The Holiday Market - Assignment Example

?Introduction The holiday market has become turbulent because of the continuous changes in the business environment as well as the ever-changing consumer demands. Success in the sector can be achieved if the organization is able to match its capabilities with the demands of the market place. This requires developing a segmentation strategy which in turn depends on the situation analyses, on the products on offer that suit the customer requirements and the on strategy to attract the different segments. Segmentation is the process of dividing the total market into number of small segments or submarkets (Daneels, 1996). Segmentation comes naturally to human beings. Segmentation helps focus on the specific market and service its needs accordingly. The market has to be defined in terms of the end users of the products or services. Sales and marketing is not about getting any customer but to select a homogenous group of customers. This helps devise the right marketing mix strategy as market segmentation is a proactive process involving several analytical techniques (Goller, Hogg and Kalafatis, 2002). This paper evaluates the different bases that marketers use to select their target market. It also examines the segment that is likely to increase or decrease in the next decade. Based on this analysis, the paper recommends how holiday marketers can monitor and devise their marketing strategy. What bases for segmentation might be appropriate in the holiday business? The holiday market is highly competitive and fragmented and hence the segmentation is based on different factors. In fact segmentation in the holiday market could differ for different products. For instance segmentation in transportation could differ from segmentation strategy adopted by the hotels. Segmentation can be based on factors such as demographic, socio-economic, geographical, or psychographic. Demographics has been the most common basis for segmentation based on the view that consumer needs, wants, and usage rates often vary closely with demographic variables (Bowen, 1998). Moreover demographic variables are easier to measure than most other variables. Geodemographic segmentation is also undertaken in the holiday market based on the premise that people that live in a particular region would tend to have homogenous preferences. Geographic segmentation divides the market in terms of cities, countries, regions or locality. This may also include the size of the area, population and climatic conditions. Psychographic variable takes into account people’s lifestyles and attitudes. Socio-economic basis helps the marketers to target selected products to different segments thus made. In addition to the above bases for segmentation, because of changes in consumer demands, several other bases for segmentation have been found. These include behavioral and attitudinal segmentation. Behavioral segmentation is undertaken based on how the customers know or respond to the use of the product. The holiday sector is seasonal and hence based on the occasion, segmentation can be undertaken. Customer behavior also pertains to usage and loyalty and these are also used as bases for segmentation on this sector (Tutor2u, n.d.). Marketers can engage in attitudinal segmentation but Diaz-Martin et al., find that people with different attitudes may also end up buying the same brand or having the same preferences. The attitude determines the preference for the activity and some may choose hill trekking while others prefer scuba diving. All the above bases for segmentation as discussed above do not apply to all areas within the holiday market. In the air sector segmentation based on expected sales is redundant. Latent class segmentation is undertaken which is based on consumer perception of brand, price promotion, sales personnel and product line (Bond & Morris, 2003). Customer expectations are not homogenous and airlines also use customer expectation as an important segmentation variable. Expectations influence the perceived service quality which helps to gain competitive advantage and secure customer loyalty (Diaz-Martin, 2000). Segmentation in the holiday market is also based on destination and activity required (Tutor2u, n.d.). These ultimately pertain to customer expectation. Segmentation can be done based on several variables but flexibility is essential as customer preferences keep changing. Research suggests that activity based segmentation can enhance business as customer preferences, choices and lifestyles have changed. Accommodation-based segmentation is also undertaken where some marketers focus on customers that need only lodging while some focus on the segment that require full board along with lodging. Attitudinal segmentation appears to be the best option for the tour operators as they would decide on their activity based on their attitude. However, such activity tours should fall within the disposable income of the customers which implies that the tour operator should have packages of different budgets on offer within the same activity. The market for the tour operators is challenging given the numerous demands and considerations of the customers. However, to gain competitive advantage, focus is essential. - GOOD Which segments are likely to show the strongest growth in the next 5 years? With the declining birth rates and increase in the aging population, the market for holiday packages is expected to change. Demographic changes The population in the Irish state is now higher than at any time. The number of people living in Ireland has increased since the last count in 2006. Ireland tops the population growth league compared to its neighbors. Fertility rate is higher in Ireland than other states. The fertility rate – the number of babies born in a year per 1000 women of child-bearing age, stood at 2.1 in 2011 (The Irish Times, 2012). Ireland’s high birth rate compared to its peers gives it an edge as it does not have to depend on migrants. Psychographic variables Consumer expectations of a good holiday comprises of ‘good weather’ which appears to top the list (71%). The package holiday makers (83%) want access to beach or pool (Mintel Oxygen, 2012). Fifty-seven percent of the consumers expected a high standard of accommodation and luxury accommodation is expected by thirty-eight percent of the consumers. About 37% of the consumers have the attitude to “do as little as possible for a week or two”. These demonstrate the different mindsets, the different lifestyles, the differences that exist in people’s perception of a holiday. These hold great importance in segmentation as product packaging, marketing and distribution would need to be altered. Behavioral changes With the advancement of technology consumers are expected to use their mobile phones to search for information on destinations. Google anticipates that