Tourism market segmentation analysis

With the rapid developments in Tourism industry, different entrepreneurs have started to maximize the opportunities in many of us as tourists to one place or the other. Trying to define the term tourism could actually be difficult. Tourism Industry Association of New Zealand (2006) defines Tourism as: “Tourism is a set of activities which involves people traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business or other purposes.”

The strategic development of Marketing activities has proved that Tourism is a dynamic and competitive industry that requires the ability to constantly adapt to customers’ changing needs and desires, as the customer’s satisfaction, safety and enjoyment should be the focus of tourism businesses (Mishra and Panda, 2001).

Mishra and Panda divides tourism industry into five main different sectors: Accommodation, Food and Beverage Services, Recreation and Entertainment, Transportation and Travel Services. The Canadian Tourism human resource council equally divides tourism industry into eight different sectors or areas: Accommodation, Adventure Tourism and Recreation, Attractions, Events and Conferences, Food and Beverage, Tourism Services, Transportation and Travel Trades.

These classifications capture the diversity of these sectors and thus show that the potentials in the tourism industry are unlimited. They also went further to explain that Tourism is the second largest growing business area after information technology in the global economy (Mishra and Panda, 2001). Other researches have also shown that many of the economies are successful in marketing their country and destinations and generating a substantial amount of foreign exchange from the tourism Sector. Even countries with poor level of infrastructure and facilities are said to be able to attract investors to invest money in their country for tourism promotion and services (Mishra and Panda, 2001).

Borrowing from the example of Dolnicar (2004):

“If many towns and villages in Malaysia offer similar product attributes such as beautiful beaches, comfortable climate and a relaxed lifestyle. And if all these destinations are using the same segmentation study on which they base their marketing strategies, she said they will tend to compete head-to-head with each other, targeting similar segments, rather than developing unique approaches to segmenting their travel markets”.

Dolnicar also said that individualized approaches to market segmentation will provide destinations or regions with the opportunity to describe emerging niche markets in which a destination may develop a strategic competitive advantage (2004).

Even with the limitations of market segmentation techniques, it was said that it is very important for the personnel of Destination Marketing Organizations that are involved in the planning, management and marketing of tourism destinations that they should work hard to gain adequate understanding of the origin of their visitors, their travel patterns and travel motivations. That based on such understandings, destination marketing organizations can aim to alter marketing mix variables to influence decision making of their consumers (Don Fuller et al, 2005). However, if this can be achieved, creative and original approaches to segmenting travel markets will allow destinations to develop product solutions not yet exploited by competitors (Dolnicar, 2004).

Mishra and Panda explained that Tourism promotion like other forms of marketing largely depends on the customer traffic. In their analysis, they explained that if there is a growing customer traffic trend then more and more money shall flow to an economy in the form of gross revenue earnings and also as foreign direct investments for tourism destination marketing.

In the case of developing countries therefore, the orientation to tourism as a development concept is usually closely tied to the issues like how to strengthen the positions in the international exchange, find fast solutions to the balance of payments problems, unemployment, faster development of underdeveloped areas, etc. This global trend in the Tourism industry has also made Governments to see Tourism as another instrument for transforming and improving the desired development and economic growth of a country. Arguably therefore, given that Tourism is a labor-intensive growth industry, confirms its importance in providing jobs partly for the highly skilled, but more for the less skilled Malaysia’s labor market. In the less developed regions of a country like Malaysia, the provision of jobs by Tourism can be very significant in solving the rural-urban migration and unemployment problems.

Market Segmentation is said to be one of the most important concepts in the Marketing literatures. The primary reasons for studying consumer behavior is to identify bases for effective segmentation, and Market Segmentation like every other strategic approach derives its source from the methods of identifying target markets i.e. Total Market Approach or Undifferentiated Market Approach; and Market Segmentation.

Market Segmentation may be viewed as the process of dividing a large market into smaller subsets of potential consumers that are similar in characteristics, behavior, wants or needs with the ultimate aim of satisfying consumer wants with company objectives (Profit/Market Share). Based on the extant literature, it could also be defined as the process of dividing a total heterogeneous market into sub-homogenous market for the purpose of satisfying consumers want and company objectives (Haley, 1968).

Accordingly, this study defines Tourism Market Segmentation as the use of modern tourism strategic information in dividing both potential and actual tourism customers into groups that have similar characteristics and requirements. It is this division that will avail tourism companies the opportunity to choose their target market and develop specific marketing mix in relation to each subset’s characteristic, giving opportunities to meet customers’ need and creating long term positive relation.

