mix of the product line
(i.e., the number and type of products and services offered by a firm), and services
such as warranties and guarantees.
PLACE. The place component refers to the manner in which the products and
services are being delivered to consumers. This component is sometimes referred
to as distribution, and it involves decisions related to the location of facilities
and the use of intermediaries. In addition, the marketing of services includes
the decision regarding customer involvement in the production process.
PROMOTION. This component refers to the methods used to communicate
with consumer markets. The promotion mix includes advertising, personal
selling, sales promotions (e.g., coupons, rebates, and contests), and publicity.
These are the vehicles that can be used to communicate the firm’s intended
messages to consumers. The decisions for promotion involve the amount to
be spent on each component of the promotion mix, the strategies for each of
the components, and the overall message to be sent.

To achieve success in marketing a hospitality operation, a manager must
closely examine and understand all of the components of the marketing mix.
To be successful, these components must be combined into well-conceived
marketing programs and managed properly. There is no magical formula that
will guarantee success. If there were, no hospitality operation would ever fail
or go out of business. Yet each year, many hospitality operations fail because
they are not able to combine the elements of the marketing mix into effective
marketing programs, or they fail to implement them properly.
The Hospitality Marketing Mix
Just as researchers have demonstrated distinct differences between goods and
services, some researchers believe that the traditional four P’s approach to the
marketing mix does not apply to the hospitality industry. Rather, a modified
marketing mix is more appropriate. This hospitality marketing mix consists
of five components:3
1. Product–service mix
2. Presentation mix
3. Communication mix
4. Pricing mix
5. Distribution mix
PRODUCT–SERVICE MIX. This is a combination of all the products and services
offered by the hospitality operation, including both tangible and intangible
elements. For example, it includes such things as the type of guest room,
the amenities offered, and the broad array of elements offered to the consumer.
Chapter 2 addresses further the unique nature of services. Keep in
mind that once a hospitality consumer leaves the hotel or restaurant, there is
nothing tangible to show. Because the consumer has purchased and consumed
the service, the largest part of the hospitality industry product–service mix is
indeed the intangible elements of service.
PRESENTATION MIX. This includes those elements that the marketing manager
uses to increase the tangibility of the product–service mix as perceived
by the consumer. This mix includes physical location, atmosphere (lighting,
sound, and color), and personnel.
COMMUNICATION MIX. This involves all communication that takes place
between the hospitality operation and the consumer. It includes advertising,
18 chapter 1 the functions of marketing
Hospitality marketing mix
Hospitality marketing
mix consists of five
product–service mix,
presentation mix,
communication mix,
pricing mix, and
distribution mix.
marketing research, and feedback about consumer perceptions. The communication
mix should be viewed as a two-way communication link, rather than
as a simple one-way link with the hospitality operation communicating to the
consumer. This two-way link allows for the traditional advertising and
promotion that flow from the seller to the buyer, but it also allows for marketing
research and other data collection vehicles. In these cases, the seller is
seeking information and data from the consumer, thereby establishing open
communication with the various market segments.
There are some similarities and differences between the traditional marketing
mix and the hospitality marketing mix. In the hospitality version, the
product component is expanded to include some aspects of distribution. People
are part of the production process in services, and distribution occurs in
the presence of the consumer. The communication mix is almost identical
with the promotion component in the traditional marketing mix, although it
does include some additional communications such as marketing research.
Finally, the presentation mix represents the largest departure from the traditional
marketing mix. It includes price and some of the aspects of the place
component such as location, and it adds elements such as atmosphere and the
personal contact between customers and employees.
PRICING MIX. In addition to the actual price a firm charges, the pricing mix
encompasses the consumer’s perception of value. The pricing mix includes
such variables as volume discounts and bundling multiple products together
for an overall discounted price. This bundling approach is used extensively
by fast-food chains as a method to increase spending per customer.
DISTRIBUTION MIX. This includes all distribution channels available
between the firm and the target market. Historically, distribution occurred
at the point of production, such as the restaurant where the food was produced.
