Chapter 6 Implementing the marketing plan.
When you have completed this chapter, you should be able to:
* Describe the kinds of information contained in a marketing plan.
* Name four methods a company might use to establish its marketing budget.
* Describe the responsibilities of marketing professionals during the control phase of the marketing process.
* Explain why keeping customer records and sales records is important for the marketing process.
* List several types of information-gathering tools.
* Name four techniques marketers use to evaluate sales results.
"The Number One Walleye Spot in North America!" That's how Jim and Sally Dowler describe their wilderness fishing resort on Lake of the Woods. Drumshanbo Lodge, a main lodge with a dining room and eleven sleeping cabins, appeals to walleye fishing enthusiasts. Most of its guests purchase a package plan consisting of a room and meals, along with boat, motor, gas, bait, and fish cleaning. The daily fee for a fishing guide is extra.
Jim and Sally, who are approaching their third season of operation, have worked hard to position Drumshanbo Lodge as the spot for an outstanding fishing vacation experience. They spent time last winter promoting the lodge at hunting and fishing shows in Milwaukee, Minneapolis-St. Paul, Chicago, Toronto, and Winnipeg. They persuaded travel agencies in metropolitan areas to promote the lodge. Now business for the coming season looks good: their property is already completely booked for July.
At this point, with reservations coming in every day, Jim and Sally might be tempted to sit back, put their feet up, and watch the money roll in. But the Dowlers are only halfway through the marketing cycle. They still must take steps to ensure that everything goes the way they had planned. To accomplish this, they need to develop and implement a marketing plan.
THE MARKETING PLAN
Imagine that you want to drive your car to a distant part of the country that's unfamiliar to you. You know where you are and you know where you want to go, but you don't know how to get there. If you are adventurous, you might start down the first road you see. More than likely, however, you will stop at a gas station, an auto club, or a tourist information center and pick up a road map before you leave town. Without the map to guide you, you might waste a great deal of time and gas going off in wrong directions.
A marketing plan is a company's road map. It is a detailed written proposal that shows how a company intends to reach its marketing objectives. Like a road map, a well-conceived marketing plan can prevent an organization from taking wrong turns, wandering into blind alleys, and going down dead-end streets. It also makes it less likely that the organization will be wasting time and energy and squandering its budget.
In addition to keeping an organization on course, a marketing plan is important for several other reasons. It coordinates the efforts of the many people involved in the marketing process and serves as a point of reference and as a basis of communications with the target market. It helps to prioritize efforts and activities and ensures that marketing activities are consistent with the company's objectives for selected target markets. Finally, a marketing plan assists in measuring a company's success in the marketplace and provides continuity for the company's long-term operations.
Marketing plans vary in length and scope from company to company. A marketing plan for a small resort might be only one or two pages long, whereas a marketing plan for a large airline might fill several volumes. Some marketing plans focus on a single product or service, and others cover a range of products and services. A company can have a long-range, multilayer business plan--sometimes called a "strategic plan"--plus one or more product-based marketing plans, sometimes called "tactical plans." Marketing plans also vary in their content and format. Generally, however, a marketing plan contains three basic parts: introduction, rationale, and implementation (see Figure 6-1).
The introduction provides a brief overview (often called an executive summary) of the plan as a whole. It is a simple way of letting the reader know what to expect and what is important. In summarizing the marketing plan, the introduction generally highlights the most important points of the two major sections that follow.
The rationale explains why a particular marketing process is being undertaken. It summarizes all of the research, analyses, and decisions on which the marketing plan is based and provides a historical record of what actions were taken to develop the plan. The rationale is especially enlightening for people outside the organization, who are assisting with its market programs. An example would be public relations firms, who are called on to handle only one or two specific activities. In most cases, a rationale contains two primary components: a situational analysis and a marketing strategy.
FIGURE 6-1 A marketing plan describes how an organization intends to reach its marketing objectives. The Components of a Marketing Plan I. Introduction (overview of entire plan) II. Rationale (explains why and how plan was developed) A. Situational analysis (Where are we?) * Products and services * The competition * External environments * Market potential * Existing marketing activities * Strengths, weaknesses, opportunities, and threats B. Marketing strategies (Where should we go?) * Target markets * Product position and image * Marketing objectives * Marketing strategies * Marketing mix III. Implementation A. Planning activities (How do we get there?) B. Setting the budget (How much will it cost?) C. Controlling the marketing process (How do we make sure we get there?) * Gather information and keep records * Monitor spending * Provide progress reports * Monitor employee performance D. Evaluating the marketing plan (How will we know when we get there?) * Performance standards * Measurement techniques * Evaluation follow-up
Situational Analysis. A situational analysis is a statement of how things are now--the current status of a company, its products, and the marketplace. It is the end result of a company's systematic examination of a number of separate components that together determine the status quo. Among the more important factors considered in a situational analysis are:
* Products and services, with an emphasis on adjusting both tangible and intangible factors in order to maximize their appeal.
* The competition, especially an analysis of what new products or promotions to expect and an examination of the strengths and weaknesses of competing companies.
* External environments, including political, societal, and technological trends or changes and whether their impact is felt at the international, national, regional, or local level. The emphasis is on whether the impact of these changes is positive or negative in relation to the company's marketing efforts.
* Market potential, based primarily on what is known about current customers, their habits, preferences, and needs, especially whether or not changes are observed or anticipated.
