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Tourism Policy & Planning Process

Tourism Policy & Planning Process

INTRODUCTION

Tourism is one of many activities in a community or region that requires planning and coordination. This assignment provides a simple structure and basic guidelines for comprehensive tourism planning at a community or regional level. Planning is the process of identifying objectives and defining and evaluating methods of achieving them. By comprehensive planning we mean planning which considers all of the tourism resources, organizations, markets, and programs within a region. Comprehensive planning also considers economic, environmental, social, and institutional aspects of tourism development.

TWO SIDES OF TOURISM PLANNING

Tourism planning has evolved from two related but distinct sets of planning philosophies and methods. On the one hand, tourism is one of many activities in an area that must be considered as part of physical, environmental, social, and economic planning. Therefore, it is common to find tourism addressed, at least partially, in a regional land use, transportation, recreation, economic development, or comprehensive plan. The degree to which tourism is addressed in such plans depends upon the relative importance of tourism to the community or region and how sensitive the planning authority is to tourism activities.

Tourism may also be viewed as a business in which a community or region chooses to engage. Individual tourism businesses conduct a variety of planning activities including feasibility, marketing, product development, promotion, forecasting, and strategic planning. If tourism is a significant component of an area's economy or development plans, regional or community-wide marketing plans are needed to coordinate the development and marketing activities of different tourism interests in the community.

A comprehensive approach integrates a strategic marketing plan with more traditional public planning activities. This ensures a balance between serving the needs and wants of the tourists versus the needs and wants of local residents. A formal tourism plan provides a vehicle for the various interests within a community to coordinate their activities and work toward common goals. It also is a means of coordinating tourism with other community activities.

STEPS IN THE PLANNING PROCESS

Like any planning, tourism planning is goal-oriented, striving to achieve certain objectives by matching available resources and programs with the needs and wants of people. Comprehensive planning requires a systematic approach, usually involving a series of steps. The process is best viewed as an iterative and on-going one, with each step subject to modification and refinement at any stage of the planning process.

There are six steps in the planning process:

1. Define goals and objectives.

2. Identify the tourism system.

a) Resources

b) Organizations

c) Markets

3. Generate alternatives.

4. Evaluate alternatives.

5. Select and implement.

6. Monitor and evaluate.

STEP ONE

 Defining Goals and objectives. Obtaining clear statements of goals and objectives is difficult, but important. Ideally, tourism development goals should flow from more general community goals and objectives. It is important to understand how a tourism plan serves these broader purposes. Is the community seeking a broader tax base, increased employment opportunities? expanded recreation facilities, better educational programs, a higher quality of life? How can tourism contribute to these objectives?
If tourism is identified as a means of serving broader community goals, it makes sense to develop plans with more specific tourism development objectives. These are generally defined through a continuing process in which various groups and organizations in a community work together toward common goals. A local planning authority, chamber of commerce, visitor’s bureau, or similar group should assume a leadership role to develop an initial plan and obtain broad involvement of tourism interests in the community. Public support for the planning process and plan is also important.

Having a good understanding of tourism and the tourism system in our community is the first step toward defining goals and objectives for tourism development. The types of goals that are appropriate and the precision with which you are able to define them will depend upon how long your community has been involved in tourism and tourism planning.
In the early stages of tourism development, goals may involve establishing organizational structures and collecting information to better identify the tourism system in the community. Later, more precise objectives can be formulated and more specific development and marketing strategies evaluated.

STEP TWO:

Identifying Your Tourism System When planning for any type of activity, it is important to first define its scope and characteristics. Be clear about exactly what our plan encompasses. A good initial question is, "What do we mean by tourism?" Tourism is defined in many ways. Generally, tourism involves people traveling outside of their community for pleasure. Definitions differ on the specifics of how far people must travel, whether or not they must stay overnight, for how long, and what exactly is included under traveling for "pleasure". Do we want our tourism plan to include day visitors, conventioneers, business travelers, people visiting friends and relatives, people passing through, or seasonal residents? Which community resources and organizations serve tourists or could serve tourists? Generally, tourists share community resources with local residents and businesses. Many organizations serve both tourists and locals. This complicates tourism planning and argues for a clear idea of what our tourism plan entails.

We can begin to clarify the tourism system by breaking it down into three subsystems:

(1) tourism resources,
(2) tourism organizations, and
(3) tourism markets.
An initial task in developing a tourism plan is to identify, inventory, and classify the objects within each of these subsystems.

TOURISM RESOURCES

Tourism resouses are any (1) natural, (2) cultural, (3) human, or (4) capital resources that either are used or can be used to attract or serve tourists. A tourism resource inventory identifies and classifies the resources available that provide opportunities for tourism development. Conduct an objective and realistic assessment of the quality and quantity of resources we have to work with. Table I provides a suggested classification to help obtain a broad and organized picture of our tourism resources.

TOURISM ORGANIZATIONS

Torism organization combine resources in various proportions to provide products and services for the tourist. Table 2 is a partial list and classification of organizations that manage or coordinate tourism-related activities. It is important to recognize the diverse array of public and private organizations involved with tourism. The most difficult part of tourism planning is to get these groups to work toward common goals. We should develop a list of these organizations within our own community and obtain their input and cooperation in our tourism planning efforts. Setting up appropriate communication systems and institutional arrangements is a key part of community tourism planning.

TABLE 1. TOURISM RESOURCES

Natural Resources

Climate-seasons
Water resources-lakes, streams, waterfalls
Flora-forests, flowers, shrubs, wild edibles
Fauna-fish & wildlife
Geological resources-topography, soils, sand dunes,
beaches, caves, rocks & minerals, fossils
Scenery-combinations of all of the above

Cultural Resources
Historic buildings, sites
Monuments, shrines
Cuisine
Ethnic cultures
Industry, government, religion, etc.
Anthropological resources
Local celebrities

Human Resources
Hospitality skills
Management skills
Seasonal labor force
Performing artists-music, drama, art, storytellers, etc.
Craftsman and artisans
Other labor skills from chefs to lawyers to researchers

Capital
Availability of capital, financing
Infrastructure-transportation roads, airports, railroads, harbors & marinas, trails & walkwaysinfrastructure: utilities water, power, waste treatment, communications .

TABLE 2. TOURISM MANAGEMENT ORGANIZATIONS AND SERVICES

Off-Site: Coordination, planning, technical assistance, research, regulation:
* National & state departments of commerce, transportation, & natural resources
* National, state, regional, & local tourism associations
* Educational organizations & consultants, Travel & Tourism Research Association; Travel Data Center; Travel Reference Center, University's tourism faculties, Travel, Tourism, & Recreation

Resource Center

Travel information & reservation services
On-Site: development, promotion and management, of tourism resources:
* government agencies, departments of commerce, transportation, & land management agencies
* State agencies, departments of commerce, transportation, & land/facility management agencies.
* Local government organizations, visitor information, chamber of commerce, convention
& visitor's bureaus, parks

* Businesses:

-Accommodations: Hotels, motels, Lodges, resorts, bed & breakfast cabins & cottages, Condominiums, second homes, Campgrounds.

-Food & Beverage: Restaurants, Grocery, Bars, nightclubs, Fast food, Catering services
-Transportation: Air, rail, bus; Local transportation: taxi, limo, Auto, bicycle, boat rental; Local tour services.

-Information: Travel agencies, Information and reservation services, Automobile clubs

-Recreation Facilities & Services: Winter sports: ski, skating, snowmobile areas; Golf courses, miniature golf; Swimming pools, water slides, beaches; tennis, handball, racquetball courts, bowling alleys; Athletic clubs, health spas; Marinas, boat rentals and charters; hunting & fishing guides; Horseback enterprises; Sporting goods sales & rentals

-Entertainment: Nightclubs, amusement parks, spectator sport facilities; Gambling facilities: casinos, horse racing, bingo; video arcades; art galleries and studios, craft shops, studios, demonstrations; performing arts: theater, dance, music, film; historic & prehistoric sites; museums: art, history, science, technology; arboreta, zoos, nature centers,

-Special festivals and events

-Support services: Auto repair, gasoline service stations; boat & recreation vehicle dealers and service; retail shops: sporting goods, specialties, souvenirs, clothing; health services: hospitals, clinics, pharmacies; laundry and dry cleaning; beauty & barber shops; babysitting services; pet care; communications: newspaper, telephone; banking and financial services.

TOURISM MARKETS:

Tourists makeup the third, and perhaps most important subsystem. Successful tourism programs require a strong market orientation. The needs and wants of the tourists we choose to attract and serve must be the focus of much of our marketing and development activity. Therefore, it is important to clearly understand which tourism market segments we wish to attract and serve. Tourists fall into a very diverse set of categories with quite distinct needs and wants. We should identify the different types of tourists, or market segments that we presently serve or would like to serve. This may involve one or more tourism market surveys.

A visitor survey identifies the size and nature of the
existing market and asks the following questions:
* what are the primary market segments we presently attract?
* Where do they come from?
* What local businesses and facilities do they use?
* What attracted them to the community?
* How did they find out about our community?
* How satisfied are they with our offerings?