the number of mobile users researching travel will increase 51 percent (Duarte, 2012). Social media marketing is expected to pick up and hence the marketers need to use technology to engage and involve the travelers. The luxury and the budget tour operators would not be affected but the midmarket operators would be under pressure due to decreased household spending. The research and information above suggests that marketers would need to use different bases for segmentation. Segmentation based on demographics is essential because not all age groups have the same demands. The older generation has fewer responsibilities, more savings and more time at hand to pursue leisure activities. The younger workforce that has just started on their careers may have aspirations to explore and travel but their disposable income is limited. Their focus would be on the essentials while the older generation or the retirees can afford to indulge in luxury. Thus, the most important segment for the holiday marketers is the older generation. Societal change and change in demographics, change in lifestyle has increased the interest in package holidays but with a certain amount of flexibility. Within the same age group also the purchasing power, the lifestyle and the preferences may differ. Consumers have information within their reach as a result of the proliferation of the Internet and broadband services. Consumers have become conscious and better educated which has impacted their perception of a holiday. All-inclusive holidays are becoming attractive possibly because of the older consumers. They save on time in planning and making bookings apart from reduced hassles. They may also require special assistance and may prefer to travel in a group. Which segments are likely to shrink in the next 10 years? The holiday market comprises of both independent holidays and packaged holidays. The above bases for segmentation would suggest that independent holiday market is set to grow. Mintel Report (2012) suggests otherwise. The holiday market in general suffered during the recession but the independent market experienced the greatest hit falling by 8% between 2009 and 2010 (Mintel, 2012). The package holiday market is set to grow in the next 5 years. However, with emigration of the 20-plus segment moving out of the country in search of job, the holiday market would comprise of the older consumers. This is because UK consumers see holiday as a necessity rather than a luxury (Tutor2u, 2012). Since holiday is seen as a necessity, the consumers would take holidays but would try to minimize expenditure without compromising on the benefits. The older consumers would be the high potential group while the younger generation would be the shrinking segment. The younger generation may not altogether give up vacations but might concentrate on shorter breaks or weekend trips. This would comprise of the independent holidays while the older consumers would prefer to travel in groups for longer, planned, package vacations. The recession has affected all segments including school trips. Parents have become cautious in extending extra benefits to the children. School trips were very common up to the 1990s after which its decline started because of stringent regulation about the type and supervision of school holidays overseas (Tutor2u, 2012). School holidays tend to be more expensive than individual holidays because the students also have to pay for the teacher escorts. Moreover, school holidays would comprise of educational locations or trips to heritage sites and these may not be considered absolutely essential that needs to be undertaken during recession. School authorities are under pressure to ensure safety of students and this may not be feasible in limited budgets. Schools hence may be reluctant to organize trips for their students, under these circumstances. Customer expectations have grown but consumer confidence is still low and economic conditions have imposed constraints on holiday spending (Duarte, 2012). This includes the school trips and the independent holiday market. Other issues that arise and lower consumer confidence are the huge amount of unverifiable data available on the internet on holiday destinations. Consumers prefer flexibility of independent travel but the time, the hassles and costs push the consumers towards package holidays in all segments. In fact travelers are lost between the security, luxury and convenience of package holiday on one hand and the freedom, independence and authenticity of independent holiday on the other. The above research would indicate that marketers should focus on the older segment that seeks safety, security and group travel. They also comprise of the high budget segments and can undertake longer trips. The other segments such as the students and the younger working generation have less time and low budget for taking vacations. Independent holidays give rise to concerns as no authority would be willing to take responsibility. The traveler would have to run to different authorities (separately to the airline and to the hotel and even the ground handling agent) even for cancellations or amendment of booking. In the case of package holidays the onus falls on the tour operator. With a low budget, the customers would almost always opt for a package holiday. For weekend trips for which packages may not be available, independent customers may proceed with their own bookings but in the next ten years package holidays appear to be the trend. The tour operators also stand to gain as they can demand better rates from the hotels and the ground agents for volume business. They would hence prefer to sell packages. GOOD How might tour operators respond to the growth in the independent sector? The tour operators recognize the changes in demand and have been altering their products accordingly. The all-inclusive holiday market can be split into domestic and outbound tours, where the outbound sector is the larger of the two. However, due to continued economic uncertainty the outbound market is expected to become stagnant while the domestic market is expected to grow. Budgetary control, convenience and Air Travel Organisers Licence (ATOL)-protection are appealing facts to the customers (Key Note, 2012). Customer expectations have been rising amidst falling budgets (Duarte, 2012). Based on the customer demand the tour operators have further divided the all-inclusive holidays into sectors such as beach resorts, cruise and activity holidays. Cruise holidays have shown an overall increase in the last ten years even though it makes up for only 10% of the total all-inclusive holiday market in the UK (Key Note, 2012). Based on attitudinal segment, the tour operators offer products to cater to individual requirements. Just as shopping malls offer protected areas where parents can leave their children while they