This has changed since newer distribution channels, such as the
Internet and e-Commerce have developed; the importance of the distribution
mix has increased.
The marketing mix, whether designed in the traditional or modified hospitality
services format, is an important concept for managers of marketing
functions. Initially, the marketing mix is used to formulate a marketing strategy
and plan (see Chapter 5), but it pervades all aspects of marketing management.
Several external factors can reduce the effectiveness of the manager’s
efforts to successfully implement all the components of the hospitality marketing
mix. These factors, which may have either direct or indirect influence,
are consumer perceptions, attitudes, and behavior; industry practices and
trends; local competition; broad national and international trends; and
government policy and legislation.
the marketing mix 19
During the past decade, many changes have had an impact on the hospitality
industry in the United States. The industry has confronted and adapted to
such diverse situations as economic recession, overbuilding, increased competition,
increased emphasis on technology, increased emphasis on the environment,
newer forms of distribution and sales using technology, increased
foreign ownership of previously American brands, changes in dining habits,
changes in food consumption patterns, the ever-increasing globalization of the
hospitality and tourism industry, and the impact of international terrorism.
Each of these external forces has brought with it changes that hospitality firms
have had to make to remain competitive in a global marketplace.
When marketing managers consider changes in marketing strategy or tactics,
they often examine the changes in five major marketing environments:
competitive, economic, political and legal, social, and technological. Firms cannot
directly influence their external environments, but they can monitor
changes and be somewhat proactive. It is critical for firms to engage in some
level of environmental scanning, so they can take advantage of marketing opportunities while at the same time anticipating any threats to their business.
Environmental scanning can be a formal mechanism within a firm, or merely
the result of salespeople and managers consciously monitoring changes in the
environment. The larger the firm, the more likely it will have a structured
approach to scanning the environment and documenting trends. The following
section contains brief descriptions of each of the external environments.
The Economic Environment
The goal of all marketing activity is to create and satisfy customers. Consumers’
purchasing power, or ability to purchase products and services, is
directly related to the economic health of the city, state, and country. As
marketers study the economic environment, they are concerned about such
things as inflation, recession, unemployment, resource availability, interest
rate trends, personal income growth, business growth and performance, and
consumers’ confidence in the economy. There are other key economic terms
that relate to marketing and will be used throughout the text. The consumer
price index (CPI) is a measure of the relative level of prices for consumer
goods in the economy. As this measure rises, there are more concerns about
inflation and a poor economy. The term disposable income refers to the portion
of an individual’s income that is left for spending after required deductions
such as taxes. Discretionary income is probably a more important
measure for most marketers because it refers to the income that is available
for spending after deducting taxes and necessary expenditures on housing,
food, and basic clothing.
Some examples of issues and trends related to the economic environment
that affect the hospitality and travel industry:
• The percentage of independently owned hospitality operations has
declined, resulting in a concentration of power among large hospitality
chains. In turn, these chains have become large, multinational firms based
in the United States or abroad.
• An increase in the amount of discretionary income has resulted in an
increase in the percentage of the household food budget spent outside the
home. The hospitality industry today receives in excess of 50 percent of
all consumer expenditures for food.4
• After a period of excess supply due to overbuilding in the 1980s, hotel
occupancy percentages fell to the low 60s. This trend later reversed itself
because of the strong economy and business growth. Following a recession
the marketing environment 21
Purchasing power
Consumers have the
ability to purchase
products and services.
Consumer price index
A measure of the relative
level of prices for
consumer goods in the
Disposable income
An individual’s income
that remains for spending
after required deductions
such as taxes.
Discretionary income
An individual’s income
that is available for
spending after deducting
taxes and necessary
expenditures on housing,
food, and basic clothing.
in the early 1990s, occupancy and profitability reached all-time highs for
many lodging companies. In the early 2000s, and especially after the events
of September 11, 2001, and the recession of the early 2000s, hotel occupancies
fell and many properties suffered operating losses. Since 2005,
occupancy percentages have improved and in many cases, profitability has
been excellent.
