Michigan State University Extension
Tourism Educational Materials - 33700412
06/06/02
Packaging: a Tourism Marketing Tool
List of files and visuals associated with this text.
Source: New Mexico State University (REDTT)
Authors: Bloomquist, Priscilla; Sem, John
ID: 2C
Year: 1994
Rural Economic Development through Tourism
PACKAGING: A Tourism Marketing Tool
Time is a valuable commodity for today's travelers. Dual-
income families find it difficult to schedule vacation
time; family members often have jobs or activities that
conflict; or an individual's job makes long vacations
impractical. As a result, more families and individuals
are taking long weekend or holiday vacations, or extending
business trips into short getaway vacations. Packaging is
a popular technique used for attracting these customers,
because packages make travel easier and more convenient.
In the hospitality and tourism industry, "packaging" is
the process of combining two or more related and
complementary offerings into a single-price offering. A
package may include a wide variety of services such as
lodging, meals, entrance fees to attractions,
entertainment, transportation costs (air, auto, train, cab
or bus), guide services, or other similar activities.
Packaging can also create a variety of benefits for
participating businesses. This publication will:
Identify reasons for the increased popularity of
packaging.
Address issues a business should consider when developing
a package.
Describe the components of successful packages.
Discuss the process of pricing a package.
Why Packages Are Popular
Travel packages have become increasingly popular over the
years. They are attractive because they benefit both the
customer and participating businesses; packaging provides
convenience and value to the customer, and added revenue
for participating businesses.
Benefits to the Customer
Packaging can be an effective marketing tool to provide
several customer benefits. These may include:
Ability to budget for trips. Packages include most of the
components a customer must pay for during a trip. The
customer pays at one time and has a good idea of the
trip's total cost.
Increased convenience. Trips can be time consuming and
difficult to arrange. Several telephone calls and letters
may be required to arrange for tickets, accommodations,
reservations, and other components of a trip. A package
allows a customer to arrange many components of a trip
with one call or letter and one payment, saving the
customer time and aggravation.
Greater economy. Businesses that package can frequently
purchase tickets, meals, and other package components at
wholesale prices. The business can add in the cost of
packaging and still provide a competitive price to the
customer. Thus, the cost to the customer is usually more
economical than purchasing the package components
individually.
Popular programs and activities. Visitors and travelers
are often unfamiliar with many of the activities and
attractions in an area: a package can help customers find
them easily.
Specialized interests. Packaging provides a unique
opportunity to design components of a package for
specialized interests. These so-called "benefit bundles"
can include a package component not readily available to
individual customers. For example, a package weekend may
feature a cooking demonstration by a well-known chef or a
lecture by a well-known author.
Benefits to Participating Businesses
Packaging can be used by businesses to help improve
profitability and build customer volume. Examples include:
Improved profitability. During peak or high-demand
periods, use packaging to add value to an existing
product. Purchasers may be required to stay a prescribed
period or purchase a combination of goods and services.
Packaging may also allow a business to price its product
at a premium by adding special goods and services.
Smooth business patterns. Use packaging during low demand
periods to add attractive features to the business's
service or product, thus generating additional business.
Other businesses may also be willing, to discount their
services during this time. Adding these services to the
existing product mix may generate new business.
Joint marketing opportunities. Packaging can allow the
business to reduce marketing costs or start a new program
one could not normally afford by joining with one or more
businesses to conduct a marketing or advertising program.
This strategy can be especially effective if the
businesses involved have similar customers.
Improved target marketing. Packaging can be an effective
tool to tailor tourism and travel products for specific
target markets. Examples can be ski, sports, or theater
weekends. Good market research is needed so an appropriate
mix of tourism and travel services will meet the needs and
desires of a target group of customers.
Greater holiday weekend business. Packaging can be used to
highlight special holiday weekends by developing services
appropriate to the theme of the weekend. New Year's,
Valentine's Day, or Mother's Day are just a few of the
holidays that can be used to develop special programs for
parties, couples, or family gifts.
Unique recurring events. Businesses can create their own
events that can occur throughout the year. Events could be
tournaments such as chess or bridge or crime re-enactments
that let guests do the detective work. Events of this type
will require imagination and inventiveness to take
advantage of the wide variety of activities that take
place in the community. This technique is often called
"programming."
Redirected traffic to lesser-known attractions. Directing
visitors to often overlooked attractions can help in two
ways: heavily visited attractions may be offered some
relief, while newly discovered attractions may thrive and
prosper.
