Let's first talk about relatively fixed capacity. This means that over periods of time, the amount of the business capacity remains the same, or can vary only slightly. As you can see in this graph. Let's take hotels as an example, a hotel's capacity defined as the total number of guest rooms it has. Can this number change over a matter of nights, weeks, months, as the demand for the hotel changes? The answer is no. If a hotel has 100 rooms it has 100 rooms to sell every night regardless of the level of demand until goes through a major construction to add or eliminate some rooms. What about the airline industry? It's capacity is defined at the number of planes times the number of seats in the planes. Airlines capacity is slightly more than hotels since it can adjust the capacity of a certain travel route by assigning a plane of different sizes. But once a plane is assigned to a root, the capacity of that travel ride is pretty much affixed by the number of seats in that assigned airplane. Restaurants can be a little bit more flexible than these two industries because they can relatively easy add or remove tables or seats within the restaurant. And sometimes they can even use space outside the restaurant under the approval of the city during certain time periods. Next, hospitality businesses tend to have time-variable demand. It means that the amount of demand tends to vary widely depending on time periods. As you can see the line fluctuates a lot over time. Demand for hotels, for example, tend to vary by day of the week. For resort hotels, demand will be very high on weekends, while, for business hotels, demand will be high during weekdays. For airlines and for restaurants, demand tends to vary, not only by day of week, but also by time of day or even week of the month. The inventory for most hospitality businesses is time perishable. This means that as time passes by the opportunity to sell an inventory unit and make revenue disappears forever as the time passes by. I hope you remember that we talked about this characteristic in the previous module on general service industry. Then, how does inventory perish over time, in each hospitality business for hotels the opportunity to sell an empty room on a given night is lowest forever is a night nearest the dawn. For airlines, the opportunity to generate revenue from an empty seat in a flight disappears forever as a plane takes off. For restaurants the opportunity to sell an empty seat during a meal period is lost forever as the meal period ends. The cost structure is also very unique for hospitality businesses. They have high fixed cost and low variable cost. This cost is the cost incurred regardless of the production or sales quantity. Examples include costs for buildings, machinery, and management salary. In the meantime, variable cost is the cost incurred due to the production or a sale of an additional unit, and is proportional to the quantity of production or a sale. Examples include the cost of materials and labor. Then, what is the fixed cost of a hotel like? The highest cost for a hotel is the hotel's building itself. This building cost is incurred regardless of the number of rooms sold on a given night. In the meantime, what is the fixed cost of an airline like? The highest cost for an airline is the plane itself. An airplane can cost millions of dollars. But in the meantime, what about the variable cost? How much does it cost for an airline to fly just one more passenger? Fuel charge? Meals, if they offer? And can you think of anything else? What this means is that it cost very little just to fly one more passenger and therefore the airline's variable cost is very low. Next, most hospitality businesses sell through advance reservation. There are both upsides and downsides with this practice. The upsides are the fact that they can better predict the demand. And therefore act what we're actually about balancing the supply and demand. And can even depreciate their service offering to different customers. The downsides of that are they can suffer from uncertainty due to cancellations, no shows, late show, and sometimes even in the changes of the length of stay. The last characteristic might not be all that unique to hospitality businesses. But it is essential to the successful marketing of the hospitality businesses. It is segmentable market. This means that customers are not all the same, and therefore they can be segmented into different groups. The difference in customers that really matter are several. First their perceived value and there for the price they are willing to pay for an essentially same product is different. And their preferred time of consumption or use is also different. For example business travelers would prefer traveling or using the hotels during weekdays. While leisure travelers will probably travel and stay in hotels on weekends. Flexibility with the time of consumption or use can also differ. Seniors or students might be flexible, and therefore might be a great segment t target to move from high demand periods to low demand periods. But with the business travellers it's likely to be quite difficult to move them because they are not that flexible. Their ability to plan in advance might also differ, price sensitive leisure travelers tend to plan their trips well in advance in time, while relatively priced insensitive business travelers cannot most of the time. Level of uncertainty of the use also varies, leisure travelers tend to execute their travel plans no matter what, while business travelers can suffer from a lot of unexpected events and sometimes might have to change or cancel the travel dates. Now let's review. We discussed six common characteristics among hospitality businesses. They are relatively fixed capacity, time-variable demand, perishable time-based inventory, high fixed cost and low variable cost, sale through advance reservations and segmentable market. I hope you clearly understood each characteristic and are ready to learn about the unique marketing approaches in consideration of these characteristics in the hospitality industry.