A market survey (usually a telephone survey) also can be conducted among households in regions from which we wish to attract tourists. This type of study helps identify potential markets, and means of attracting tourists to our area. Tourism market segments in a general tourism plan, some clear target tourism market segments should be identified (See Table 3). we might begin by defining the market area from which we will draw most of our visitors. The size of our market area depends upon the uniqueness and quality of our product", transportation systems, tastes and preferences of surrounding populations, and our competition. Identifying the market area will help target information and promotion and define transportation routes and modes, competition, and characteristics of your market. Next, divide our travel market into the following trip length categories:

* day trips from a 50 mile radius,
* day trips from 50 to 200 miles away,
* pass-through travelers,
* overnight trips of 1 or 2 nights (most likely
weekends), and
* extended overnight vacation trips.

After we have an idea of our market area and kinds of trips we will be serving, begin defining more specific market segments like vehicle campers, downhill skiers, sightseers, family vacationers, single weekenders, and the like. These segments can be more clearly tied to particular resources, businesses, and facilities in our community.

What kinds of products and services are likely to attract each of these groups? Tourist needs as well as their impact on the local community are quite different for day tourists versus overnight tourists. Areas catering primarily to weekend traffic will experience large fluctuations in use. In deciding the relative importance of these different segments, communities need to assess both their ability to provide required services (do you have enough rooms?), as well as the demand for different types of trips relative to the supply and our competition.

THE ENVIRONMENT:

A tourism plan is significantly affected by many factors in the broader environment. Indeed, one of the complexities of tourism planning is the number of variables that are outside of the control of an individual tourism business or community. These include such things as tourism offerings and prices at competing destinations, government and state policy and legislation, currency exchange rates, the state of the economy, and weather.

Local populations also must be considered in tourism planning. As they compete with tourists for resources, they can be significantly affected by tourism activity, and they are an important source of support in getting tourism plans implemented. A survey of local residents can be conducted to assess community attitudes toward tourism development, identify impacts of tourism on the community, and obtain local input into tourism plans. Public hearings, workshops, and advisory boards are other ways to obtain public involvement in tourism planning. Local support and cooperation is important to the success of tourism programs and should not be overlooked.

TABLE 3. TOURISM MARKET SEGMENTS
I. Geographic market areas

II. Trip categories

Day Trips:
* short-within 50 miles
* long up to 200 miles

Pass through traffic:
* day visitors
* overnight stays

Overnight Trips:
* weekend
* vacation

III. Activity or trip purpose

Outdoor Recreation:
* Water-based Activity:
-Boating: sail, power, cruise, row, canoe, water ski
-Swimming: pool, beach, sunbathing, scuba
-Fishing: charter, sport, from pier, boat, shore, ice

* Land-based Activity:
-Camping: backpacking, primitive, developed
-Hiking: climbing, beachcombing, spelunking
-Hunting
-Skiing: downhill, cross country
-Snowmobile
-Bicycling
-Horseback riding
-Picnicking

* Air-based Activity:
-Airplane rides, hang gliding, ballooning, parachuting

* General:
-Nature study
-Photography or landscape painting
-Viewing natural scenery

Sightseeing & Entertainment:
* Visiting particular sites or areas:
-historic or pre-historic
-cultural
-amusements
-scenic

* Attending particular events, shows, or demonstrations:
-ethnic festivals
-sporting events
-performances
-agricultural fair or festival
-boat show
-shopping

Other Primary Purpose for Trip:
* Visiting Friends & Relatives
* Convention & Business/Pleasure


STEP THREE:

 Generating Alternatives.

Generating alternative development and marketing options to meet our goals requires some creative thinking and brainstorming. The errors made at this stage are usually thinking too narrowly or screening out alternatives prematurely. It is wise to solicit a wide range of options from a diverse group of people. If tourism expertise is lacking in our community, seek help and advice outside the community.

Tourism planning involves a wide range of interrelated development and marketing decisions. The following development questions will get you started:

* How much importance should be assigned to tourism within a community or region?

* Which general community goals is tourism developments designed to serve?

* Which organization(s) will provide the leadership and coordination necessary for community tourism planning?
What are the relative roles of public and private sectors?

Tourism marketing decision questions include-

* Segments: Which market segments should be pursued; geographic markets, trip types, activity or demographic subgroups?

* Product: What kinds of tourism products and services should be provided? Who should provide what?

* Place: Where should tourism facilities be located?

* Promotion: who should use what kinds of promotion, in which media, how much, when? What community tourism theme or image should be established?
* Price: What prices should be charged for which products and services. Who should capture the revenue?


STEP FOUR:

 Evaluating Alternatives.

Tourism development and marketing options are evaluated by assessing the degree to which each option will be able to meet the stated goals and objectives. There are usually two parts to a systematic evaluation of tourism development and marketing alternatives: (1) Feasibility analysis, and (2) Impact assessment. These two tasks are interrelated, but think of them as trying to answer two basic questions: (1) Can it be done?, and (2) What are the consequences? A decision to take a specific action must be based both on feasibility and desirability.

FEASIBILITY ANALYSIS: First, screen alternatives and eliminate those that are not feasible due to economic, environmental, political, legal, or other factors. Evaluate the remaining set of alternatives in more detail, paying particular attention to the market potential and financial plan.

Make a realistic assessment of our community's ability to attract and serve a market segment or segments. This requires a clear understanding of the tourism market in our area and how this market is changing. Also carefully identify our competition and evaluate your advantages and disadvantages compared to the competition.

Plan toward the future because it takes time to implement decisions and for our actions to take effect. Therefore, look at the likely market and competition for several years to come. Review forecasts for the travel market in our area, if available. Careful tracking of tourism trends in our own community can help identify changes in the market that we will have to adapt to.

IMPACT ASSESSMENT:

When evaluating alternative development and marketing strategies it is important to understand the impacts, both positive and negative, of proposed actions. Table 4 presents a classification of economic, environmental, and social impacts associated with tourism development. The types of impacts and their importance vary across different communities and proposed actions. Generally, the size, extent, and nature of tourism impacts depend upon:

* Volume of tourist activity relative to local activity
* length and nature of tourist contacts with the community
* degree of concentration/dispersal of tourist activity in the area
* similarities or differences between local populations and tourists
* stability/sensitivity of local economy, environment, and social structure
* how well tourism is planned, controlled, and managed.

Look at both the benefits and costs of any proposed actions while tourism development can increase income, revenues, and employment, it also involves costs. Evaluate benefits and costs of tourism development from the perspectives of local government, businesses, and residents.

TABLE 4. IMPACTS OF TOURISM
Economic Impacts:
* Sales, revenue, and income
* Employment
* Fiscal impact-taxes, infrastructure costs
* Prices
* Economic base & structure

Environmental Impacts:
* Lands
* Waters
* Air
* Infrastructure
* Flora & fauna

Social Impacts:
* Population structure & distribution
* Values & attitudes
* Education
* Occupations
* Safety & security
* Congestion & crowding
* Community spirit & cohesion
* Quality of life

Impacts on Local Government Local government provides most of the infrastructure and many of the services essential to tourism development,including highways, public parks, law enforcement, water and sewer, garbage collection and disposal. Evaluate tourism decisions with a clear understanding of the capacity of the local infrastructure and services relative to anticipated needs, and take into account both the needs of local populations and tourists.

A fiscal impact analysis evaluates the impact of tourism on the community's tax base and local government costs. It entails predicting the additional infrastructure and service requirements of tourism development, estimating their costs, deciding who will pay for/provide them, and how. Will tourism generate increased local government revenue through fees and charges, local sales or use taxes, increased property values or property tax rates, or larger local shares of federal and state tax revenues?

Impacts on Business and Industry

Businesses that are directly serving tourists benefit from sales to tourists. Through secondary impacts, tourism activity also benefits a wide range of businesses in a community. For example, a local textile industry may sell to a linen supply firm that serves hotels and motels catering primarily to tourists. A local forest products industry sells to a lumberyard where local woodcarvers or furniture makers buy their supplies. They in turn sell to tourists through various retail outlets. All of these businesses benefit from tourism.

If most products and services for tourists are bought outside of the local area, much of the tourist spending "leaks" out of the local economy. The more a community is "self-sufficient" in serving tourists, the larger the local impact.

Impacts on Residents

Local residents may experience a broad range of both positive and negative impacts from tourism development. Tourism development may provide increased employment and income for the community. Although tourism jobs are primarily in the service sectors and are often seasonal, part time, and low-paying, these characteristics, are neither universal nor always undesirable. Residents may value opportunities for part time and seasonal work. In particular, employment opportunities and work experiences for students or retirees may be desired.

Residents may also benefit from local services that otherwise would not be available. Tourism development may mean a wider variety of retailers and restaurants, or a better community library. It may also mean more traffic, higher prices, and increases in property values and local taxes. The general quality of the environment and life in the community may go up or down due to tourism development. This depends on the nature of tourism development, the preferences and desires of local residents, and how well tourism is planned and managed.