* Marketing activities, including an analysis of what the company has tried in the past and an assessment of its effectiveness, noting implications for future activities.
* The company's strengths, weaknesses, opportunities, and threats, relative to its existing and anticipated competition and target markets, are analyzed in order to determine what products, services, activities, and strategies will be most effective and successful.
Once these factors have been examined thoroughly, the findings are summarized in the situational analysis part of the marketing plan's rationale. The point here is not to report everything that has been learned about each factor, but to provide an overview of what has been learned about the current status of the company and its travel products. What should always be emphasized are particularly important strengths and weaknesses and specific marketing opportunities or constraints (and threats) disclosed by the analysis. The emphasis of the situational analysis is to provide a firm sense of the current position and image of a company, to draw lessons from its previous efforts, and to suggest directions for the future based on conclusions about the past and the present.
Marketing Strategies. This section of the marketing plan's rationale describes and explains decisions about "Where should we go?" and the specific strategies and tactics to be used in the marketing plan. These include the following:
* Target markets, including what segmentation variables are to be used, and whether separately or in combination.
* Product position, including the image to be established for the product, the appeal of that image to the target markets, and methods to be used to distinguish the product from competing products.
* Marketing objectives, stating in specific terms the measurable goals of the marketing plan.
* Marketing strategies, establishing the overall marketing approaches to be used for each target market.
* Marketing mix, specifying how the eight Ps are to be combined to present and promote the products.
The specific methods used to make these decisions and the principles underlying those methods have already been discussed in detail in Chapters 2 to 5. In the context of the marketing plan and its rationale, the emphasis is on providing a brief summary of the thinking that has gone into the particular decision about the strategies. In other words, what is the basis for believing that these are the best marketing strategies to take the company from where it is now to where it wants to go? The emphasis should be on identifying how to create the product's competitive advantage over the other travel products by exploiting its comparative advantage (product appeal superior to that of the competition).
The implementation section specifies how the marketing plan will be carried out. It should be as detailed as possible. If the plan is too vague or open for interpretation, the people in charge of the various activities may go off in different directions, resulting in missed deadlines, unproductive spending, and general confusion. Most implementation sections contain the following information:
* Planning activities. Simply put, this section addresses "How do we get there and when?" The performance responsibilities of each employee involved in the plan's marketing activities are detailed and tied to a timetable, so everyone knows what is expected.
* Setting the budget. This section addresses "How much will it cost and what method of budgeting will be used?" The costs of each prescribed activity are determined within the context of the budget. This is usually a separate step in the plan and will be discussed in detail.
* Controlling the marketing process. This section addresses, "How do we make sure that we get there?" Details are given about what methods are to be used (including providing progress reports) by managers to monitor employee performance, timeliness, and progress toward goals, particularly those involving financial control of expenditures.
* Evaluating the marketing plan. This section addresses, "How will we know when we get there?" This information explains at what point and in what ways the overall success of the marketing plan is to be measured, based on measurement techniques, expected outcomes and performance standards. It also provides a basis for adjustments that may be necessary in future marketing plans.
Once these three components have been described by the marketing plan, what remains is the hard part: their actual implementation. Previous chapters have already described some of the specific methods that go into planning marketing activities and deciding who is to do what. The remainder of this chapter focuses on how to implement the remaining steps of the marketing plan: setting the marketing budget, controlling the marketing process, and evaluating the marketing plan.
SETTING THE MARKETING BUDGET
In a marketing plan, the marketing budget is an estimate of the cost to successfully implement the marketing strategies that are the key to achieving the marketing objectives. Setting a marketing budget can be an agonizing process, especially for a small company with limited resources, because the money is being spent "up front," or ahead of the actual revenue the product is expected to generate. Because the companies are, in a sense, gambling that they will recover their investment, they sometimes wait to create marketing budgets until other bills and invoices have been paid. The marketing budget, however, should be a top priority. Money spent on marketing can be a major factor in the success or failure of a company's product or service; it should be viewed as an investment to generate business rather than a cost. One benefit of a marketing plan that is grounded in solid market research is making a company more confident that its marketing budget is allocated properly.
Characteristics of a Good Marketing Budget
A good marketing budget is comprehensive and coordinated. The budget should show not only how much to spend to implement the total marketing plan, but also how the total should be split among each element of the marketing mix and the evaluation procedures. If the plan covers more than one travel product, or more than one target market, the budget should also show how the money will be split among these components. Of course, spending should be allocated appropriately, so that the organization does not designate too much for a minor component of the plan while a major part of the plan is underbudgeted.
A good marketing budget is also realistic and practical for the company. In other words, the budget should be logically related to the company's financial resources and its position in the industry. A goal of a good budget should be to create revenues that exceed the amount invested in marketing.
Finally, a sound budget has a contingency built in. It is usually recommended that 10 to 15 percent of the total budget be reserved for unanticipated increases in marketing expenses, such as the cost of printing cost overrun, an unexpected move by the competition, or an exceptional opportunity that arises.
Marketing professionals generally use one of four methods in setting budgets (see Figure 6-2). Three of these methods--the arbitrary and affordable method, the percentage of sales method, and the competitive parity method--are relatively simple and straightforward, but generally do not consider marketing objectives. They establish the upper limits of expenditure, but usually do not provide guidance on how to divide money among the various elements of the marketing mix. The fourth method--the objective and task method--is more complicated and time-consuming, but it meets the requirements that budget setting should be done in a comprehensive and coordinated manner. It also allows objectives to be considered and resources to be allocated to specific elements of the marketing mix.