• Variations in consumer purchasing power have led the hospitality and
travel industry to offer products and services at different price levels. For
example, most of the major lodging chains now have established multiple
brands, ranging from economy to luxury, based on prices and amenities.
Each brand targets a specific market segment.
Some of the issues in the economic environment are closely related to the
trends in the social environment that will be discussed next.
The Social Environment
There are constant changes in the social environment as consumers evolve.
The social environment is affected by all of the other environments. Changes
in the economy, advances in technology, competitive actions, and government
regulations all shape the way consumers view the world. These
changes may be sudden, or they may take place over a number of years or
even decades. First, there have been changes in demographics, or characteristics
that describe the population, such as age, income, education, occupation,
family size, marital status, and gender. Second, there have been
changes in consumers’ attitudes, interests, and opinions that determine their
Some issues related to the social environment affect the hospitality and
travel industry:
• The proportion of two-income families and the impact that the increased
discretionary income and time pressures have on their lodging, dining,
and travel behaviors. These families take more but shorter vacations to fit
their busy lifestyles. Also, they are quality-conscious and focus on brand
• The proportion of older Americans and their purchasing power are
continually increasing. Senior citizens are becoming a very important market
segment because people are living longer. Further, there is an improved
quality of life among seniors, and their disposable income continues to
22 chapter 1 the functions of marketing
Characteristics that
describe the population
such as age, income,
education, occupation,
family size, marital status,
and gender.
increase. This segment has specific needs, and the American Association
of Retired Persons (AARP) is one of the strongest political lobbying organizations
in the nation.
• The dietary habits of the American people have also changed, and in
some ways are bipolar: the percentage of individuals characterized as
overweight or obese is at an all-time high, yet many individuals are showing
an increased concern for their health. The trend has been toward
healthier, more natural foods. In support of this, the United States
Department of Agriculture publishes Dietary Guidelines for Americans,
which outlines the dietary goals for the nation. The American Heart
Association provides menu review and recipes that meet their dietary
guidelines for good health. Many foodservice operations now feature
menu items that have been approved by this organization. The National
Restaurant Association has also been active in this area, especially in educating
its members.
Fast-food restaurants, extended-stay hotels, and the growth in the cruise
industry are all the result of changes in the social environment. These changes
can offer opportunities for new products and services, while posing a threat
to existing companies. For example, the increasing emphasis on brand names
has resulted in tremendous growth in restaurant chains such as Outback
Steakhouse, Starbucks, Panera Bread, Subway, Chili’s, and Applebee’s. This
growth of regional and national brands has come at the expense of many independent
The Competitive Environment
Within all markets, a variety of competitors seek to win the favor of the
consumer. Each offers what it believes will be the best combination of products
and services designed to result in maximum consumer satisfaction. The
competitive structure in an industry can range from a monopoly, with one
seller and many buyers, to perfect competition, with many buyers and sellers
of homogeneous products that are almost exactly the same. In between,
there is the oligopoly, with a few sellers and many buyers, and the most
common form of competitive structure, monopolistic competition, where
there are many buyers and sellers with differentiated products. The price
elasticity of demand is a measure of the percentage change in demand for
a product resulting from a percentage change in price. The price elasticity
of demand normally increases as the competitive structure changes from
monopoly to oligopoly to monopolistic competition and ends with perfect competition. The hospitality and tourism industry is highly competitive,
with new companies entering the industry every day. In the business world,
four levels of competition must be considered in order for firms to be able
to protect their positions in the market:5
• Product form competition exists among companies that provide similar
products and services to the same customers at a similar price level. For
example, McDonald’s competes with Burger King and Wendy’s; Delta
Airlines competes with United Airlines and US Airways; Hertz competes
with Avis and National; and Four Seasons Hotels competes with Ritz-
Carlton and other luxury hotels.