STEPS FIVE AND SIX:

Implementation, and Monitoring and Evaluation. We will not attempt a complete discussion of decision making, plan implementation, and monitoring, but these are critical steps in the success of a tourism plan. A set of specific actions should be prescribed with clearly defined responsibilities and timetables. Monitor progress in implementing the plan and evaluate the success of the plan in meeting its goals and objectives on a regular basis. Plans generally need to be adjusted over time due to changing goals, changing market conditions, and unanticipated impacts. It is a good idea to build monitoring and evaluation systems into our planning efforCONCLUDING REMARKS
Successful tourism planning and development means serving both tourists and local residents. The bulletins in this assignment stress the importance of a market orientation for attracting and serving tourists. This market orientation must be balanced with a clear view of how tourism serves the broader community interest and an understanding of the positive and negative impacts of tourism evelopment.

Remember, tourism should serve the community first and the tourist second. Tourism development must be compatible with other activities in the area and be supported by the local population. Therefore, the tourism plan should be closely coordinated with other local and regional l planning efforts, if not an integral part of them.



TOURISM MARKETING

The marketing mix-the 4 Ps-target audience-segmentation-objectives-evaluation. These and other terms are all used in the process of marketing." In tourism and tourism related industries, success means understanding this process.

This bulletin is designed for those in the tourism industry who may not be completely familiar with marketing or who may simply wish to refresh their basic marketing skills. Covered will be important concepts used
in marketing, the relationship of marketing to tourism, and a process for developing a marketing plan for tourism/recreation businesses and/or communities. It will be impossible to cover in detail all the aspects of
marketing within the scope of this bulletin. There are, however, other bulletins in this series that will provide more in-depth information on the different components of a marketing plan.

WHAT IS MARKETING
People hold a variety of misconceptions about marketing. Most common is its confusion with selling and advertising. Selling and advertising are actually types of promotion which is only a component of marketing.
Marketing involves much more, including product/service development, place (location and distribution), and pricing. It requires information about people, especially those interested in what you have to offer (your
"market"), such as what they like, where they buy and how much they spend. Its role is to match the right product or service with the right market or audience. Marketing, as you will see, is an art and a science. According to the American Marketing Association, marketing is "the
process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives." Simply stated it is creating
and promoting a product (ideas, goods or services) that satisfies a customer's need or desire and is available at a desirable price and place.

Modern marketing is a way of doing business, heavily based on the "marketing concept" which holds that businesses and organizations should:
(1) design their products/services to meet customer needs
and wants;
(2) focus on those people most likely to buy their product rather than the entire mass market; and
(3) develop marketing efforts that fit into their overall business objectives.

By adopting this concept you not only provide your customers with better products, you will avoid wasting valuable time and money developing and promoting a product or service nobody wants.

RECREATION AND TOURISM MARKETING
Earlier it was mentioned that a product can be "ideas, goods, or services." Since tourism is primarily a service based industry, the principal products provided by recreation/tourism (R/T) businesses are recreational
experiences and hospitality. These are intangible products and more difficult to market than tangible products such as automobiles. The intangible nature of services makes quality control difficult but crucial. It
also makes it more difficult for potential customers to evaluate and compare service offerings. In addition, instead of moving the product to the customer, the customer must travel to the product (area/community).
Travel is a significant portion of the time and money spent in association with recreational and tourism experiences and is a major factor in people's decisions on whether or not to visit your business or community.

As an industry, tourism has many components comprising the overall "travel experience." Along with transportation, it includes such things as
accommodations, food and beverage services, shops, entertainment, aesthetics and special events. It is rare for one business to provide the variety of activities or facilities tourists need or desire. This adds to the
difficulty of maintaining and controlling the quality of the experience. To overcome this hurdle, tourism related businesses, agencies, and organizations need to work together to package and promote tourism opportunities in their areas and align their efforts to assure consistency
in product quality.

THE MARKETING PLAN
One of the most important steps a business or community can take to improve the effectiveness and efficiency of their marketing efforts is to develop a written marketing plan. This plan will guide their marketing decisions and assist them in allocating marketing resources such as
money and personnel time. The plan should include:
(1) the overall business objectives--what you want to
accomplish;
(2) an assessment of the market environment--what factors may affect your marketing efforts;

(3) a business/community profile--what resources are available,

(4) market identification (segmentation)--the specific groups or clientele most interested in your product;

(5) the marketing objectives for each segment;

(6) the marketing strategies (or mixes) for different markets you target--the best combination of the 4 Ps (product, price, place, promotion) for each segment;

(7) an implementation plan--how to "make it work;"

(8) the marketing budget-how much you have to spend; and

(9) a method for evaluation and change.

Figure 1 shows a framework which can be used to develop a marketing plan. Each component will be briefly discussed in the remainder of the bulletin. For more information regarding different components of the plan be sure to consult other bulletins in this series.


OVERALL BUSINESS OBJECTIVES
Businesses, agencies, and communities should develop overall objectives and regularly monitor their progress. The objectives should provide guidance for all decisions including finances, personnel and marketing. They should be quantitative and measurable statements of what the
business or community wants to accomplish over a specified period of time. Business objectives are often stated in terms of sales, profits, market shares and/or occupancy rates. Communities frequently establish
objectives relating to such things as increasing the number of tourists, developing or changing their image, facility and activity development, cooperation among tourism related businesses and increasing length of stay and local expenditures.

It is important that the objectives be reasonable given the market conditions and the firm's or organization's resources. Establish a few reasonable objectives instead of a long, unrealistic "wish list." This is especially true for new businesses or communities which do not have
much experience in tourism development and/or marketing.

MARKET ENVIRONMENT ANALYSIS
The next step in developing a marketing plan is to assess the impact of environmental factors (such as economic, social and political) on present and future markets. Changes in these factors can create marketing
opportunities as well as problems.

Demographic and Lifestyle Trends Changing demographics and lifestyles are having a major impact on R/T participation. An assessment of these
trends is important to understand how they will likely affect your business or community.

Some of the important trends that bear watching:

(1) population growth and movement;
(2) rural community growth compared to metropolitan areas;
(3) number of adult women employed outside the home;
(4) the number of households is growing, especially non family and single parent households, but family size is decreasing;
(5) the impact of two wage earner households on real family income;

(6) the number of retired persons with the financial ability to travel;

(7) better health to an older age; and

(8) continued aging of the population (we are becoming a middle aged society).

Economic Conditions
Overall economic conditions can have significant impacts on recreation and tourism markets. A marketing strategy that is effective during periods of low unemployment rates may have to be significantly adjusted if
unemployment increases. Businesses and communities should monitor and assess the likely impact of factors such as unemployment rates, real family income, rate of inflation, credit availability, terms and interest rates.
Consideration should also be given to the prices of complementary products, such as lodging, gasoline and recreation equipment.

Laws and Government Actions
As a complex industry, tourism is significantly affected both positively and negatively by laws and by actions of governmental agencies. For instance, rulings on such things as liability issues or decisions regarding building and health codes may change or possibly prevent the construction of a proposed facility. If a public facility changes the prices of its services, this
could affect the service offerings of associated private businesses. These actions may have both positive and negative effects on the marketing efforts of the business and community. To avoid wasting valuable resources it is important that R/T businesses, agencies, and communities
continually monitor and evaluate governmental actions.

Technology
Technological developments are increasing rapidly. New recreation products, such as all-terrain vehicles and wind surfers, provide new ways for people to satisfy their recreational preferences. New production
technologies and materials offer recreation and tourism businesses ways to reduce costs and improve the quality of their products/services. Advances in telecommunications have and will continue to create new promotional opportunities. Technological innovations, in relation to jobs and the home, have resulted in increased leisure time for many people.

Competition
Businesses and communities must identify and analyze existing and potential competitors. The objective of the analysis is to determine the strengths and weaknesses of the competition's marketing strategies. The analysis should include the competition's:

(1) product/service features and quality;

(2) location relative to different geographic markets;

(3) promotional themes and messages;

(4) prices; and

(5) type of customer they are attracting.

BUSINESS AND COMMUNITY PROFILES
Too many communities attempt to market themselves as tourist destinations without accurate information about their resources (facilities, services, staff), image (projected vs. actual), and how well their customers are satisfied. Without this information, it is difficult to make other decisions in the planning process. Included should be such things as recreational and entertainment facilities, cultural and historic sites,
overnight accommodations, restaurants, shopping opportunities, special events and activities, staff size, and transportation. Each item of the "inventory" should also be assessed in terms of quality and availability.

MARKET SEGMENTATION (IDENTIFICATION)
Recreation and tourism businesses and communities often make the mistake of attempting to be all things to all people. It is difficult, and risky, to develop marketing strategies for the mass market. Strategies designed for the "average" customer often result in unappealing products, prices, and promotional messages. For example, it would be difficult to develop a campground that would be equally attractive to recreational vehicle campers and backpackers or promote a property to serve both
snowmobilers and nature oriented cross country skiers.

Marketing is strongly based on market segmentation and target marketing. Market segmentation is the process of:

(1) taking existing and/or potential customers/visitors (market) and categorizing them into groups with similar preferences referred to as "market segments;"

(2) selecting the most promising segments as "target markets;" and

(3) designing "marketing mixes," or strategies (combination of the 4 Ps), which satisfy the special needs, desires and behavior of the target markets.

There is no unique or best way to segment markets, but ways in which customers can be grouped are:

(1) location of residence---instate, out-of-state, local;

(2) demographics---age, income, family status, education;

(3) equipment ownership/use---RV's, sailboats, canoes, tents, snowmobiles;

(4) important product attributes---price, quality, quantity; and

(5) lifestyle attributes---activities, interests, opinions.