Arbitrary and Affordable Method. In arbitrary and affordable budgeting, marketing professionals use their personal judgment and knowledge of the company's history to estimate budgets. They decide on an amount they think the company can afford. Often they use the same amount as budgeted in previous years, sometimes increasing it an arbitrary percentage from one year to the next. This budget method is used most commonly by small travel businesses that view marketing expenditures as a cost rather than an investment. Its main weakness is that it tends to maintain the status quo, making it impossible for a company to recognize--and therefore reach--its full potential.
Percentage of Sales Method. In percentage of sales budgeting, marketers base their estimates on a percentage of the previous year's total sales or this year's expected sales. The percentage may be based on published guidelines of what a company "should" be spending on its marketing program (the rule of thumb). For example, several authorities recommend that a hotel, motel, or resort should spend from 2.5 percent to 5 percent of its total sales on marketing.
The most glaring problem with this form of budgeting occurs when sales decline. With percentage of sales budgeting, marketing budgets decrease in response to such a decline, which can then make the problem of decreasing sales even worse. In fact, a temporary increase in the marketing budget may be the appropriate response to decreasing sales, rather than a reduction in budget.
Competitive Parity Method. In competitive parity budgeting, marketing professionals try to find out what their competitors are spending and then set their own budgets to correspond. Marketers attempt to determine this information by reading articles on competitors and their annual reports. The competitive parity method's disadvantages are that it is reactive rather than anticipatory and that, to a significant extent, it allows the level of the company's marketing budget to be determined by its competitors.
Objective and Task Method. In objective and task budgeting, marketers construct the budget from the bottom and move up, rather than from the top down. They first set objectives and then figure out the marketing tasks necessary to accomplish the objectives. From there, they estimate the cost of completing each task.
To understand the objective and task budgeting method, consider the situation of a corporation that operates thirty hotels with a combined capacity of six thousand rooms. The corporate marketing department has set the following marketing objective: Use direct-mail advertising to sell one-third of the hotels' overall capacity (i.e., two thousand rooms) to families as weekend packages over twenty selected weekends between October and May.
The marketing department then projects the amount of revenue that would be generated by meeting this objective. Assuming that each package lasts for two nights and involves two persons at $45 per person per night (or $180 per couple per weekend), the revenue projection is as follows: 2,000 (rooms) x 20 (weekends) x $180 = $7,200,000.
Additional spending in hotels on meals, drinks, gifts, and so on @ $10 per person per day: 2,000 (rooms) x 20 (weekends) x 2 (people) x 2 (days) x $10 = 1,600,000.
Projected Revenue = $8,800,000
Next, the marketing department must decide how much money is required to achieve the projected sales revenue--in other words, what will the marketing budget be. Rather than simply taking a percentage of the projected sales revenue, the marketers use facts, experience, and personal judgment to itemize and project costs for the marketing tasks necessary to achieve the objective, including:
250,000 brochures = $80,000 50,000 direct-mail postcards = 25,000 Advertising in consumer media = 250,000 Advertising in trade press = 20,000 Point-of-sale material (for travel agencies and hotels) = 25,000 Public relations campaign = 10,000 Travel agency commission = 180,000 Other = 50,000 Contingency = 60,000 Projected Costs = $700,000
The marketing budget of $700,000 is 7.9 percent of the projected revenue, an acceptable figure for this hotel chain. If the marketing department had adhered to a more conventional percentage (perhaps 5 percent), the budget may have been too low to achieve its objective using these tactics.
CONTROLLING THE MARKETING PROCESS
It doesn't make sense for a company to spend money, time, and effort designing marketing strategies without being able to measure and manage what happens to them once they are set in motion. Implementation of a marketing plan must be controlled. The control phase includes all the steps a company takes to monitor and adjust marketing strategies and activities as they are progressing. These procedures are specified in the marketing plan.
During the control stage, marketing professionals gather information about customer response, monitor spending and sales, check employee performance and issue progress reports. Wherever necessary and possible, deviations from what was expected are corrected by modifying marketing strategies or tactics. Some marketing plans allow for certain contingencies, spelling out how strategies or tactics should be changed when objectives are not met.
Gathering Information and Keeping Records
Marketing professionals are constantly collecting information about a company's customers. As you already learned in Chapter 3, this is one of the primary functions of market research. In Chapter 3, however, market research was discussed primarily in relation to developing new products or refining for existing products, including initial decisions about target markets, product positioning, and other marketing strategies and tactics.
But the value of market research and information goes well beyond product and market analysis. Information is critical throughout the marketing cycle and is one of the keys to monitoring and controlling the implementation of the marketing plan. Marketing professionals gather and analyze information continuously in order to test the effectiveness of the various elements of the marketing mix.
Some information-gathering tools used for this purpose are similar to those employed at the market planning stage and have been described previously. Others are more specific to monitoring and controlling the marketing effort than to planning it and are described below. In most cases, the information that is gathered can be useful both in monitoring the performance of marketing efforts and in developing or adjusting products and services. Whatever the method to be used and whenever it is applied, recognizing the critical role up-to-date information plays in successful travel marketing is essential.