As explained by Kotler and Armstrong (2004), requirements to an effective segmentation depend on arriving at segments which are measurable, accessible, substantial, actionable and differentiable. They referred to a measurable segment as a segment where the segment’s size and the potential customers’ ability to purchase can be quantified. They argued further that for a segment to be accessible, it must be within the reach of the marketing entity and be served efficiently. Also the segment should be substantially large and profitable enough to warrant the marketing entity to design marketing mix strategies that are differentiated from strategies that target other segments. Kotler et al also emphasis that the segment must be actionable so that the marketing entity can efficiently design effective marketing strategies to attract and serve the segment and equally differentiate it, in order to respond differently to different marketing stimuli (Kotler et al, 2001)

Market segmentation is said to grow out of the fact that a company cannot be all things to all customers. It is seen as a useful technique for structuring marketing opportunities, given that each segment through market segmentation is thought of as possessing some sort of homogeneous characteristics relating to its purchasing or consumption behavior, which is said to be ultimately reflected in its responsiveness to marketing programs. It was only Henry Ford that have been quoted to have said that buyers of his automobiles could have any color they desired as long as it was black, but still majority of marketers in the modern day marketing agreed that such an undifferentiated marketing strategy is no longer efficient. The alternative to this phenomenon is that if an organization specialized in selling to one or very few buyers. The relevance of market segmentation could also be traced to mass customization in some modern giant manufacturers such as BMW, Toyota and the rest. These companies tailored their products and services to the tastes and preferences of their individual customers in high volumes and at a relatively low price. (Roger and Robert, 2001).

Viewing it from a strategic marketing point, selecting an appropriate target market is very paramount to developing a successive marketing program. Kotler and Armstrong (2004) in their principles of marketing tenth edition defined market segmentation as a process of dividing a market into smaller groups of buyers with distinct needs, characteristics, or behavior who might require separate products or marketing mixes. They equally identified six major tasks in market segmentation, targeting, and positioning. The steps are identifying bases for segmenting the market and developing segment profiles (market segmentation), develop measure of segment attractiveness and select target segments (target marketing) and developing positioning for target segments and develop a marketing mix for each segment (market positioning).

In Marketing, markets could be referred to as potential buyers of a particular product, and these buyers are different to each others in one way or the other. They could be different in needs, wants or demands, incomes, buying behaviors, geographical locations etc. A bigger percentage of these individual consumer characteristics could be linked to limited resources meant to address the problem of human unlimited wants/desires. This very constraint brought about the issue of alternative uses in the discipline of Economics, such as scale of preferences, opportunity cost, choice etc. The constraint is a double sided effect that affects both the producers and consumers of goods and services.

From the producer’s side, they are exposed to numerous market opportunities to explore with limited resources at their disposal. In order for them to be efficient given these limited resources, they strategically approach the market through market segmentation. With market segmentation, companies will be able to divide a large heterogeneous market into sub homogenous smaller segments that they can reach more efficiently and effectively with products and services that match their needs (Kotler and Armstrong, 2004).

One of the early tasks of market segmentation is analyzing consumer and product relationships. It involves the analysis of the affect and cognition, behavior and environments that are involved in the purchase and consumption process of a particular product. Managers are advised to strategically approach this task in three forms; brainstorming the product concept and considering the likely consumers and how they differ from those that are likely not to purchase the product. Second establish a focus group and other types of primary research that can be used in identifying consumer differences in attributes, benefits and values. Lastly, managers may use secondary data in analyzing potential target markets, determining their relative sizes and developing a better understanding of their needs (Paul and Jerry, 2008).

Among the two major benefits that market segmentation offers as regard to the development of marketing strategies include; needs, wants and behaviors of individual groups of buyers can be specifically determined through some of the following questions i.e. who are our buyers? What do they want to buy? Why do they want it? How do they want to buy it? When do they want to buy it and where would they prefer to buy it? These entire questions could be linked to the basic economic problem of production. And the availability of appropriate answers to the above question will give opportunity to efficient allocation of resources to the marketing mix activities that are designed to satisfy the needs, wants and behaviors of the potential buyers in targeted segments. Although these advantages in an effective market segmentation process are not without their costs, because there are research costs associated with each process of identifying an appropriate segments (Roger and Robert, 2001).