To be useful, the segment identification process should result in segments that suggest marketing efforts that will be effective in attracting them and at least one segment large enough to justify specialized marketing
efforts.

After segments have been identified, the business or community must select the "target markets," those segments which offer them the greatest opportunity. When determining target markets, consideration should be given
to:

(1) existing and future sales potential of each segment;

(2) the amount and strength of competition for each segment;

(3) the ability to offer a marketing mix which will be successful in attracting each segment;

(4) the cost of servicing each segment; and

(5) each segment's contribution to accomplishing overall business/community objectives.

It is often wiser to target smaller segments that are presently not being served, or served inadequately, than to go after larger segments for which there is a great deal of competition.

MARKETING OBJECTIVES FOR EACH SEGMENT
Marketing objectives which contribute to the accomplishment of the overall business objectives should be established for each target market. Objectives serve a number of functions including:

(1) guidance for developing marketing mixes for different target markets;

(2) information for allocating the marketing budget between target markets;

(3) a basis for objectively evaluating the effectiveness of the marketing mixes (setting standards); and

(4) a framework for integrating the different marketing mixes into the overall marketing plan.

The target market objectives should:

(1) be expressed in quantitative terms;

(2) be measurable;

(3) specify the target market; and

(4) indicate the time period in which the objective is to be accomplished.

For example, increase the number of overnight stays by people from the Chicago market over the next two years by five percent.

Remember, rank objectives by priority and carefully evaluate them to ensure that they are reasonable given the strength of the competition and resources available for marketing.

MARKETING STRATEGY (MIX)
The marketing strategy, or mix, should be viewed as a package of offerings designed to attract and serve the customer or visitor. Recreation and tourism businesses and communities should develop both external and internal marketing mixes for different target markets.

External Mix
The external marketing mix includes product/service, price, place/location, and promotion.

Product
Earlier we said the principal products that recreation and tourism businesses provide are recreational experiences and hospitality. The factors that create a quality recreational experience often differ among
people. A quality experience for one skier might include an uncrowded, steep slope. To another it might be a good restaurant and a chance to socialize. Decisions on what facilities, programs and services to provide should be based on the needs and desires of the target market(s). They should not be based on the preferences of the owner/manager or necessarily on what the competition is providing.

Recognize that a recreational/tourism experience includes five elements: trip planning and anticipation; travel to the site/area; the experience at the site; travel back home; and recollection. Businesses should look for ways
to enhance the quality of the overall experience during all phases of the trip. This could be accomplished by providing trip planning packages which include maps, attractions en route and on site, and information
regarding lodging, food and quality souvenirs and mementos.

Recreation and tourism businesses should also view their service/product in generic terms. Thinking of products/services in this manner helps focus more attention on the experiences desired by customers and also the facilities, programs and services that will produce those experiences. For example, campgrounds are the business of providing recreational "lodging" not just campsites to park an RV or set up a tent. Marinas should provide recreational "boating" experiences, not just slippage.

Location and Accessibility---Place
Too many tourism businesses and communities fail to recognize their role in improving travel to and from their areas. They focus instead on servicing the customer once they arrive at the site/community. A bad experience getting to or leaving an R/T site can adversely affect a person's travel experience. Ways to help prevent this include:

(1)providing directions and maps;

(2) providing estimates of travel time and distances from different market areas;

(3) recommending direct and scenic travel routes;
(4) identifying attractions and support facilities along
different travel routes; and

(5) informing potential customers of alternative travel
methods to the area such as airlines and railroads.

Potential businesses should also carefully assess
alternative locations for:

(1) distance and accessibility to target markets;

(2) location of competitors with respect to target
markets;

(3) modes of travel serving the area; and

(4) other attractions and activities that might induce
travel to the area.

Pricing
Price is one of the most important and visible elements
of the marketing mix. When setting prices it is important
to take into consideration all of the following:

(1) business and target market objectives;

(2) the full cost of producing, delivering and promoting
the product;

(3) the willingness of the target market to pay for the
product or service you provide;

(4) prices charged by competitors offering a similar
product/service to the same target market(s);

(5) the availability and prices of substitute
products/services (for example, campgrounds, motels, and
bed and breakfast are all substitutes for lodging);

(6) the economic climate (local and national); and

(7) the possibility of stimulating high profit
products/services (such as boats) by offering related
services (such as maintenance) at or below cost.

When establishing prices, R/T businesses should give
attention to pricing strategies which may encourage off
season and non-peak period sales, longer stays, group
business, and the sale of package plans (combination of
room, meals, and recreational facilities). For additional
information on pricing, see Extension bulletin E-1999.

Promotion
Promotion provides target audiences with accurate and
timely information to help them decide whether to visit
your community or business. The information should be of
importance and practical use to the potential or existing
visitor and also accurate. Misrepresentation often leads
to dissatisfied customers and poor recommendations. Don't
make claims you cannot live up to.

Developing a promotional campaign is not a science with
hard and fast rules. Making decisions regarding which
type or combination of promotion types to use (personal
selling, advertising, sales promotions, or publicity) is
not always easy. If, however, you follow a logical
process and do the necessary research, chances for
success will be improved. It will be necessary to make
decisions regarding:

(1) Target audience---the group you are aiming at;

(2) Image---that which your community or business wants
to create or reinforce;

(3) Objectives---those of the promotional campaign;

(4) Budget---the amount of money available for your
promotion;

(5) Timing---when and how often should your promotions
appear;

(6) Media---which methods (television, radio, newspaper,
magazine) will most effectively and efficiently
communicate your message to the target audience; and

(7) Evaluation---how can the effectiveness of the
promotional campaign be determined.

More detailed information on tourism promotion is
contained in Extension bulletins E-1939, E-1957, and
E-2005.

Internal Mix
As stated, marketing services such as recreation and
tourism differ from marketing tangible products.
Recreation and tourism businesses must direct as much
attention at marketing to customers on site as they do to
attracting them. In this respect, internal marketing is
important because dissatisfied customers can effectively
cancel out an otherwise effective marketing strategy.

The success of internal marketing is dependent on
creating an atmosphere in which employees desire to give
good service and sell the business/community to visitors.
To create such an atmosphere requires the following four
important elements:

(1) Hospitality and Guest Relations---An organization
wide emphasis on hospitality and guest relations,
including a customer oriented attitude on the part of the
owners and managers as well as the employees. If the
owner/manager is not customer sensitive, it is unlikely
the lower paid employees will be.

(2) Quality Control---A program which focuses on
improving both the technical quality (the standards
associated with what the customer receives) and the
functional quality (the standards associated with how the
customer receives the service). All employees who come
into contact with customers should receive hospitality
training.

(3) Personal Selling---Training the staff in the selling
aspects of the property (business) or community. This
also includes rewarding them for their efforts. By being
informed about the marketing objectives, and their role
in accomplishing those objectives, they can help increase
sales.

(4) Employee Morale---Programs and incentives aimed at
maintaining employee morale. The incentives can be both
monetary and non-monetary.

A customer oriented atmosphere usually results in
customers that are more satisfied, do less complaining
and are more pleasant to serve. This helps build employee
morale, their desire to provide good service and their
efficiency.

MARKETING BUDGET
Successful marketing requires that sufficient money and
personnel time be made available to implement activities
comprising the marketing strategy. A marketing budget is
a financial plan which shows the total amount to be spent
on marketing during different times of the year and how
it is to be allocated among alternative activities.
Separate marketing budgets should be developed for each
marketing mix strategy. The separate budgets should then
be aggregated to develop an overall marketing budget. If
the total amount is too great it will be necessary to
modify the overall objectives and the target market
objectives, narrow down or drop target markets, or adjust
marketing mixes. The final budget should be realistic
given your objectives. When deciding on a marketing
budget, consideration should be given to the job that
needs to be done as defined by the objectives. Basing
marketing budgets on some percent of sales or what the
competition spends usually leads to over spending or
under spending. Decisions should also be based on the
costs, projected revenues, and desired profitability of
different activities, not just costs alone. Successful
marketing activities will generate additional revenues
which can be projected based on the marketing objectives
(such as increase off season stay by 5%).

Although budgets should be viewed as flexible plans,
every effort should be made to adhere to them. Revisions
in the budget should only be made after careful
consideration of the likely impact of the change on the
marketing mix and accomplishment of your objectives.

IMPLEMENTATION
Many well designed marketing plans fail because they are
poorly executed. Businesses, agencies, and communities
can increase the likelihood of successful implementation
if they:

(1) identify specific tasks which must be accomplished;

(2) assign people or departments specific responsibility
for different tasks;

(3) provide employees with information on the marketing
plan (rationale, objectives, strategies);

(4) develop time lines and deadlines;

(5) adhere as much as possible to the budget; and

(6) regularly monitor and evaluate progress.

EVALUATION
It is important that marketing efforts be continually
evaluated. This will improve the effectiveness of
marketing strategies by quickly identifying differences
between actual results and expected performance and
determining likely reasons for the success or failure to
realize objectives.