• Product category competition exists among companies that make the same
class of products. In this case, McDonald’s competes with other fast-food
restaurants such as Pizza Hut, Taco Bell, and KFC; Delta Airlines competes
with charter airlines and commuter airlines; Hertz competes with
all the local rental car companies; and Four Seasons Hotels competes with
nonluxury hotel chains such as Marriott and Sheraton.
• General competition exists among companies that offer the same basic
service that fulfills the same basic consumer needs. For example, McDonald’s
competes with all restaurants as well as with convenience stores and
supermarkets; Delta Airlines and Hertz compete with all forms of transportation,
such as bus and rail; and Four Seasons Hotels competes with
all forms of lodging, such as bed-and-breakfasts and boutique hotels.
• Budget competition exists among all companies that compete for consumers’
disposable incomes. Most consumers have limited budgets that can be used
for purchasing products and services, and all companies compete for these
consumer dollars, especially discretionary income. The hospitality and
travel firms discussed earlier would compete with department stores,
movie theaters, health clubs, and financial institutions for consumers’
limited resources.
As companies examine the competitive environment, three important
questions need to be addressed. The questions may seem straightforward, but
the answers are often difficult to determine, and many firms do not make the
correct decision:
1. Should we compete?
2. If we compete, in what markets should we compete?
3. What should our competitive strategy be?
24 chapter 1 the functions of marketing
The response to the first question should be based on such things as the
firm’s resources and objectives. The company must examine the level of potential
sales, potential profitability, and the overall feasibility of competing. A
firm may decide that it should not compete if the risks outweigh the potential
returns or if the projected returns are not as high as it would like to see.
The second question relates to the markets in which a firm wishes to
compete. Most firms elect not to compete in all potential markets. For example,
although many firms, such as Marriott International, have developed
brands that compete in all price segments of the lodging industry (economy
through luxury), others, such as Hyatt Hotels and Resorts, initially did not
chose not to compete in all price segments. They believed that the single
brand strategy would serve its best long-term interests. More recently, Hyatt
has adopted the multibrand strategy. The following information was posted
at This area is covered in more detail in Chapter 5.
Hyatt brands and affiliates in addition to Hyatt Hotels:
Andaz—Simple luxuries. Unexpected details.
Hyatt Place—A new kind of Hyatt for today’s relaxed lifestyle.
Hyatt Summerfield Suites—Upscale all-suite hotels with full kitchens.
Hyatt Vacation Club—Own a vacation for a lifetime.
AmeriSuites—Great rates, spacious hotel rooms.
Hawthorn Suites—For business travel or for pleasure.
The third question relates to marketing strategy. How should the firm
attempt to gain a competitive advantage? These decisions, which will be
explored in much greater depth throughout the text, are related to issues such
as products and services, pricing, distribution, and promotion.
The Political and Legal Environment
Understanding the political and legal environment means understanding the
rules and regulations by which the competitive game is played. At all levels
of government—local, state, national, and international—there are laws and
regulations that businesses must follow. To compete successfully, a firm must
understand not only the current laws and regulations but also any new ones that
might come into play in the future. Most professional hospitality and tourism
managers belong to one or more professional associations. One of the goals of
the marketing environment 25
these associations is to help members not only understand developing laws
and regulations, but have influence in how they are written through lobbying
efforts with politicians and government officials. Two examples of hospitality
industry associations are the National Restaurant Association (NRA)
and the American Hotel & Lodging Association (AH&LA). Here are some
examples of issues related to the political and legal environment that affect
the hospitality and tourism industry:
• Changes in the federal tax codes have made hotel development less desirable
than under previous tax codes. So-called passive investments, in which the
investor is not an active participant in the daily management of the facility,
are not treated as favorably under the new federal tax codes as they
were in the past. As a result, future hotel development decisions are based
more on operational feasibility and less on the real estate investment
aspects of the project.
• As a means to reduce the federal budget deficit, costs are being shifted to
state and local governments. To raise tax revenues at the local level without
incurring the disapproval of local voters, many localities have
implemented or increased taxes on lodging and restaurant meals.
These user taxes serve to increase consumer perceptions of the prices
for hospitality and travel products and can have a major negative
impact on operations.