Kotler and Armstrong outlines the major variables that could be used to segment consumer markets as; demographic, geographic, psychographic, and behavioral variables. According to them, demographic segmentation involves dividing the market into groups based on demographic variables such as age, gender, family size, family lifecycle, income, occupation, education, nationality, religion, race and generation. While geographic segmentation involves dividing a market into different geographical units such as nations, states, regions, counties, cities, or neighborhoods. Psychographic segmentation involves dividing a market into different groups based on social class, lifestyle, or personality characteristics, and lastly, behavioral segmentation involves dividing a market into groups based on consumer knowledge, attitude, use, or response to a product (Kotler and Armstrong, 2004).

Since market segmentation will reveal the individual companies’ market segment opportunities, it is very important for companies to evaluate the various segments and decide how many and which one to target. The Market targeting of the segmentation process involves evaluating each market segment’s attractiveness and selecting the best one to serve. Kotler and Armstrong identified three factors that companies must looked at in evaluating their potential market segments: segment size and growth, segment structural attractiveness, and company objectives and resources. In analyzing these factors, Kotler and Armstrong explained that the companies need to collect and analyze data on current segment sales, growth rates and the expected profitability of the different segments. They went ahead to give practical examples that confirm that companies are always interested in the segments that have the right size and growth characteristics, argued that right size and growth is a relative matter in segmentation process. This is because the largest and fastest growing segments are not always the most attractive ones for every company. Some smaller companies may lack the required skills and resources that are needed to serve the larger market segments. While some other smaller firms which viewed these segments as being too competitive, may select segments that are smaller and less attractive but are more potentially profitable for them (Kotler and Armstrong, 2004).

Also very important among the factors identified by Kotler and Armstrong are the structural factors that might affect the long-run segment attractiveness. They explained that some segments are less attractive because they already contained many strong and aggressive competitors. They practically show that the existence of many actual or potential substitute products can limit the price and the profits that could be made from such a segment. They equally analyzed the effects of the power of the buyers on segment attractiveness, where buyers with strong bargaining power relative to sellers will force the price down by demanding for more services that will set competitors against each others. Similarly a segment could be less attractive if it contains powerful suppliers that could control the price or reduce the quality or quantity of the goods and services to be supplied into a specific segment.

Lastly, Kotler and Armstrong emphasized on the need for companies to take into consideration their objectives and resources in relation to the segments to be selected. They cite practical examples where an attractive segment does not fit into a company’s long-run objectives. They encouraged entrepreneurs to consider whether they possess the skills and resources they need to succeed in such segments. They conclude that companies should enter only the segments in which it could offer superior value and gain advantages over competitors (Kotler and Armstrong, 2004). To achieve the required advantage over the competitors, there is need for a company to determine the industry critical success factors that could determine its success or failure.

The term Critical Success Factor was conceptualized by D. Ronald Daniel working with a company called McKinsey and company through his publication titled “Management Information Crisis” in Harvard Business Review, Sept-Oct 1961. The entire process in Critical Success Factors was later restructured by Jack Rochart in his article titled “A primer on Critical Success Factors” published in the Dow Jones 1986.

Lin et al (2004) quotes “Rockart (1979) as saying that:

“The Critical Success Factor in any enterprise lies within a certain limited domain, and if these are met, it will be possible to guarantee the success of competition and greater operating achievements by those companies (Lin et al, 2004).”

It is as a result of the aforementioned analysis that the researcher wishes to adopt the Critical Success Factor approach in exploring the relationship between Critical Success Factors as the independent variable and Successful Tourism Market Segmentation as the dependent variable.

1.2 STATEMENT OF THE PROBLEM

The existence of Waste Strategy Phenomenon was explained by Theodoros Metaxas giving examples of some Economic geographers such as Cheshire and Gordon, 1998; Cheshire and Magrini, 1999; and Rodriguez-Pose and Arbix, 2001:

“talk about the ‘waste strategies’, phenomenon, that is the strategies for the attraction of potential target markets, which developed and performed without any kind of evaluation and consequently they do not generate any profit on local as well as on regional level”.

Contingent upon the foregoing, an apparent lacuna in the extant literature is that most studies have yet to identify the Critical Success Factors that could determine the success or failure of the Tourism Market Segmentation. And this absence of known Critical Success Factors in the Tourism Market Segmentation may be linked to why Tourism managers have been developing wrong strategies for the attraction of potential target markets, thereby making it difficult to establish a correlation between each Factors and Success Measurement Construct (Rating, Profit and Market Share) (Lin et al, 2004).