A framework for evaluation would include:

(1) determining which elements of the different marketing
mixes are most important to evaluate.----It is rarely
possible or cost effective to evaluate all elements;

(2) establishing performance standards to compare against
actual results.---Marketing objectives, if properly
formulated, should serve as performance standards;

(3) development of formal and informal methods for
collecting data on actual results.---There are many ways
different elements of the marketing mix can be evaluated.
For example, promotions can be evaluated with money off
coupons. Special information request forms, telephone
numbers to call or post office box numbers to write to
can identify the area the request is coming from. Also,
formal (written) and informal (face-to-face) surveys can
be used to determine the promotional material the
customer used in planning the trip;

(4) comparison of results with objectives;

(5) determination of needed change(s).

CONCLUSION
Customer satisfaction in tourism is greatly influenced by
the way in which the service (hospitality) is delivered
and the physical appearance and personality of the
business. It is critical that these elements be
communicated in the best possible manner to convince
people to come and experience what your business or
community has to offer. Equally important is the
ability to generate repeat business because of your
efforts. Thus, marketing becomes the method to reach
potential visitors. It is a vital part of tourism
management and can be done effectively and well, with
sophistication and tact, or it can be done poorly in a
loud, crass and intrusive manner. Hopefully, this
bulletin has given you the basics for the former rather
than the latter. Remember that to do an effective job at
marketing:

(1) adopt a strong customer orientation which includes
regular research and assessment of their needs, wants and
attitudes;

(2) allocate sufficient resources and time to marketing;

(3) assign formal responsibility for marketing to one
person or department; and

(4) develop and regularly update a marketing plan.

managerial accounting slide(horngren)

http://www.mediafire.com/download/uij2b12q2ewqkvf/managerial_accounting.rar

a case study -avon product lnc.