• Another related tax issue that affects the hospitality industry is the reduction
in the tax credit for business meals and expenses. The lobbyists for the
NRA argued that this tax change would have a major negative impact on
restaurant sales.
• National, state, and local governments also pass laws that can affect firms’
operations without using taxes. For example, while the national government
has chosen to stay on the sidelines, local and state governments are
taking on the issue of smoking in public places such as restaurants and
arenas. This directly affects the competitive structure of the industry
when regulations do not affect all firms equally. For instance, in some
areas with smoking bans, consumers can go to restaurants in nearby
towns and smoke.
The idea of a level playing field is critical when governments evaluate
new taxes and regulations. It is often difficult for firms to address social issues
as a priority over profits, especially small firms with very limited resources.
However, governments can make sure that their laws and regulations do not
distort the balance of competition.
26 chapter 1 the functions of marketing
The Technological Environment
We live in an increasingly technological and interconnected society. With the
evolution of the personal computer from an expensive desktop machine to
either a notebook computer, a smartphone, or a personal digital assistant (PDA)
and the pervasive access to the Internet via both wired and wireless connections,
our lives have changed in ways we perhaps could not have even dreamed
about before. The power of computers doubles roughly every 18 to 24 months,
with prices constantly dropping. Computers are being used for more and more
applications every day. Although the hospitality and tourism industry remains
a highly labor-intensive and personal-contact-oriented industry, computers and
technology have had and will continue to have an impact. The area in which
technology will have the greatest impact in the next ten years is in direct
marketing and mass customization, where a product–service provider can
customize the experience for each individual customer. Through the use of
database software technology, marketers have improved their ability to target
their customers, track their behavior and preference, and then provide exactly
what the customers desire when they want it. Through the careful use of
technology, marketers can monitor guests’ purchasing behavior and then tailor
service offerings to meet their needs.

Some examples of issues related to the technological environment that
affect the hospitality and travel industry:
• New technologies have helped to combat labor shortages and the high
cost of labor by enabling hospitality and travel firms to shift some of these
duties to consumers through self-service operations. Examples include
automated check-in and checkout. This is occurring within all segments
of the industry, from fast-food restaurants to luxury hotels and resorts.
The very competitive environment in which commercial airlines operate
has made them leaders in cost-saving applications of technology.
• The increasing sophistication and decrease in price of computer technology
have had a significant impact. Most of the larger firms maintain relational
databases and use resource management systems that can provide managers
with the potential to better serve customers. This technology is becoming more
accessible to smaller firms through service contractors and consultants.
• The development and growth of the Internet has changed the competitive
structure in the hospitality and travel industry. Even small firms can now
market on a national or international basis. Selling on the Internet also
reduces the costs associated with service delivery, thereby increasing the
profit potential for service firms. The trend toward consumers’ evaluating
service alternatives and making online purchases has been
Along with these changes, the hospitality industry has experienced
growth. Most of the leading hospitality experts are projecting continued industry
growth, albeit somewhat slower rate. Certainly, a few large obstacles loom
on the horizon. Existing economic cycles will cause some upward and downward
shifts in the hospitality industry, and further changes in the tax codes
may have some negative impact on business travel and entertaining.
Marketing is an ongoing process. It needs constant attention to be successful.
Management must regularly obtain feedback and use it to revise strategic
plans. Management’s role in the marketing effort is critical, for without
diligent effort, the results will be less than satisfactory.
28 chapter 1 the functions of marketing
Large hospitality and tourism organizations normally have a director of
marketing who is responsible for the management of all marketing activities.
However, in most hospitality and tourism units, and especially in independent
firms, the marketing function is the responsibility of an operations manager
who must be concerned with other functions as well. This, together with
the lack of a sizable budget, results in a low priority for marketing in these
situations. For the larger organizations, the units are all treated the same,
which could lead to some missed opportunities and competitive disadvantages.
For smaller organizations, it is difficult to compete with larger chains that
benefit from national and regional marketing campaigns.