Registration Cards. Lodging companies within the travel industry need to know what percentage of their business comes from various geographic market areas. Registration cards, especially those used in hotels and motels, provide this important geographic information. The information should be extracted from the cards on a daily basis and categorized according to state and major metropolitan area. Season of the year could also be factored in, as well as how frequently guests stay at the property. An accurate geographic analysis aids in directing or modifying advertising and promotion efforts.
Self-Administered Questionnaires. Questionnaires are a popular and inexpensive way of getting feedback on guest satisfaction and marketing tactics. An example of questionnaires are the familiar comment cards that resorts place in guest rooms for return at checkout. Another is the survey mailed to the guest's residence after their stay is completed.
The disadvantage of self-administered questionnaires is that guests cannot always be depended on to complete them. To encourage participation, some businesses offer a gift as an incentive for completing the survey. To increase their response rate, some hotels now have guests answer questions as they are checking out either at the front desk or on their in-room television. The questions take about thirty seconds to answer, and the results are immediately recorded and tabulated by a computer.
Informal Interviews. Informal interviews with customers can yield useful information, especially for a small business. Managers of travel agencies, for instance, can have their sales staff routinely ask clients how they happened to choose the agency. Were they referred by a satisfied client? Are they responding to a particular sales promotion? Were the agency's location, parking facilities, or office hours the key factor? Were they attracted by the ad in the telephone book?
Client Files. Many companies keep files on their transactions with individual clients or guests. Tour operators, for example, might add to such a file each time a client books a trip. The file would include demographic information, such as the client's age, residence, and occupation, and information about the type of trips purchased, destinations selected, and the reasons for traveling. By reviewing client files on a regular basis, managers can get an idea of which products and services are most popular, and in which target markets the marketing efforts have been most effective. All information collected is compared to the specific expectations of the marketing plan to make certain the marketing plan is on track. If not, appropriate adjustments are made.
Response Mechanisms. Feedback mechanisms are used to test the effectiveness of direct-response advertising. They include systems such as a magazine ad with a mail-in coupon or card. If people want to find out more about an advertised travel product, they can send in the coupon, which includes a code indicating in which publication the coupon was printed. Television ads promoting travel to specific states feature special toll-free telephone numbers that viewers can call for more information or Internet addresses to browse. By tracking responses and their sources, marketers can get an idea of which advertising is working and the number of people their advertising is reaching.
Response mechanisms can also be designed to elicit more specific information about the respondents. For example, the same ad can be run in different regions of the country but with a different toll-free number for each region. Companies can then determine the geographic markets in which the advertising is most effective by noting how many calls each number receives. In a similar manner, marketers can test the effectiveness of one advertising placement over another--for example, by running the same ad in two different magazines, using different departments or box numbers as codes in the contact address.
Inquiries. In addition to keeping track of inquiries generated by response mechanisms, travel companies record other requests for information, whether by telephone, letter, or personal visit. If a company sponsors a special event such as a cruise night or a lecture, inquiries will come from some of the people attending. While prospective customers seek information about travel products, marketers, in turn, seek information about potential and existing customers.
Of course, marketing departments should not be content to answer an endless stream of inquiries with no results. In the end the name of the game is conversion: turning inquiries into sales. In fact, one evaluation measure a marketer often uses is calculating the ratio of inquiries to sales (see "Evaluating the Marketing Plan"). If a company is getting many inquiries but not many sales, then something in its marketing plan or product requires adjustment. It may indicate, for example, that the advertising is working to generate interest, but something about the product isn't appealing to customers as anticipated.
Personal Observations. Marketing managers can learn a great deal about how well a marketing plan is progressing by simply observing its implementation. They can walk through a hotel lobby, for example, to check how customers are being treated and how they are responding to the facility and its staff. Are the staff at the registration desk friendly and courteous? During the checkout process does the staff ask for future reservations? Managers can also observe the appearance of the facility. Is the hotel entrance clean and attractive? Is the lobby well lit?
Another major way in which companies control the marketing process is by controlling their finances. This has two aspects. First, marketing personnel periodically check to see if the marketing budget is being spent according to the plan. Second, they periodically evaluate sales volume, costs, and profits to see if the company is cost-effectively achieving its marketing objectives. Thus, in addition to gathering information related to customer opinion and behavior, marketing departments (or, in some organizations, sales departments) are also keeping records on sales and expenditures. More is said about evaluating sales later in this chapter.
It is important that the monitoring of the progress of each marketing activity be reported in a timely manner so that any necessary adjustments can be made. Many organizations have traditionally printed weekly or monthly reports. Today, creating an online database that is accessible twenty-four hours a day is the preferred option for providing accurate, up-to-the-minute information, which marketing professionals need to make decisions in the complex, fast-moving travel marketplace.
Monitoring Employee Performance
As you know, most travel products are, to some extent, intangible and perishable. Their quality depends in large measure on the people who deliver them to customers. Managing the performance of employees is difficult, but several useful steps can be taken. To begin with, a company can recruit and hire the people with the right skills and attitude for the job. Proper training, motivation, and orientation make control easier. This is especially true during the early implementation of a marketing plan, when employees need ongoing leadership and supervision. Managers also need to clearly communicate the critical elements of the marketing plan to employees, emphasizing the importance of their role in the success of each strategy.