Avon Case Analysis
Organizational Mission
Avon wants to provide everyone with high quality and innovative health and beauty products as well as financial
opportunities through sales representatives that are easily obtainable, in many ways, in every part of the world.
Avon hopes by bringing these products to everyone everywhere through global markets the company can
improve the quality of life for anyone around the world.
Corporate Objectives
Corporate objectives bring structure to a company's operations so it will sustain growth, achieve its mission/vision and set
the outcome and target for the company to achieve. Corporate objectives include financial and strategic objectives.
Financial Objectives:
Growth in Sales:
In 2001 the success of the Goodbye to Breast Cancer lipstick campaign, inventory clearance programs, and the increase of active
representatives acquired through the successful implementation of the Sales Leadership program resulted in revenues growing 5%
from $5,682 million in 2000 to $5,958 million in 2001. The growth in sales was due to the 9% increase in units because of the
success of the programs implemented that are mentioned above. Avon plans to increase sales annually by continuing to recruit
Leadership Representatives around the world, utilizing the Internet to help these Representatives sell Avon products more
efficiently, and extending the Avon brand to new products and possibly new channels. (3)
Bigger profit margins:
Lower sales in Latin America than expected and additional strategic spending on consumer marketing initiatives
caused the slight decrease in profits for the 2001 year. The drop may have been a lot worse if it was not offset by
considerable margin improvement form the business transformation initiatives. Despite the incredible achievements
of the business transformation initiatives (about $150 million in savings), Avon's operating margin went down 20 basis
points last year from 16.1% to 15.9%. The benefits from the business transformation will hopefully become more
noticeable in 2002 and will free up additional funds to invest in things such as consumer marketing strategies. Avon
has a goal to increase their operating margin by 250 basis points by the end of 2004. (1)
Capital Expenditures:
Avon's capital expenditures during 2001 were $155.3 million compared with $193.5 million in 2000. Most of
these expenditures were used for continued investments on new technological information systems,
improvements and modernization on existing facilities, investment on improving Internet strategy, and
equipment replacement projects. In 2001 it cost $119.2 million to complete projects under construction and
information system projects that took place during the year. Avon's capital expenditure goal is to average $225
annually and be spent on the same expenditures that they have been spent on in the past.
Bigger cash flows:
Avon had a significant increase in net cash provided by operating activities in 2001. Net cash totals accumulated
to$754.9 million at the end of 2001 compared to $323.9 million in 2000. The increase is a result of money received
from an income tax refund in 2001, higher net income, as well as higher working capital needs in 2000, including the
payout of a long-term incentive plan, timing of cash payments, and a larger increase in inventories. Avon already has
a very strong cash flow with a single credit rating and their goal is $700 million in net cash flows next year.
Growth in earnings:
Earnings per share have been on the increase. In 2000 earnings per share went up by 11% to $2.09. This doubledigit
growth is exactly what Avon was hoping for. Because there was a drop in earnings per share during the 2001
year due to a restructuring charge $.28 per share in order to put the business transformation initiatives in play, which
are designed to improve operations and streamline Avon's worldwide operations into practice. This dropped Avon's
stock price to $1.79 at the end of 2001 trading year. With the help of the business transformation in place Avon
hopes to have a 10% increase in annual earnings per share in the next few years to come.
Inventory Days:
Because Avon markets a number of products it is necessary for them to maintain a relatively high inventory level. The
nature of Avon's business, including the number of campaigns conducted annually and the large number of products
marketed makes this necessary. Avon's operations are seasonal with the holiday sales causing a peak in the fourth
quarter, which results in a build- up of inventory at the end of the third quarter. Inventory levels are reduced by the
end of the fourth quarter after the holiday season is over and sometimes a clearance or sale on items. It is Avon's
objective to continue focus on inventory management and get inventory turnover down to 8-10 days.
Strategic Objectives:
Superior customer service compared to rivals:
Avon has gained an outstanding reputation as the best direct seller of beauty products. Through the continued efforts
and achievements of its Sales Representatives Avon is now known worldwide. Avon's core competence has mainly
been through direct selling, knowing this Jung and the management team implemented a Sales Leadership program
in its ten largest markets and provided these markets with incentives to acquire, train, motivate, and retain the number
of active Sales Representatives it needs to sustain significant growth. Avon also has a Representative development
program that focuses on the professional training of Representatives, which enables them to provide valuable
information on Avon brand products. Avon also keeps its superior customer service in other ways of distribution such
as the Internet and in the department store sales by having a timely and correct order delivery, one on one
information exchange and sincere professional advice and service in department sales.
Wider geographic coverage than rivals:
Avon's management team decided to achieve growth in revenue by expanding its customer base into international markets,
while continuing to compete based on their reputation as the leading direct seller of beauty products. Avon brand products
are now recognized all over the world due to the success of their international campaign. The company is in great position
to take advantage on growth in new global markets because of the demand for quality products. Avon now has operations in
50 different countries outside of the United States, and continues to reach new markets. Avon has entered into 24 new
markets since 1990, including Europe, Russia, China, Latin America, and the Pacific region. International net sales in
dollars increased 4% and operating profit increased 7% in 2001. The sales improvement was a result of significant
increases in Europe. Excluding the effect of foreign exchange, international sales increased 12% in 2001. (1)
Quicker design-to-market times than rivals:
In 2002 Avon invested $100 million to construct a state-of-the-art facility for the research and development operations
in order to quicken design-to-market times. The ability to develop and release new products more quickly than rivals
will give Avon the first mover advantage and further associate the name with quality and innovation and hopefully
increase the company's market share in the CFT industry. Product innovation will continue to be a key factor of sales
growth in the future. New product lines such as "Avon Wellness" and "Becoming" and the most recent "Anew" will
attract new consumers, which will also help to increase revenue growth.
More attractive product line than rivals:
Avon's history as a beauty product distribution only enhances their credibility as a company and quality beauty product
distributor. With Avon's ability in research and development they will be able to develop more new products and introduce
them to the Avon product line more quickly than rivals. New products with the symbol of Avon quality and state-of-the-art
technology will only increase brand image and hopefully sales while acquiring a more loyal customer base by establishing
and providing a more attractive product line. In Avon's vision they stated they wanted to enter into new business lines, a
more attractive product line is the easiest and quickest and will be the first step in achieving that particular objective.
Improved e-commerce and Internet sales capabilities than rivals
Avon's executives realized the company needed a more efficient method to communicate with its independent sales force, because
current newsletters and brochures were not keeping up with the demands of the sales force. Once Jung realized that the Internet
was the best choice to transform the relationships between customers, representatives, and Avon's supply chain and marketing
operations she decided to incorporate e-commerce into Avon's sales strategy. The e-commerce sales strategy
achieved early success in 2000, with increases of 30% on average when linked to Avon's website. The Internet
brings instant global reach, with thousands of products and prices that can be updated constantly at anytime.
Due to the fact that e-commerce is one of the fastest growing sales places Avon will increase the e-
Representatives participation by 37% by 2004 and over $17 million will be spend for Representative support
cost Savings. Once the e-commerce was implemented it cut order costs from $.90 to $.30.
Stronger brand name than rivals:
Again Avon's history is a big player here because it gives the company credibility and name recognition. Avon
continues to strengthen its image of core beauty products and international brand product line. In the past few years
the company has made several upgrades in imaging and formulations, packaging, and customer service and the
accuracy and speed of order delivery have also been improved. Avon products provide a consistent, high-quality
image in every market and include brands such as Anew, Skin-So-Soft, Far Away, Rare Gold, Perceive, Avon Color,
and Avon Skin Care. Global brand have continued to grow and account for a substantial percentage of Avon's
business, and in 1999 these brands accounted for 51% of the beauty sales core. Avon's development of quality global
brands gave them a chance to deliver a consistent beauty image around the world, as well as improve relationships
with suppliers and become familiar with the most efficient way to get foreign sales.
Stronger global distribution and sales capabilities than rivals:
Avon's ability to produce and distribute products in multiple countries enables them to have a significant amount of
international sales. Avon continues to drive their products into new markets and have always been looking for ways in
which they can improve their distribution channels. With e-commerce and the implementation of the Sales Leadership
program Avon has been able to deliver quality service along with their high quality products. These areas continue to be a
focus for Avon in terms of sales capabilities and distribution in foreign markets relative to their rivals.
Corporate-level Strategies
Market Penetration:
This is an attempt to find new ways to acquire more market share for the products that already exist. By
expanding aggressively into Eastern Europe, the Middle East, China, and Africa and by coming to the needs of
women in Mexico, is one of Avon's biggest market penetration strategies. The Internet objective is another good
example of Avon trying to market penetration because it is providing a new channel to sell existing products and
gain more market share. Selling its products in retail stores is another good example of market penetration and
also the new television commercials make more of the market aware of Avon products.
Market Development:
There are two ways Avon uses this approach, when the company wants to develop new markets through existing
customers or through geographic regions. Avon has been able to develop new customers by adding new innovative
products for teens as well as anti-aging and preventative aging cosmetics for the older portion of the market.
Developing different products for different complexions and skin tones generate new markets as well. Avon's strategy
to expand globally also helps with mew market development as Avon products reach people it has never encountered
before. Avon also had launched an unbecoming campaign aimed at a more affluent group of women with its retail
efforts as an attempt to develop a new market through existing customers. (17)
Horizontal Diversification:
Avon used this approach when introduced the Anew Retroactive and the Vita Tonics bath products. The
company also developed a couple of new fragrances, Incandescence and Little Black Dress. When Avon
introduces new products such as the ones mentioned it helps the company to gain market share.
Product Diversification:
This strategy includes all efforts made by Avon to compete for new customers and it is often teamed up with certain
advertising and market operations to make sure the target market group is aware of the new products. This would
include Avon's new products for different skin types and tones as well as the teen and preventative aging products.
New colors of foundations and new additives for different complexions as well as self tanners, face bronzers, face
washing cloths, vitamins and aroma therapy bath oils and lotions are all new products that may be used in attempt to
find some new customers. All of the marketing projects launched in the past four to five years such as the new "Avon"
product line are ways in which Avon has tried to gain sales through new product diversification.
Horizontal Integration:
Avon was utilizing this strategy when it merged with Parfums Stern, Tiffany & Company, Giorgio Beverly Hills and with its
most recent alliance formation with Mattel. Merging with or acquiring competitors in the same industry has many benefits
such as increased technology, more market share, and expertise in unknown areas of the industry. The alliance with
Mattel is a blending of Avon's sales expertise with Mattel's high quality products resulting in reduced costs. (19)
Business Level Strategy
The term business concerns to the managerial approaches for a single business to incorporate and out perform its
competitors. The corporate strategy Avon's management team chose to implement is the focus-differentiation strategy. Avon
has focused on high quality beauty products as well as superior customer service in the global markets and although it has a
wide variety of products they all hold the Avon name keeping it associated with high quality. Avon customers tend to have
more disposable income than the average making it possible for them to purchase the higher priced Avon products.
External Analysis (industry stand point)
Opportunities:
Expand product line:
Sales concerning men fragrances increased by 18% from 1996 to 2002. According to the Beiersdorf market research
concerning the market for men cosmetic products, this market grew on average by 7% within the last six years. Avon
stated in its mission that it is focused on products for women globally and they may want to think about entering the
market for men as well. For example the market for shaving products would not only create new customer but also
offers Avon a chance to improve their corporate strategy of product diversification. Avon could also look into baby
products since they already have a large market for all types of women why not make it convenient for mothers to