The successful marketing of a hospitality operation is not something that
can be accomplished overnight or with only a few hours of attention each
week. Establishing and maintaining a successful marketing program requires
significant management time and effort. The management activities in marketing
a hospitality operation can be divided into three major areas that form
a marketing management cycle: marketing planning, marketing execution,
and marketing evaluation. Each of these areas will be discussed in more depth
in later chapters; however, a brief overview of the major functions of each element
of the marketing management cycle is presented in Figure 1.2.
Marketing Planning
The marketing planning process is discussed in detail in Chapter 5. There are
three basic questions that should be addressed during this process. The first
question is “Where are we now?” A situation analysis should be performed
to determine the company’s strengths and weaknesses. This information is
based on past trends and historical performance, and it should include an analysis
of the market and the competition. In addition, it is necessary to scan the
environment for opportunities and threats. Once the company has a good
grasp of the situation, it is time to move on to the next question.

The second question is, “Where do we want to go?” It is at this point that
a company must set its goals and objectives for operating in the future. These
goals and objectives should be clear, concise, and measurable over a specific
time frame. All employees and stakeholders should be made aware of the strategic
direction of the firm. Also, these goals and objectives become targets for
evaluating the performance of the company’s employees. Finally, these goals
and objectives should be consistent with the company’s mission statement.
The third question is, “How are we going to get there?” Once the company
determines its direction for the future, it is necessary to devise strategies
and action plans that can serve as a road map. Basically, marketing managers
develop marketing programs that are consistent with the goals of the firm.
The components of the marketing mix are under the direct control of managers,
and they can be used to form strategies that will help the company to
reach its goals. The actions taken with price, the product–service mix, promotion,
and distribution should be integrated and lead to a common end.
Marketing Execution
Once the objectives and strategies are determined, the next step is to implement
the action plans developed during the planning process, using the specific
timetable that was part of the marketing plan. This is accomplished using
the promotional, advertising, personal selling, and direct marketing materials
and methods that were devised in the planning stage. Employees should
be informed about the company’s plans for its service offerings and receive
additional training if necessary. Unit managers and franchisees should be
made aware of the changes in the marketing plan so that they can implement
them in their respective units.
Marketing Evaluation
The final step in the marketing management cycle is to monitor and control
the elements of the marketing plan. Data are collected and evaluated using a
variety of marketing research methods and stored in forms that allow for easy
retrieval. Organizational performance needs to be analyzed in comparison
with goals and objectives, looking for the underlying reasons for the difference
between stated performance goals and actual performance.
Specifically, the company should analyze the effectiveness of its marketing
programs, including its strategies for pricing, promoting, and distributing its
products and services. The firm’s performance can be evaluated relative to its
30 chapter 1 the functions of marketing
competitors, using measures such as sales, market share, and customer satisfaction.
Finally, at this point, firms can return to the planning stage of the marketing
management cycle and make any desired changes in their objectives or
their strategies.
Marketing management, as practiced today, differs tremendously from the
techniques used earlier. Marketing within the hospitality and travel industry
is in a constant state of flux, as corporations plan, implement, and evaluate
new marketing strategies and tactics. Marketing management practices and
techniques should be analyzed and used as guidelines, but it is necessary for
each hospitality organization to adjust and modify these general guidelines
and techniques as dictated by the competitive environment. The competitive
environment is ever changing, and this serves to attract management personnel
who want to be continuously stimulated and who don’t want to work in
a repetitive environment.
It is also important to remember that marketing is but one of the key
result areas with which management must be concerned. Within large hospitality
organizations, specialists are hired to staff positions within each of the
functional areas. In small organizations, however, managers must wear many
hats and successfully perform all or some of these managerial functions. The
following discussion places marketing in its proper place as a major part of
the successful management of any hospitality organization. To fulfill an organization’s
potential, management must integrate its various key result areas
and manage them successfully. The key result areas are interdependent and
must support each other, thereby increasing the overall strength of the organization.