Productivity. One way to monitor the work of employees is to establish productivity quotas. Marketing directors, or sales managers, monitor the work of salespeople by establishing a system of sales reports and sales quotas. Part of a director's or a manager's responsibility is to see that salespeople meet their goals within their budgets and to offer assistance if a salesperson is having difficulty. Managers might restructure a salesperson's tasks or retrain him or her. Sales meetings and incentives such as cash bonuses, awards, or free trips are designed to motivate salespeople to increase their productivity.
Team Spirit. An important responsibility of marketers is to build team spirit among employees so that they will be motivated to achieve the marketing objectives. Consider the situation of the Radisson Hotels and Resorts. In the early 1990s, the company, which was losing money, set about revamping its properties and image. As part of its marketing strategy, the company created the "Yes We Can!" advertising slogan. However, before introducing this campaign to the public, the management directed the message to hotel employees. Realizing that an enthusiastic and happy staff was the key to the success of the corporation, Radisson executives made every effort to gain the support of the company's employees. As part of their strategy, the president of the corporation met with as many employees as possible in person and in an effort to make each individual a committed member of the Radisson team.
This strategy, along with others, has been effective. Radisson has reestablished itself as a vigorous company with an ambitious building program and high service standards.
Frontline Training. Although travelers seldom meet a company's professional marketing staff--marketing directors, sales managers, and public relations officers--they do meet the company's frontline employees. Frontline personnel in the travel industry include hotel registration staff, servers, bellmen, travel agents, tourist information specialists, and many others who have direct contact with travelers every day. The actions and attitudes of these frontline employees can greatly influence how travelers perceive products and services. Therefore, these employees must receive proper training so they are knowledgeable about the marketing efforts of the organization and can recognize that their on-the-job performance and appearance are important to the success of the marketing strategies.
In addition to training employees for specific jobs, many travel organizations provide frontline personnel with service quality training. This training encourages and prepares employees to serve as enthusiastic and well-informed ambassadors of the business and the destination. Employees learn about their community's history, attractions, special events, shopping, and recreation. As a result of such training, frontline personnel are able to answer visitors' questions about what to do and see and even know how to provide accurate directions. This investment in employee performance produces more satisfied customers and makes it more likely that future marketing will be effective.
EVALUATING THE MARKETING PLAN
The final phase of the marketing plan is evaluation, where a company analyzes the results of the implementation of its marketing strategies and compares them with the objectives it had hoped to achieve. Evaluation is extremely important in helping the company prepare future marketing plans.
A good marketing plan spells out when the formal evaluation will occur and which measurement techniques will be used. Since it is unlikely that the final results will match the objectives exactly, the marketing plan also specifies performance standards. Performance standards that state what deviations from a marketing objective are acceptable or unacceptable are helpful in determining the success of the company's market plan.
For most companies the bottom line is whether they generate enough profit to stay in business. Therefore, the primary focus of evaluation is often on analyzing financial returns. Several measurement techniques are used to help a company achieve a clear understanding of the financial returns on their marketing investment. The results of each measurement technique should be compared to the expected outcomes through established performance standards.
Total Dollar Sales. Some companies simply use total dollar sales as their evaluation base. They compare the amount of sales during one period with the amount of sales during another equivalent period. For instance, the current year's sales might be compared with the previous year's sales. Total dollar sales is the broadest and simplest measurement technique, but it is not very revealing. Although it does tell whether sales increased or decreased, it does not tell whether the company achieved its objectives, how the company is performing in relation to its competition, whether costs changed or how much profit the company made. Nor does it reveal which segments of the business are profitable and which components of the marketing plan were effective.
Sales Variance. Good marketing objectives are expressed in measurable terms--dollars or units (for example, the number of rooms occupied or seats sold). An analysis of sales variance compares actual sales with marketing objectives and tries to explain any discrepancies. Again, the more specific the objective, the easier it is to measure. An airline, for example, might set objectives for each class of service for each route for each week of the year. With the aid of technology, the airline can have the sales results within hours of a flight and compare them with previous levels in order to determine the amount of change (variance).
Market Share Variance. Market share refers to the proportion of a company's sales to an entire industry's sales. In an analysis of market share variance, a cruise line would compare its total sales with total sales for the cruise line industry over a period of time. For example, a company's share might increase from 9 percent in 1997 to 20 percent in 1999. The market share percentage is determined by dividing company sales by total industry sales.
An analysis of market share variance helps a company determine how well it is performing compared to overall industry performance, along with how well it is doing against its competitors. Sometimes the results of a market-share variance analysis provide an interesting picture of a company's performance. For instance, a theme park's sales may have decreased in a year's time, but during the same time its market share may have increased. This would indicate that the company is gaining on or outperforming its competitors, although it is part of an industry segment that is experiencing an overall decline in sales.
Marketing Cost Profitability. The analysis of a company's financial success isn't complete until the margin between the amount of revenue generated and the costs required to produce it are known. A company may have increased its sales volume, but its marketing costs may have increased to the point where its profits have actually decreased.
An analysis of cost and profitability should be focused on individual marketing components so that unproductive components can be altered, reorganized, or abandoned. This allows an organization to reallocate funds to more productive segments. Marketing professionals conduct what is called a segmental analysis in several ways--for instance, by looking at particular target markets, sales territories, or distribution channels. Figures for this type of analysis must be extracted carefully from revenue statements. The process is time-consuming but can be well worth the effort.