purchase skin products for their babies at the same time they purchase cosmetics for themselves. Avon definitely has
the ability to expand their product line it is just a matter of capitalizing on that opportunity.
Retail chain stores:
In order for Avon to reach more customers the company should implement a way of targeting its customer by using
more retail stores such as JC Penny that still follow the direct selling approach, but offer the consumer the opportunity
to purchase the products of Avon conveniently at a shopping mall. Additionally this could be combined with the sales
leadership approach to increase sale and to offer the sales representatives a new way of selling. By offering incentives
to sales representatives Avon would probably see a bigger profit from such retail chains.
US department-store sales:
Department store sales of cosmetics totalled $7.1 billion in 2001. The entire CFT industry sales increased 2% from the 2001
level. Avon should try to make some beneficial alliances with some department stores that could result in a high increase in
sales and reach people it may have never been available to before. If Avon could put their highest quality products in
department stores such as Nordstrom, Niem Marcus, Lord and Taylor and Bloomingdales they could appeal the upper as
well as the upper middle classes of America and Europe. Avon can expand to these department stores with their highly
regarded global brands re-establishing their innovative and quality image as a company.
International Markets:
The most difficult thing to figure out when entering international markets is to realize what countries will best fit
the companies' products. If Avon can venture into new international markets and can continue to keep strong
sales increases then they are a huge success. Avon can reach this goal without competing vigorously because
it has already established high quality global brands and has been able to begin entry to a number of different
countries. As long as Avon recognizes the particular demand for each market they will be able to profit from
each different international market. Avon's new alliance with Mattel enables Avon to penetrate foreign markets
with speed and cost benefits, again making this goal even easier for Avon to achieve. (18)
Technology:
Avon spends millions of dollars on research and development every year. This helps Avon keep its products new,
innovative and up to date with other rivals and competition. Technology continues to be new and emerging and
Avon has done well in keeping up with the latest trends in their particular industry as well as develops its own stateof-
the-art products giving the company a more prestigious name in the cosmetic industry.
Customer satisfaction:
Avon has been able to keep a strong customer base for decades. This has been achievable through their superior
product quality and customer service. Avon has kept a focus on what the customers want and have continued to
deliver it to them throughout the life of the company. Avon's business transformation initiatives were due to complaints
by which Avon acted on and began packaging all products in a new modern look as well as distribution them more
efficiently in effort to keep customer satisfaction high. Avon was ranked number four in "Most Admired Soap and
Cosmetic Industry of 2002", in Fortune magazine and has been in the top four for the past three years, Avon achieved
this ranking not only because of their quick turnaround but because of their commitment to their customers.
Threats:
Foreign economic and currency issues:
Every company will want to research countries thoroughly before entering their markets. Countries that possess
corrupt politics and unstable economies will probably not be worth the risk of entering. A lot of South American
countries struggle with this problem. A good example of this threat is when Argentina's peso was devaluated in
2001 due to adverse reaction in the geographic region and the country's unstable economic situation.
Rivals and competition:
The cosmetic industry is very large with numerous competitors. There is always a threat of losing sales to similar products.
Every company in the industry fight for high market shares and are always trying to come out with new innovative products
that will in turn result in name recognition and increased sales. Avon has to be aware of the CFT industry in terms of what
products are popular, what their competition is developing and their marketing schemes. Falling behind on trends and
awareness of competition will only cause Avon to fade away and lose customers, sales, and money.
High operating costs:
In order for Avon to stay competitive in its industry it must continue spend millions on research and development and
although the products that result from this research and development and spent money benefit the company it
continues to be a huge cost. It is almost impossible for the company to cut costs in research and development so
Avon must attempt to find other areas in which costs can be reduced or eliminated and although Avon has been able
to find ways to do such things in the past they are beginning to run out of places to cut cost. High operating costs can
cut considerably into profits and can eliminate equity in the company and drive down stock prices.
Recession/ national economy:
Every industry is affected by the general state of the economy. No industry can feel zero effects due to turns in the cycle of
the economy because so many aspects are interrelated. During periods of a recession Avon will feel the impact not only in
sales but also with suppliers, employees and will also notice their competition experiencing the same difficulties. The
economy in general may be seen as a threat to every industry in periods of economic downturn and recession.
Changing tastes and trends:
Just like every other industry the tastes of consumers change. Trends in cosmetics change constantly with seasons
and fashion trends. Avon must constantly be aware of new trends in fashion and be able to forecast what the new
season may bring in terms of colors, and what new products may be introduced. For example Avon could run
specials on their "Skin-so-Soft" insect repellent in April along with introducing new, improved, or just redesigned sun
screens, self tanners, and extra moisturizing lotions and creams for the upcoming summer season as well as have
new promotions and advertising introducing their latest colors for the upcoming season.
Competitive Analysis (Five Forces)
Rivalry within the industry: STRONG
Rivalry intensifies as the number of competitors increases and as competitors become more equal in size and
capability: Unilever and Procter & Gamble dominate the world market in the CFT industry sales and they are
highly competitive and mature corporations. Huge corporations who dominate the market make it more difficult
for smaller companies in the same industry to gain market share and they are also able to mass produce at
lower costs which in turn allows them to offer lower prices compared to competitors.
Rivalry is usually stronger when demand for the product is growing slowly: At the current time growth rates are
low in the domestic population and household formations, because of this it will be harder for CFT companies
to acquire substantial sales gains. The slower a demand for the product is growing the more companies have
to compete with another for sales and market share.
Rivalry is stronger when customer's costs to switch brands are low: Switching costs in the CFT industry are very
low, due to the endless amount of different brands of similar products. This cost is due to the higher number of
competitors in the CFT industry and their tendency to mimic and copy new products in order to stay competitive.
This minimizes the cost of switching to customers down to pennies.
New Entrants: WEAK
Barriers of entry:
Economies of scale: This particular barrier is weak for new small companies wanting to enter the CFT industry
because they would not have to enter on a scale larger than the amount of risk they can reasonably accept. New
competitors will not be able to keep up with others in the industry in areas such as advertising, marketing and
distribution, financing, research and development.
Cost and resource disadvantages independent of size: Existing firms in the CFT industry such as Avon will have a lot
of resource and cost advantages over any potential entrant. Avon's advantages would include product innovation
acquired by the big investment in the research and development division, a grade A credit history along with a strong
cash flow, the high quality associated with Avon brand products, and the leverage created by larger market share will
allow Avon to have lower borrowing rates. Avon has lots of experience with suppliers and know who has the best
quality for the best price, something the competition may only acquire through research and experience.
Learning and experience curve effects: New firms entering the CFT industry are way behind according to this
barrier also. Avon would be able to produce products in the same product line for a lot less due to their
acquired expertise and experience they have gained by being in the business for over a century.
Brand preferences and customer loyalty: This barrier would be another problem for new entrants because having a quality
brand with a strong customer base and loyalty is always a crucial competitive advantage. Company's such as Avon that
have a strong brand name will automatically receive higher market share and create opportunities for additional growth
along with the ability to fluctuate prices on their products. A new entrant with no loyalty from consumers or name
recognition will find it hard to compete with Avon as well as other big players in the CFT industry.
Capital Requirements: Entering the CFT industry may cost a pretty penny for new entry firms. Finding suppliers, research
and development for products, finding a sales force and a marketing scheme to establish clientele all can add up to a
significant amount of money. These costs are even excluding start up costs and losses that may be incurred.
Access to distribution channels: New entry firms may see several problems here unless they have already dumped a
substantial amount of money into marketing and are beginning to be recognized in the industry. Wholesalers may be
reluctant to pick up a product with no buyer recognition. Retail distribution may have to be set up from scratch, or
existing retailers may need convincing to give away shelf space to the new entry and allow it an ample amount of
time to sell. In essence it may cost a new entry a lot of money just to convince someone to sell their product.
Expectation reactions of incumbent firms to new entry:
I feel that the incumbent companies in the CFT industry are more concerned about fellow competitors of equal size rather
than take the time to maliciously destroy anew small firm that has a tiny market share and will probably take years to
develop even a percentage of the products or sales that a large corporation has. These new entries will have a hard time
competing with the prices, advertising, loyalty of customers, and the years of experience that the larger firms like Avon
have acquired over the years. Incumbent firms may not pay much attention to a new entry until it survives for a period of
time or if they somehow come through with an innovative product that needs to be copied under the larger name.
Substitute products: WEAK
Looking at the CFT industry I do not believe it has any real substitutes, because by definition substitutes have to come
from a different industry. The only substitute products are similar products from another company within the industry.
Basically you either buy from Avon or one of its competitors or you just do not use products from the CFT industry at
all. Because there are no true substitute products from a different industry the threat of substitutes is extremely weak.
Suppliers: WEAK
I will have to say that supplier power is weak because of the accessibility of the Internet and the fact that Avon uses a
huge variety of products and most of them are easily obtainable through multiple different means. This makes it hard
for suppliers to exercise sufficient bargaining power to influence the terms and conditions of supply in their favor. The
Internet now makes it possible for companies to find the best suppliers for the best prices and collaborate closely with
them to obtain maximum efficiency. Avon can get supplies basically from anywhere in the world not only because of
the Internet but because they have entered foreign markets and produce products in different countries as well. A lot
of Avon's supplies such as packaging and so forth may be easily substituted if a supplier raised prices substantially. I
will also assume that supplier's would enjoy being a supplier for Avon because of the size of the company and the fact
that it is a well-established firm basically guaranteeing sales. Avon could possibly keep a supplier in business.
Customers: MODERATE
Customer buying power is moderate because switching costs are low and customers have the flexibility to fill
their needs by switching brands. Buyers tend to be well informed about Avon's product prices and costs largely
due to the Internet and this puts customers at a position of higher bargaining power. Customers do not pose a
threat of integrating backwards; I cannot imagine women actually making their own make-up, perfume or skin
care products, or mass -producing plastic bottles or containers that Avon uses to package its products. There
are also a large number of buyers, not to say that all of Avon's customers are not important but losing one will
not significantly impact the company's market share or financial position. Key Success Factors
Key success factors concern the product attributes, competencies, competitive capabilities and market
achievements with the greatest bearing on company profitability. These are the things that the company does
well and helps them obtain profits.
Ability to get new products out of R&D and into the market:
With all the money and time Avon has put into the Research and Development part of the company it ahs paid
off. In 2002 Avon spent $100 million on a new state-of-the-art research and development facility. This provides
researchers with the materials they need in an easy work environment, which in turn improves efficiency in
every aspect of the process. Having this facility enables Avon to have their new products out in the market very
quickly compared to other rivals such as Revlon and Estee Lauder. This skill gives Avon an image of superior
technology and quality and provides them with the first mover advantage in many cases as well.
Internet capability:
It was only in the past decade that Avon became familiar with the Internet. When Jung took over she saw that e-commerce
was on a fast rise and that Avon was not capitalizing on this sales opportunity. It was only a matter of time before Avon had
their own website that now has all kinds of e-commerce activities. Avon's website enables customers to order products, read
on the most recent developments by Avon, informs them of sales and clearances as well as free gift giveaways and the top
ten selling items. Customers can shop by product or category and check on their account status, review the most frequently