shop, the tour operators can also come up with something innovative. For instance, they could provide luggage assistance for mothers with infants. They could also offer baby-sitter arrangements while mothers are away sightseeing during the day. The tour operators recognize the need for singles to travel and hence have designed packages for singles as well. Thus, tour operators offer singles holidays, solo tours, weekends and short-breaks for single people in the UK (Solitaire Holidays UK, 2010). Both men and women prefer to travel single either because of lack of companion or perhaps even to get away on their own. Traveling single does not imply that they want independent travel. They would prefer a group of people not known to them; they want to get away from their own people. This segment is growing even as divorces and separation in marriages have increased. Thus, singles market represents a very good segment for the tour operators to focus on. Moreover, this segment is not constrained by budget and hence the operators can offer comfortable holidays with added safety and security. The above research indicates that to capture a wider audience, to improve their market share amidst the economic downturn, the tour operators could offer flexible payment systems. For instance, the entire payment could be split in equated monthly payments based on the total payments and the disposable income of the customer. Tying up with banks would help to capture larger market share. To maintain flexibility with package holidays, tour operators can offer flights at concessional rates and provide wider options to the customers to choose from different category of hotels. Transportation and ground handling can be left to the discretion of the customers. Food should almost never be included unless it is a conference group or a corporate seminar. GOOD How might a holiday marketer monitor people who apparently shift from one segment to another? Trends keep changing because trends depend upon external as well as internal factors. While the external factors may be temporary, the internal factors include changes an individual experiences within him. These changes pertain to age and with age also lifestyle changes and as this happens their needs differ, health conditions change and consequently their choice of holiday too would change. This implies that the same individual may move to another segment. He/ she might have preferred individual travel a few years ago but when he has to go on a vacation with family, he would prefer all arrangements made in advance, which means he becomes interested in package holidays. Preference for locations too can change. A young couple travelling alone may have liked a destination that involved a lot of trekking but when children come in, they want locations where cars could drive right up, where facilities for children would be available. Again, the same family may take one luxurious holiday per year and one or two shorter vacations within the same year. This gives rise to a new segmentation strategy for the same individuals. When individuals are saddled with responsibilities they may opt for budget vacations but once they retire and children leave home, with fewer responsibilities, they are able to undertake relaxed, luxurious holidays. Monitoring the changing segment is essential as product packaging and marketing would have to be developed to suit the changing needs of individuals. For instance, marketing of beach resort would differ across different segments. For those who might have visited the destination on honeymoon, the same destination could be marketed as a family destination by introducing child care concepts. This would also alter the distribution channels. While brochures may have worked earlier, with growing children, marketers may have to establish online presence to reach out to this segment. As honeymooners they might have preferred trekking but with family they would want transportation included. In youth people may prefer locations with minimum facilities but as they age and as they go on vacations with family they may prefer proper infrastructure facilities. Thus the tour operators would have to engage in market analysis and then do target marketing. Within the same segment several sub-segments could exist based on behavior, attitude and lifestyle. A product-orientation approach would hence not suffice and the tour operator has to take a customer-centric approach. The tour operators would have to continuously monitor the target segment as they could keep shifting based on their age and needs. Conclusion On review of the above discussion and research it can be concluded that holiday marketers would have to segment their customers based on demographics even if it is considered an outdated method of segmentation. The older customers’ is a high potential segment which prefers package holidays as they seek convenience, comfort, security and safety. The younger generation segment offers low potential in the next ten years. However, this segment too would travel but they prefer independent short breaks or weekend vacations. The internet has virtually eliminated the role of the agents or the operators but this leaves the free independent traveler feeling insecure and lost. Independent travelers are confused with the vast amount of information available on the internet. While customers can design their own packages to suit their budget, time and convenience, in case of cancellations and amendments, they would have to reach out to different authorities for coordination and changes. Even if they travel the issue of safety lurks, while the costs can be prohibitive. Thus, tour operators can also use this as an opportunity to organize short breaks with greater flexibility for the younger segment. The holidays should be so designed as to offer flexibility with convenience and safety. Research from different sources such as Mintel suggests that package holidays are set to be the trend. This paper also concludes after analysis of different aspects, that both in the segment of the older consumers as well as the younger segment, the tour operator should focus on package holiday with slight variation for the younger group. References Bond, J., and Morris, L., (2003), A class of its own: latent class segmentation and its implications for qualitative segmentation research. Qualitative Market Research, vol. 6. no. 2, pp. 87-94 Bowen, J.T., (1998), Market segmentation in hospitality research: no longer a sequential process. International Journal of Contemporary Hospitality Management, vol. 10, no. 7, pp. 289 - 296 Danneels, E., (1996), Market segmentation: normative model versus business reality. European Journal of Marketing, vol. 30, no. 6, pp. 36-51 Diaz-Martin, A. M., (2000), The use of quality expectations to segment a service market. 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