Effectiveness Ratios. A useful way to measure the performance of a promotional program is to calculate effectiveness ratios. These are statistical measurements for determining the relative effectiveness of promotional and distribution strategies. They might include:
* Average number of sales calls per salesperson per day.
* Number of radio and TV stations using press releases.
* Percentage of sales through travel agencies.
Another type of ratio that is useful in direct response marketing (inquirers respond to advertising via coupon or toll-free numbers) is the cost per inquiry (CPI), which is the average cost of generating an inquiry. The CPI of an advertisement is calculated by dividing the total cost of the marketing activity by the total number of inquiries it generates. A CPI of 2.36 means it cost $2.36 for every inquiry produced by the advertisement. The ad's effectiveness can be further evaluated by figuring the cost per reservation (CPR) or cost per visitor (CPV) and the return on (marketing) investment (ROI), which is the amount of revenue generated for every dollar spent on marketing. CPR (or CPV) is calculated by dividing the total cost of the marketing activity by the number of reservations, or visitors, produced. It is important to note that CPR (or CPV) will always be higher than CPI, since not all inquiries are converted to reservations, visitors, guests, or passengers. ROI is calculated by dividing the total costs of the marketing activity into the total estimated revenue that it produced.
All of these ratios are very useful in determining the performance of each marketing activity as well as their relative performance, compared to all marketing activities. The latter can be accomplished by calculating a CPI, CPR (or CPV), and ROI for each and every marketing activity and comparing them. The worksheet in Figure 6-3 and the Marketing Evaluation Case which follows explain more about the calculation of these important ratios.
Marketing Evaluation Case Study
Jim and Sally Dowler decided on several promotional strategies to inform their target market about Drumshanbo Lodge. Their efforts focused on increasing occupancy during their slow period, which was indentified by an analysis of their guest records. As mentioned, included in their marketing activities were exhibits at several hunting and fishing shows. In addition, Jim and Sally distributed their brochures through travel agencies, advertised in several hunting and fishing newspapers and magazines, and ran ads on radio stations. They also participated in cooperative advertising with their local resort association.
The Dowlers wanted to know which promotional program components were effective in terms of generating revenue and which were not. With this information, they will have a better idea of how to spend their advertising budget in the future. Figure 6-3 shows the worksheet they could use to calculate effectiveness ratios for each program component. Effectiveness ratios allow the different promotional activities to be compared. Those with a low CPI and CPR (or CPV) and a high ROI, of course, would be most effective and, therefore, the best future marketing investments.
To see how effectiveness ratios work, the Dowlers compared the results for ads appearing during the same week last season in three different newspapers specializing in the "outdoors":
1. A small ad in Sportsman's Weekly cost $100. It yielded three inquiries and one conversion to a reservation.
* Total revenue = $250
* Total costs = $100
* Total inquiries = 3
* Total reservations = 1
* Cost per inquiry (CPI) = $33 ($100 / 3)
* Cost per reservation (CPR)= $100 ($100 / 1)
* Return on investment (ROI) = $2.5/$1 ($250 / $100)
2. An ad in Outdoor News cost $50. It yielded ten inquiries and five reservations.
* Total revenue = $1,250
* Total costs = $50
* Total inquiries = 10
* Total reservations = 5
* Cost per inquiry (CPI) = $5 ($50/10)
* Cost per reservation (CPR) = $10 ($50/5)
* Return on investment (ROI) = $25/$1 ($1250 / $50)
3. An ad in Sportsman's Press cost $75. It yielded fifteen inquiries and ten reservations.
* Total revenue = $900
* Total costs = $75
* Total inquiries = 15
* Total reservations = 10
* Cost per inquiry (CPI) = $5 ($75 / 15)
* Cost per reservation(CPR) = $7.50 ($75 / 10)
* Return on investment (ROI) = $12/$1 ($900 / $75)
By using these ratios, the Dowlers were able to determine that the most effective ad of the three was the one appearing in Outdoor News because it produced both the most revenue and the best return on investment.
When Drumshanbo Lodge closes in October, Jim and Sally will be able to look back at their third season of operation with pride. As a result of their recordkeeping and analyses, they will know why their season was a successful one, both in relation to the previous year and to their objectives for this year. They will know their margin of profitability and how well their lodge is keeping pace with the other resorts in the area. The Dowlers will have a good idea of which advertising and promotional strategies are worth future investment, and they should also have many well-founded ideas about how to improve the marketing of Drumshanbo Lodge. With this information, the Dowlers can look forward to an even more successful fourth season, thanks to their successful application and implementation of some basic procedures for evaluating the effectiveness of the components of their marketing plan.
[FIGURE 6-3 OMITTED]
After measuring the financial results of its marketing plan, a travel organization should attempt to determine the reasons for its success or failure. This is where customer records, surveys, observations, and more subjective information-gathering tools--like years of experience--can be most helpful. These measurements may indicate that, even though a company is making a profit, its success is due to some factor other than its marketing strategies. For example, most airlines' share of the Atlantic coast market will increase substantially as a result of a major, competing airline being on strike. By the same token, a company may fail through no fault of its own. External factors such as weather, civil war, a change in tax structure, currency fluctuations, or a price war among competitors can influence what happens to a company in the marketplace. Therefore, travel organizations need to be careful not to use outcomes that are the result of unforeseen, unpredictable, and uncontrollable circumstances as the groundwork for future plans.