The concept of market segmentation is said to be widely accepted both in practice and theory, but it was reported that there were limited method for scrutinizing the techniques that are used in segmenting data sets and interpretation of the solutions (Don Fuller et al, 2005). Very significant in the findings of Don Fuller et al (2005) was that:

“While much has been written on the links between segmentation and marketing strategies there has been limited attention paid to the practicalities of integrating findings into operational marketing tactics, particularly relating to tourism destination decision making”.

Corroborating this line of thought, Young et al (1979 cited in Don Fuller et al, 2005) stated that:

“Indeed Young et al (1979), suggest that a common reason segmentation studies fail in the implementation stage is that marketing research is too preoccupied with the methods and techniques of segmentation, and fail to consider the competitive structure of the market and general marketing environment.”

Another important but difficult area in market segmentation projects is translating the research findings into an effective marketing strategy. This is as a result of the subjective nature of market segmentation studies, and managers are advised to interpret and efficiently implement the information acquired (Don Fuller et al, 2005).

Individual consumers are different in their perception of vacations, bringing the issue of varieties and/or heterogeneity of wants in the tourism market place. The heterogeneity of the Tourism market is a great challenge to the individual Destination Marketing Organizations’ skills, because it is only the very few one among the DMO that is able to understand what the market wants and be able to attract the market and thus get the opportunity of what they have been able to see. And those DMO who were unable to see or explore the market opportunity will stand the risk of loss of customers to competitors (Dolnicar, S. 2005).

The issue of product preference in tourism market research is a very sensitive matter which needs to be carefully handled by the tourism firms for the primary purpose of their survival. Literatures have also confirmed that the presence of Waste Strategy Phenomenon will lead to loss of Tourism products’ Rating, Profit and Market share, an implication which will affect both the Destination Marketing Organizations and the Destination Economy at large (Dolnicar, 2005).

1.3 RESEARCH QUESTIONS

The following questions are built to empirically contribute to this research work from analyzing the practices of Destination marketing organizations in order to find out important factors that could determine success or failures of tourism market segmentation.

Research question 1:

What are the critical success factors in Tourism Market Segmentation?

The above question will be answered by the potential critical success factors variables that have been generated from the literature reviews. Given the nature of tourism products and the need for adequate understanding of customers needs by the destination marketing organizations, the researcher has identified a list of 43 potential critical success factors that could determine the success of any tourism market segmentation project. As the research progress, there could be an addition or subtraction to any of these 43 potential critical success factors.

Research question 2:

How do the Destination Marketing Organizations segment their markets, and which factors explain their success or failure of Tourism Market Segmentation?

Question two is structured to capture the information that is expected to be generated from the researchers proposed triangulated exploratory investigation. Under this approach, the researcher is planning to integrate both the qualitative and quantitative techniques which will be primarily based on an in-depth interview with managers and professionals from different Tourism sectors in Malaysia. This will equally be supported by evidences from other literatures as observed by the researcher.

Research question 3:

What are the performances of Destination Marketing Organizations in Tourism Market Segmentation projects?

To do this, the researcher will focus on the employees of the five Tourism sectors in Malaysia that are engaged in Tourism Market Segmentation projects so as to be able to explore the critical success factors in Tourism Market Segmentation. Information obtained from these employees will be collaborated with those given by the managers and the professionals in the pivot interview, in order to determine their success factors and factors that have led to failures.

1.4 RESEARCH OBJECTIVES

This study is designed to establish the interdependence of successful tourism market segmentation and its critical success factors. The research theoretical framework is based on the Critical Success Approach as a means to explore and establish the relationship between critical success factors as the independent variable and successful tourism market segmentation as the dependent variable. To simplify this, the researcher as designed the following 3 simple question as a guide on the aim of this exploratory research:

Research objective 1:

To determine the critical success factors for a successful Tourism Market Segmentation.

The researcher has designed this research to acquire a comprehensive understanding of the critical success factors that could determine the success of a tourism market segmentation project. Given that the relevant literatures that could support tourism market segmentation are still at the exploratory stage, the researcher has compiled the present 43 potential critical success factors for tourism market segmentation from a list of the most relevant literatures on tourism marketing. To make up for the short-comings in this approach, the researcher will be making use of tourism professionals and managers for assistance through an in-depth interviews that will later serve as a guide in the researcher’s questionnaire design.

To develop a model that would aid in the implementation of a successful Tourism Market Segmentation project

Research objective 2:

To develop a model that would aid in the implementation of a successful Tourism Market Segmentation project.