asked questions or get assistance all at the click of a mouse. By making their web site easy to navigate and perform multiple
tasks, Avon has helped reduce ordering costs and increase sales.
Managerial Experience:
Andrea Jung, Avon's Chief Executive Officer, has been with Avon since 1994. Before working for Avon, she graduated from
Princeton and joined Bloomingdales where she rose to second in command before the age of thirty. When she joined Avon
she entered as the President of United States product marketing and continued to impress her upper management. Her bold
decisions made her stand out and she was named CEO in 2001 at the age of forty. Susan Kropf who has been with Avon
since the early 90's moved and Executive Lieutenant, to Executive Vice President and President of North American
operations. Kropf has worked along side Jung and was key in the Business Process Reengineering efforts that achieved
great success in 2001, with savings of more than $150 million. The experience and success of Avon managers is
unteachable, irreplaceable and are definitely a huge factor on why Avon is where it is today.
Accurate filling of orders:
Only six years ago you would hear customers complain about the inaccuracy of Avon's mail orders. This is a
rare complaint today. New training programs and the implementation of the Avon website has enable the
company to fill orders fast and accurately. The days of human error with direct selling have almost become
obsolete with the new initiatives taken place to eliminate such error. Incentives implemented by the sales
leadership program have also made Avon give consistent quality service.
Internal Analysis
Strengths:
Strong advertising and promotion:
Traditionally Avon has been a word-of-mouth and catalog company that did not spend a tremendous amount of money on
advertising. You now can turn on the television and see commercials for Avon products. These commercials not only
advertise the products but they give the web-address, a phone number, or advise one to seek a local Avon representative
so consumers know how to obtain Avon products. The new commercials also give the image of elegance and are quality
enhancing the Avon products and showing consumers that Avon is truly concerned with the quality of their products.
Globalization:
Avon has been consistently improving and developing particularly high quality global products in the past ten
years. Only 11% of the company's beauty products were attributable to the international brands during the mid
to late 90's. That percentage increased greatly to 60% by the end of 2001. This is a huge success for Avon and
their global products. The driving force of this substantial success was their focus on global and cross-cultural
appeal and the aggressive venture into new countries. The multiple distribution channels that Avon has
throughout the world enable them to have a successful globalization campaign.
Brand name recognition:
Avon has been around for decades and is a very widely known cosmetic company. The Avon name is usually associated
with quality and superior customer service and more recently has been associated with product diversification and
innovation. Avon is continuing to try to use this image it has developed in the states and expand it to more international
markets.
Product innovation:
When Andrea Jung became CEO of Avon she saw that customers wanted more innovative products to
accompany Avon service and quality. This is exactly what she did and the company has been a lot more
profitable since. New markets such as anti-aging and preventative aging as well as teen products opened up
and Avon wasted little time capitalizing on the potential sales in such markets. Their innovation not only gave
them more sales but developed a better name for Avon in the product innovation category.
New product developments:
Avon has continued to expand its product line almost every year along with improving their existing products.
The most recent "Anew" product line is an example of and extension of products and has a specific anti-aging
purpose that has become increasingly popular in the last few years. The Anew product line contains products
such as triple lifting eye cream and triple lifting night cream along with retinal facial treatment and transforming
cream. These products are aimed at more affluent older women and come in very attractive compact packaging.
The success of the Anew product line has been considerable and I am sure that Avon is developing more
products to add to the Anew line as well as possibly launch another brand new product line.
Competitive capabilities:
Avon's competitive capabilities are superior because of their experience, management, financial capabilities,
research and development, and brand recognition. The Avon name is known all over the world and is associated
with quality. This gives Avon an edge when people are looking for a more high quality beauty product, most
consumers will buy the name they know before trying something completely new by a no name company. Avon
has been in the business for over a century and is very familiar with markets and knows how to identify their
personal strengths and weaknesses and what steps to take in improving them. Constant change is a must in
any industry and Avon has been able to do this while maintaining superior competitiveness in the industry.
Weaknesses:
Internal operating problems:
Avon has been on a turn around for several years now but this turn around was needed because of the
internal operating problems. Orders were being placed and not filled, packaging was out of date and
customers were becoming disgruntled. The Internet was also not being utilized as a marketing and selling tool.
Since these problems have been brought to the attention of Andrea Jung changes have been made but Avon
needs to continue to pay attention to its internal operations to avoid a reoccurring problem in the future.
Obsolete products:
Although Avon develops new products every year they have in the past overlooked current products that are
becoming obsolete. This causes a loss in profits due to decreased sales and wasted money spent on
marketing, packaging, and buying the supplies for the product. More recently Avon has retired products off of
the product line but they need to get into the habit of evaluating every product at some time during the year and
determining if they need to produce less, more, or stop producing the product altogether.
Focused product line:
Avon has been in the cosmetic industry since it was founded in the 1800's. Major companies that are ahead of
Avon in the CFT industry include Unilever and Procter and Gamble. Both of these companies offer a variety of
products including cosmetics, lotions, shaving products for men and women, baby care products, and
shampoos/ conditioners and other hair care products just to name a few. If Avon wants to become the number
one seller in the CFT industry they have tough competition to surpass because of their diverse product line.
Putting the Avon name and symbol of quality on a new product line would definitely attract consumers.
Inconsistency:
Although Avon has been around for over 100 years they have never really been super consistent with their promotions, product
launches or retirements, and training and distribution changes. Avon has gone through some changes more so in the past 15 years
than any other time but it has always been an abrupt change without warning to people in the company such as direct sales
representatives. This causes tension because people are reluctant to change and always like a warning before it happens. I am by
no means trying to say that the changes Avon has gone through are a weakness but I am saying their
inconsistency in the warning or enlightenment of the change to the rest of the company has been weak.
Financial Analysis
Profitability:
Gross profit is an indicator of the total margin available that is used to cover operating expenses and
yield a profit. Gross Profit Margin:199920002001
Avon61.962.963.0 Industry
Avg.44.042.943.7
Estee Lauder Co. 77.3 77.7 78.9
Avon seems to be doing well with their gross profit margin coming in above the industry average but they are
still below one of their big competitors.
Operating margin is an indication of the firm's profitability from current operations without regard to the
interest charges accruing from the capital structure.
Operating Profit Margin:199920002001
Avon10.313.812.5
IAnvdgu.s6t.r0y5 .46.1
Estee Lauder
Co. 11.5
11.8
10.8
Avon continues to operate with a high profit margin, but you will see later that it goes to its shareholders.
Liquidity:
The Quick Ratio is a tool used to measure the ability to pay off short-term obligations without having to liquidate inventory.
Quick Ratio:199920002001
Avon0.50.70.9
Industry Avg.1.00.80.8
Revlon0.7 0.80.9
Avon has had a steady improvement over the last three years telling us that Avon is getting rid of debt without
sacrificing savings, having liquidation sales, or things of such nature. This also informs us that if Avon went
under at this moment they would be able to pay off 905 of their debt without including current inventories.
The current ratio is indicative of the extent to which the assets can cover the short-term claims of its creditors
and be converted to cash in a timely manner; hence, current ratio shows how liquid a company is.
Current Ratio:199920002001
Avon0.81.11.3
Industry Avg.1.61.51.4
Revlon1.212 1.3
Avon again has been improving every year in this category and now is right at the industry average and even
with a major competitor Revlon. This shows us that Avon is a stable company worth its stock price.
Leverage:
Long-term debt to equity ratio is used to measure the balance between debt and equity in the firm's longterm
capital structure.
Long Term Debt to Equity199920002001
Avon NA NA NA
Industry Avg. 34.2 33.8 32.9
Estee Lauder Co. 45.7 36.1 30.4
Avon information on long-term equity was not available.
Long-term debt to asset is used to measure the balance between debt and assets in the firm's long-term capital structure.
Long-Term Debt to Capital:199920002001
Avon237.8124.2106.4
Industry Avg.27.235.128.4
Estee Lauder Co.31.426.5 23.3
This tells us that Avon has done well in reducing the amount of debt compared to their number of assets but are way above
industry average and competitor Estee Lauder. Avon's long-term debts have continued to be paid off in the last three years.
Activity:
Inventory turnover provides an indication of whether a company has excessive or perhaps inadequate
finished goods inventory.
Inventory Turnover:199920002001
Avon3.83.73.6
Industry Avg.3.33.33.4
Estee Lauder Co. 1.81.8 1.7
Avon's inventory has finished goods above the industry average showing us that they have more
inventories of finished goods available for sale than other companies in the industry.
Total Assets turnover is a tool used to measure whether the firm is above or below the industry average in
utilization of their assets.
Asset Turnover:199920002001
Avon2.12.12
Industry Avg.1.21.21.2
Estee Lauder Co.1.51.5 1.5
Avon has consistently been above the industry average and competitors showing us that Avon's assets are utilized
efficiently, generating more profit than the industry average and major competitor Estee Lauder on each asset.
Other Ratios:
The interest earned ratio provides us with information regarding the amount of interest a company has
acquired on their outstanding debt.
Times Interest Earned 199920002001
Avon12.79.210.4
Industry Avg.2.42.13
Revlon2.42.13
Avon is significantly above the industry average and competitors but has been improving over the years by
getting rid of some of their outstanding debt.
The dividend payout ratio indicates the percentage of profits paid out as dividends.
Payout Ratio199920002001
Avon6136.841.8
Industry Avg.000
Revlon000
Avon has been struggling but hopes to keep shareholders happy while giving up fewer profits in payout to them
at the same time.
Strategic Problems To Address
What to do about new product lines:
It would be a good idea for Avon to research into launching new products in different lines than they are currently in but keep
them similar in the industry. In order to continue growing and obtain bigger cash flows and profits you have to spend before
you get a payoff. With Avon's new research and development plant they should be able to quickly design and market new
product lines without many problems. Having new product lines will help maintain growth and internal expansion.
How to maintain growth:
Avon has been growing globally for decades to continue to do this Avon needs to be aware of what it will entail.
They have taken care of research and development with their new facility but there are many other factors that
could inhibit them. Reluctances to expand internally will hold them down as well as finances. Avon may have to
look into selling totally new products, which is consistent with what was before mentioned.
How to continue cutting costs:
Throughout Avon's business transformation they have done an incredible job cutting costs mostly thanks to
Kropf. How to continue to cut costs may rise a problem because they have launched new cosmetics that are
selling well, put millions into research and development, and do not want to upset loyal customers by retiring old
products that have a loyal customer base. Some customers may be hooked on a classic product such as Skinso-
Soft and just happen to by other products every once in a while when they reorder their Skin-so-Soft. Cutting
this product out of the line will not only result in a loss of sales due to the product but all other little buys that
each customer may order in the process. Avon's business transformation may have to look elsewhere at every
part of its value chain to try and cut out expensive virtually unneeded parts to try and cuts costs.
Internal expansion:
Some may say that there is no room for internal expansion because Avon has done such a good job in international markets
and that it is not needed. I believe that the CFT market is so big that internal expansion within the company should be a
must. I think Avon should continue to grow within and outside the United States, create more jobs and look into developing
more new product lines in the men's shaving and baby care areas. Avon's strategy wants to diversify and penetrate new
markets and what better way to do it than with new products (after research on the demand of course!). Developing alliances
with department stores and more Internet selling will also help with internal expansion.
References
1. www.avon.com
2. Standards And Poors Industry Survey. Vol. 170,
No17, section 3 P.6
3. Business and Company Resource Center (ECU data base)
4. Stock Investor Professional software database.
Amor, Adlei. "Global trends are reshaping business strategy and markets."
World Resources Institute, Washington
5.
Business Week Online "Cosmetics Industry Recessions" by: Wee
Heesun
Augus
t
20,
2002
6. Handy, Charles. "Taming the giants."
http://www.umanitoba.ca/faculties/science/esp/cours
es/28200
7. Wall Street Journal "Avon Calls on Good Looking Research"
May 23, 2002 by Emily Nelson page: B6
8.The New York Times "Avon to Lay Off 3,500 workers, 8% of Work
Force" March 19, 2002 Author Unknown, page: C.4
9.Business Week Online "Cosmetics Industry Recessions" by : Wee
Heesun
August 20 ,
2002
10.Incentive "Don't Cry For Me Argentina" April 2002 By Estell, Libby, Casison, and Jeanie.
p .
8
11.ebscohost WSJ Eastern Addition 3/20/02 Vol 239 P. B12A