The primary focus of all marketing efforts is to create and sustain
customers. In order to do this successfully, marketers must understand and
work with other managers who have responsibilities in the other key result
areas discussed in this section.
Management is responsible for the day-to-day operation of the hospitality
facility. This includes diverse activities such as purchasing, receiving,
marketing within the organization 31
inventory control, production, service of guest rooms, and all of the other
activities that take place each day within a successful hospitality or tourism
operation. Without a strong focus on operations, the quality of the product–
service mix is likely to be poor or inconsistent. Problems in the operations
area of a firm can lead to declining customer counts and possible business
failure. People in operations are mainly concerned with efficiency and cost
containment, which are best achieved by limiting product flexibility and
standardizing production and delivery. Conversely, marketing personnel
are concerned with pleasing customers by providing them with the types
of products and services they prefer. This requires a good deal of variety
and individual customization that conflicts with the goals of production
personnel. Management must balance the goals of the two areas with the
goals of the firm in order to be successful.
A central and overriding goal of all businesses, including hospitality and
tourism organizations, is to increase the wealth of the owners or stockholders.
In periods of economic uncertainty, such as during high rates of inflation, high
interest rates, or periods of recession, skilled management of the financial
function becomes even more critical to the success of the hospitality organization.
All hospitality organizations need to focus considerable attention on
this function to manage the organization’s assets and financial affairs successfully.
Most areas within a firm have bottom-line financial responsibility,
and managers need to understand the fundamentals of finance and accounting.
All firms have limited resources, regardless of size, and it is important to
invest in areas that demonstrate a high potential for meeting the targeted
return. For example, financial considerations must be applied when developing
new products and services, creating advertising campaigns, and setting
pricing policies.
Human Resources
As a service industry, the hospitality and tourism industry places a heavy
emphasis on customer service. The success of a hospitality venture depends
greatly on the ability of its employees to provide a consistently high level of
customer service. Management is responsible for establishing the overall direction,
but it is left to each employee to implement management’s strategies and
action plans. The major activities of human resources include recruitment,
32 chapter 1 the functions of marketing
selection, orientation, training, professional development, benefits management,
compliance with laws and regulations, and other aspects of personnel
relations. Historically, the turnover rate in the hospitality industry has been
much higher than in other industries. Wages tend to be low in relation to
responsibility, and in some cases, there is a lack of upward mobility unless the
employee is willing to relocate. High rates of turnover for all positions
adversely affect the entire organization. It is the responsibility of the human
resources department to select employees who fit the profile of a dedicated
service employee and then train them and provide support throughout their
careers. In essence, the human resources department must market the firm to
employees, who will then be motivated to market the firm and its products
to customers.
Research and Development
To compete successfully in the years ahead, hospitality firms must invest
time and money in the key result area of research and development. These
efforts typically focus on developing new market segments and new elements
of the product–service mix. The growth of new concepts and new
types of product–service mixes is an example of the outgrowth of research
and development efforts. Lodging organizations such as Choice Hotels
International, Marriott International, Starwood Hotels and Resorts, Promus
Hotel Corporation, and others developed all-suite hotel brands and
other segmented brands in response to research and development efforts
that identified a substantial consumer market for a specific set of product–
service mix attributes at varying price points. Each year, they further refine
their products and services offered to the traveling public with the goal of
meeting and exceeding customer expectations. Because it is unlikely that a
single hospitality concept will be successful indefinitely, management must
be future-oriented and must anticipate necessary changes. Research and
development efforts must be attuned to what consumers will want in the
future. Being ready and able to change to meet future consumer needs is
the real challenge of research and development. Examples of recent product–
service mix enhancement within the lodging industry include such
improvements as better-quality bedding and pillows, more functional desks
and workspaces for business travelers, installation of larger flat-screen televisions,
and wireless networks throughout the hotel. Although none of
these changes are revolutionary, all address specific guest needs and
enhance the guests’ experience. The goal of each is to improve the guest
experience and build loyalty.
marketing within the organization 33
34 chapter 1 the functions of marketing
chapter review