From any discrepancy between what the literatures has said and what the professionals says is happening in the field, the researcher will develop necessary models that would be useful in academics and also help the marketing practitioners by contributing to an effective understanding and implementation of tourism market segmentation projects.

Research objective 3:

To determine the performances of DMOs and measure the progress of implementation of tourism market segmentation projects by comparing the success and failures of Tourism Market Segmentation projects in the selected firms of the five tourism sectors of Malaysia, an opportunity to suggest ways of preventing waste strategy phenomenon.

This objective is designed by the researcher to check and compare the individual operations of the five sectors of the tourism industry. The researcher’s aim on this is to investigate the respondent’s understanding of tourism market segmentation; DMO’s objective for implementing tourism market segmentation, how effective is the outcome of such policy implementation, and what are the degrees of its acceptance in the industry.

To achieve this, the researcher is planning to structure his questionnaire design to cover general questions and information that will establish a correlation between each Factors and Success Measurement Construct (Rating, Profit and Market Share).

1.5 SCOPE OF THE STUDY

The focus of this research is limited to the tourism industry, where selected firms of the five tourism sectors (Accommodation, Food and Beverage Services, Recreation and Entertainment, Transportation and Travel Services) will be investigated with a set of sampling technique to explore the implementations and outcomes of market segmentation projects within these sectors of the tourism industry as a strategic part of tourism marketing.

The theoretical background of the research is base on strategic marketing management, while tourism will be study from the perspective of Destination Marketing Organizations. The researcher is planning to structure this research study as a triangulated exploratory investigation that will integrate both qualitative and quantitative techniques, which will be primarily based on an in-depth interview with managers and professionals from Tourism firms in Malaysia.

To explore the critical success factors in Tourism Market Segmentation, the researcher wish to focus on the employees of the Tourism firms that are engaged in Tourism Market Segmentation projects.

1.6 SIGNIFICANCE OF THE RESEARCH

Tourism marketing has been chosen as the subject of this study because a growth in tourism will create jobs and wealth that is vital for rapid social economic development of every country in the world (Dolnicar, 2005). As revealed by Lin et al that there are six critical factors that determine the success of Internet Market Segmentation and later suggest the need for further studies in search for other critical factors both in larger scale samples and other industries. And yet Critical Success Factor of Tourism Market Segmentation has not been studied (Lin et al, 2004).

The benefits of tourism marketing segmentation have been seen to include an ability to gain a fuller understanding of the particular market and gaining an improved technique that will assist in the prediction of consumer behaviors through proper targeting of new market for commercial benefits (Don Fuller et al, 2005).

Many businesses nowadays are working towards incorporating sustainability growth into the core of their products (Dolnicar, 2005). And very often, tourism products are the result of a well thought sustainability concept, and yet the managers behind tourism marketing fail to reach the marketplace, because they lack marketing expertise and knowledge of the tourism market segmentation’s Critical Success Factors (Lin et al, 2004).

This research will help to identify the Critical Success Factors that determines the success of Tourism Market Segmentation and develop appropriate concepts and models that will assist in reducing/eliminating the waste strategy phenomenon. It will equally help in Market targeting, market segmentation and product/services positioning that will help to reduce low consumer product knowledge, and consumer risk perception in the tourism industry (Friedmann and Kim (1988).

1.7 STRUCTURE OF THIS STUDY

Chapter one introduces the research topic “tourism market segmentation” and argues on the reasons for using critical success factor approach, also included in it were statement of the research problem, the research questions, the research objectives, scope and limitations of the study and significance of the research.

Chapter two will define the core concepts of tourism market segmentation and offer the theoretical background of tourism marketing through a series of literature reviews on tourism market segmentation, tourism marketing and success factors. The theoretical background upon which the researcher plans to develop a theoretical framework in form of summary will equally be contained in chapter two.

Chapter three will introduce the research methodology to be employed in this research, by providing a detailed qualitative and quantitative approach to be applied on each case study; and also contain the procedures for the selection of each case, data collection and discussion of data quality that will assist to determine the validity of the research.

Chapter four will consist of the descriptions and analyzes of the practices of the Tourism market segmentation in each of the selected tourism firms. The outcomes of the findings on the selected tourism firms will be presented for discussion in chapter five. While chapter six will analyze, discuss and make conclusions regarding the research questions and points to the theoretical contribution along with the managerial implications contained in the research. Also to be included in chapter six are the alternative recommendations as a direction for future research.