At this follow-up stage of the evaluation process, several specific types of information are of interest to organizations in the travel industry. These include:
* How efficiently the marketing plan was followed and implemented.
* How effectively marketing objectives have been met.
* The accuracy and credibility of the reported results.
* Accountability for the money spent implementing the plan.
* Ways in which the marketing programs and strategies can be improved.
Travel companies also want to assess the effect of the marketing plan on customers by getting their feedback about the following:
* Their satisfaction with the travel product(s).
* How their actual travel experience compared with their expectations for it.
* Whether they would purchase the travel product(s) again.
With the evaluation complete, the marketing cycle begins again as the travel organization decides what to do next. If the route mapped by the marketing plan was smooth and successful, the company may choose to follow that road again. Several other options are also available:
* Continue with the same plan but with some major or minor modifications.
* Continue with the same plan and, at the same time, develop plans for identifying new markets and creating new products and services.
* Abandon all or some of the plan and start over again, based on the information about the current failures and successes.
If an organization has done a good job of controlling and evaluating the marketing process, its future course will be much clearer and the outcomes more predictable.
* A company must have a marketing plan to achieve its objectives. A marketing plan describes where the company is now, where it wants to go, and how it will get there.
* The situational analysis and marketing strategies are the major elements of the rationale for a marketing plan.
* The implementation component of a marketing plan includes planning, budgeting, controlling, and evaluating phases.
* The marketing budget is an estimate of how much it will cost to implement the strategies described in the marketing plan. Since the amount of money spent on marketing helps to determine the success or failure of the product or service, budget setting should be a priority in the marketing process. Several methods are available for budget setting.
* During the control phase, a company is monitoring and adjusting marketing strategies and activities as they are progressing in order to make sure that strategies and tactics achieve desired results.
* Information about customers is one way the marketing professionals judge the effectiveness of the various elements in the marketing mix.
* Marketing managers support the efforts of employees through proper training, leadership, and supervision.
* Although the evaluation phase occurs after the marketing activities have ended, evaluation procedures are established in advance and specified in the marketing plan. To perform an effective evaluation, information on sales and customer response must be collected and monitored throughout the implementation of the marketing plan.
* The key elements of the evaluation phase are expected outcomes, accurate and reliable measurement techniques, and performance standards.
* Evaluation is extremely important, for both assessing current marketing efforts and determining future directions. To get a true picture of its success or failure, a travel organization should use several measures to calculate financial results and should determine the reasons behind its success or failure.
arbitrary and affordable
percentage of sales
objective and task
cost per inquiry (CPI)
cost per reservation (CPR)
cost per visitor (CPV)
return on investment
1. What types of information should a marketing plan contain?
2. Why is the objective and task method considered the best method for budget setting?
3. What are the major responsibilities of marketing professionals during the control phase of the marketing process?
4. Why is good recordkeeping essential for the marketing process? What are some tools for gathering information about customers?
5. Why might market share be a more important measure of success than total dollar sales?
6. Describe the differences between cost per inquiry and cost per reservation in terms of their calculation and their usefulness in marketing decisions.
7. To obtain a complete picture of a marketing plan's success, what types of evaluation can be done?
Implementing the Marketing Plan
Name: -- Date: --
Directions: Answer these questions as you read the chapter. You will be able to use these answers to help you review the chapter.
1. What is the relationship between a marketing plan and marketing objectives? --
2. What are the three basic components of a marketing plan? --
3. Name some of the factors considered in a situational analysis. --
4. What four types of activities are commonly included in the implementation section of a marketing plan? --
5. What are some of the characteristics of a good marketing budget? --
6. Describe the four types of budget-setting methods generally used by marketing professionals. --
7. Name five of the tools used to gather information as means of controlling the marketing process. --
8. Discuss why each of the following is important to the success of a marketing plan. Employee productivity: --
Team spirit: --
Frontline training: --
9. How are performance standards used when evaluating a marketing plan? --
10. Differentiate between the analysis of sales variance and market share variance. --
11. Describe three examples of effectiveness ratios used by travel marketers to evaluate marketing plans. --
12. The follow-up efforts that are the result of the marketing plan evaluation might include: --
Implementing the Marketing Plan
Name: -- Date: --
MARKETING BY OBJECTIVE
The following companies need marketing plans to ensure long-term business success. Rewrite each of their marketing objectives in a more specific way, including the desired result, the marketing activities, the targeted market, the time frame, and the measure of success (see Chapter 5). Then suggest recordkeeping, information gathering, and evaluation methods that would measure whether this objective was accomplished.
