COMMENTARY | COLUMNISTS | ROBERT RAUCH

Tourism industry business planning 2007

Last month I wrote about the business plan development process. This month, I would like to expand a bit and talk more conceptually about what it takes to successfully develop a business and marketing plan today.

Management guru Peter Drucker once said, "talk to a customer every day and ask what they think and want." This sounds simple; however, sometimes we complicate matters by looking for revenue management, technology solutions and ways to improve financial performance before we remember what business we are in. Hospitality is first and foremost "customer service." Notwithstanding the fact that many CEOs in our industry are financial gurus, we must remember the foundation of this industry.

Drucker also said, "strive for perfection though it will always elude you." If we would first concentrate on taking care of the customer, lots of revenue concerns would disappear. As an example, it is far more costly to find a new customer than to get a repeat customer ... after all, the repeat customer merely needs to leave feeling that he/she received value. Further, the lifetime value of a customer might be 10 times the value of a "one-off." And the cost to find a new customer is far greater than the cost of the time taken to please an existing customer. Sounds simple, but it is often not practiced.

While each of these individual functions (talking to a customer and striving for perfection) will be paramount to tourism industry marketing success, determining the potential market creates the foundation for our annual business plan.

The size of a market hinges on the number of buyers who might exist to stay at hotels, dine in restaurants or visit attractions in a given market. Potential buyers have three characteristics: interest, income and access. The total market potential is the maximum amount of revenue in the given hospitality market. A common way to estimate it is: X = nrp, where n equals the number of buyers, r equals the number of room nights or restaurant seats, and p equals the price per room night or restaurant meal.

The most difficult component here is the number of buyers. Some experts might indicate the market is the total number of people on planet Earth. We are optimists too, but we can probably quantify this market by qualifying legitimate prospects.

Naturally, the market potential is higher during periods of economic strength or expansion. In other words, market demand is income elastic. To forecast demand, we must combine the future growth in the market with the actual revenue taking place in the market. Naturally, any new supply must be evaluated as well. The best way to forecast demand is to identify the competition and determine if the market is expanding, contracting or flat.

After doing a thorough analysis of the statistics in front of us, our action plans can be developed to expand our markets by improving the level of repeat business while at the same time finding new customers or guests.

One area of importance is avoiding "defections." Those are guests/customers who leave and never come back. Not only do they tell large numbers of other potential customers about their negative experience, they require the operator to find a new customer. Every ounce of effort must be made to retain those current customers.

One strategy I have utilized asks what it takes to keep current customers happy as well as what it takes to earn the business of others who are currently in your market but going to the competition. This allows one to look at both retaining and expanding the market without advertising for new customers who are not currently in the market.

In San Diego, the market has been very strong relative to other destinations. This has been due to a combination of both supply constraint and modest demand growth. Soon, more hotel supply will be entering the market. This is the time to energize our marketing engines to help stimulate much greater demand growth. A combination of 5,000 new hotel rooms and flat demand will bring sinking occupancy levels and flat average rates.

Moreover, restaurants and attractions will suffer from a lack of growth in demand as costs continue to rise and lackluster demand causes flat growth in prices. As an industry, we must fund the marketing engines prior to an economic downturn or pay the price in significantly reduced profits.

Lastly, since it is September, do not procrastinate on the completion of your business plan. Before we all know it, it will be Jan. 1, 2007. Good luck!


Rauch is general partner of Homewood Suites by Hilton San Diego and serves as chairman of the San Diego County Hotel-Motel Association and vice chairman of the San Diego North Convention & Visitors Bureau. He can be reached at robert.rauch@sddt.com. Comments may be published as Letters to the Editor.

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