1. The Tulip Tree Bed-and-Breakfast Inn, Elkhart Lake, Wisconsin. Current situation: The inn makes a small profit every year but is never completely occupied, even during the height of the summer season. Many customers who used to come to the inn every year have retired to the Sun Belt, and their children are now grown up. Goal: Attract more summer visitors. --
Marketing objective: --
Recommended recordkeeping or information gathering: --
Suggested evaluation method: --
2. Mike's Red River Canoe Trips, Crockett, Idaho. Current situation: The Red River offers perfect conditions for the experienced canoeist and the novice alike. Mike and his expert staff act as guides and supply instruction, safety equipment, and a wide range of one-day, weekend, and vacation packages. Although he is happy with the business he gets through canoe clubs, shows, and publications, Mike believes there is an untapped market of people who enjoy nature and water sports and who should see the river by canoe. Goal: Encourage more first-timers to try canoeing. --
Marketing objective: --
Recommended recordkeeping or information gathering: --
Suggested evaluation method: --
3. Travel by Sandy, Canton, Ohio. Current situation: Sandy runs a busy city travel agency. Her major source of business is leisure travel, but because she is located in an area with many small and medium-sized businesses, she has picked up some bookings from these sources as well. Sandy would like to retain all her leisure business while serving more business clients. Goal: Increase sales to corporations. --
Marketing objective: --
Recommended recordkeeping or information gathering: --
Suggested evaluation method: --
4. Pine Hill Golf Resort, Augusta, Georgia. Current situation: Pine Hill is in the heart of golf country, with outstanding playing conditions and accommodations. Once an estate, the main building has been converted to guest and meeting rooms and includes an excellent restaurant. Because the resort has always been popular with vacationers, the resort management recognizes the potential for increased revenue through sales of leisure activities to business clients. Goal: Generate more revenue from sales meetings and incentive trips. --
Marketing objective: --
Recommended recordkeeping or information gathering: --
Suggested evaluation method:
5. Overland Covered Wagon Excursions, Billings, Montana. Current situation: Overland Covered Wagon Excursions offer individuals and families a unique opportunity to relive the past and see the sights throughout the West. Summer business has increased steadily, and because only a limited number of carefully planned and executed trips are available, bookings have actually reached capacity. However, trips in the late spring and early fall--when routes are specially chosen for mild weather and outstanding scenery--are underbooked. Goal: Increase revenue for spring and fall. --
Marketing objective: --
Recommended recordkeeping or information gathering: --
Suggested evaluation method: --
The first War Between the States ended in 1865. The second has heated up in recent years as states battle for their share of the tourist dollar. As the stakes get higher, tourism consultants like Bill Siegel and Karen Peterson get busier.
"When budgets were small, tourism promotion people did their thing without a lot of planning," says Siegel, president of Longwoods International, a Toronto-based tourism consulting firm whose clients include state and national tourist boards. "But these days, as the dollars get higher, the legislature gets nervous. 'Do we have a strategy? Is it working?'"
"The government feels like it has to have a scorecard," agrees Karen Peterson, president of Davidson Peterson, a tourism consulting firm headquartered in Maine. "What are our goals, and what resources are we using? Did we achieve our goals? Why or why not?"
Siegel points to the state of Colorado as an example. "They had done some research, but there was no consistency or overall plan. The program also didn't seem to have a strategy," Siegel recalls.
Analysis of Colorado's program, using a database Siegel's company had developed, revealed that the state was promoting the wrong product. Although it was tremendously successful in selling the Rocky Mountains, Colorado's wilderness image overshadowed its cultural and historic attractions and its many amenities. As a result, resorts sat half empty after ski season.
"First we recommended that they stop pushing mountains, mountains, and more mountains, and start promoting mountains and much more," Siegel says. Once a focus was established, the state could develop a coordinated campaign to achieve its goals, and Siegel could gauge the program's success against its objectives.
Although evaluating a program involves looking closely at research data, Siegel is quick to point out that "we're not in the number-gathering business. Our job is to be strategists, and to have enough background to know what it all means." To that end, he often will use qualitative research, such as a focus group or one-on-one interviews, to supplement numerical data gathered by field research.
"We base our key recommendations on the research, but beyond that we have to use our skills, judgment, past experience--that's what we get paid for, not research," says Siegel. The consultant's job is made challenging not only by the problems posed by clients, but by the fact that each consultant may be juggling from five to ten projects at a time, and each will require a different type of research solution. Once the questionnaires have been drafted and approved and the information-gathering mechanisms put into place, data must be coded, entered into a database, and analyzed. The consultants put numbers into a graphic format for clearer communication and make their recommendations. Then it's on to the next one. Once an initial strategic marketing study has been developed, it serves as a model for others to track performance over time. In addition, smaller, more focused studies are used.
"If you're doing it right, you're constantly evaluating as you go along," Peterson says.
So, it seems, the tourism consultant's job is never done.
FIGURE 6-2 Since money spent on marketing activities can be a major factor in the success or failure of a product, it is important to choose the most effective budgeting method. Budget-Setting Methods The Percentage The Arbitrary and of Sales Method Affordable Method Pros Cons Pros Cons Simple Doesn't consider Simple Doesn't marketing consider objectives marketing objectives Straight- Maintains the Straight Budget forward status quo; forward decreases company can't when sales reach full decline potential The Competitive The Objective Parity Method and Task Method Pros Cons Pros Cons Simple Doesn't consider Comprehensive Complicated marketing objectives Straight- Reactive Coordinated Time-consuming forward rather than anticipatory; Considers to some extent marketing allows competitors objectives to determine budget Sets objectives, then figures out tasks and costs
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|Title Annotation:||PART ONE Marketing the Travel Product|
|Publication:||Marketing and Selling the Travel Product, 2nd ed.|
|Date:||Jan 1, 2000|
|Previous Article:||Chapter 5 Creating marketing strategies.|
|Next Article:||Chapter 7 Understanding the traveler's needs.|