Businesses can use many different strategies in designing
a package product. Success will depend on good market
research, an understanding of existing customers,
research, an understanding of existing customers, and a
good knowledge of the community and its activities.
Items to Consider in Developing a Package
Before developing a tourism packaging program, the
business should devise a marketing plan through practical
marketing research. The business owner should ask
him/herself the following questions:
Are you willing to do market research to determine who
your customers are and what they want?
What are the potential attractions, businesses, or
marketing service firms that could provide a part of the
package? Meet with the managers of these businesses and
public attractions to discuss their interests and ideas.
What are potential marketing and promotional networks that
will help spread the word about your product? Convention
and visitors bureaus, chambers of commerce, retail travel
agents, clubs and organizations, state offices of tourism,
and other attractions or travel businesses all have the
potential to play an important role in merchandising your
package.
Will the physical appearance and service skills of your
business match the target audience?
Does your business have the ability to manage and service
the customers you generate through your packaging program?
Are you prepared for a risk? Because you will be including
customer service activities that are not under your direct
control, you will be required to develop formal, written
agreements between the cooperating businesses.
Elements of a Successful Package
Putting together a successful package is not easy.
However, by following the suggestions listed below, the
chances of success will be greater.
Include attractions or demand generators. Every package
needs one or more core attractions. These could be tickets
to a special event, specialized programming, or reduced
prices.
Provide value to the customer. Many travelers buy packages
because they perceive they will receive greater value for
the travel dollars they spend. For some, this translates
into a package that costs less than the sum of the regular
prices of individual elements. Almost everybody is
interested in getting something for nothing or next to
nothing.
Be well planned and coordinated. A successful package must
be well planned and coordinated. Each element should flow
naturally from one to the next. Use a theme to hold the
package together and create a positive experience for the
tourist.
Offer consistent quality and compatibility among elements.
Many customers buy packages because they expect
consistency in quality. Combine only package components
that are compatible and enhance the overall quality of the
traveler's experience. Customer dissatisfaction with one
part of the package will often spoil the entire
experience.
Provide a distinctive customer benefit. The best packages
provide customers something they would not get if they
purchased package elements separately. Sometimes this
benefit is the offer of value, but in other cases, it is a
component that is not readily available to individual
customers. This might involve incorporating special
lectures or appearances, unique dining experiences, or
other activities.
Cover all the details. The temptation might be to throw a
package together, but the close attention to detail makes
some packages more successful than others. Remember, it is
often the little things a business does for guests that
matter the most. Some things to consider include a policy
on refunds and cancellations and complete information on
all package elements included in the price, as well as
items not included.
Generate a profit. Clearly, packages offer a unique way to
satisfy traveler needs and wants. Of course, the package
should also be designed to generate a profit. The ideal
time to offer packages is when demand is low and when the
package will not displace customers who may generate
higher revenues.
Pricing a Package
Lodging or transportation---the most expensive parts of a
package product-are usually the first contact points for
customers who purchase a packaged vacation or travel
product. Lodging operations or travel agents are usually
the key to organizing a packaging program, even though an
area's attractions may bring visitors to a community.
Although accommodations and transportation are the basic
ingredients of a package, tickets to attractions, dining,
and other services are other key parts of the product mix
that make the package marketable. It is necessary for a
business to understand its target market and conduct basic
practical market research in order to develop a successful
package. Experimenting with a set of packages can also
help you identify which sets of activities are most
attractive to your customers.
Issues to consider when pricing a package include:
The package must be a good value and competitive in the
market. Customers should not be able to purchase separate
items in the package for less than the package price. A
large user of package components should be able to receive
discounts from businesses that provide them.
Evaluate the role packaging can play in the business's
marketing program. While packaging can be used to
implement many different strategies, the basic intent is
to generate additional business.
Determine if the package is feasible by applying a break-
even analysis to help determine how many packages a
business must sell before earning a profit.
Break-Even Analysis
Break-even analysis is a tool used to determine total
sales needed to recoup costs, hence the name "break-even."
This analysis technique can also be used to evaluate
alternative pricing levels.
Break-even sales = Fixed costs
___________________
1 - (Variable costs divided
By Package Price)
Definitions
Fixed costs are expenses the business incurs before any
sales are made. These costs often include advertising,
flyers, brochures, costs of employee time to organize the
package, and prepayment costs for other package
components.
Variable costs include the actual expenses (direct costs)
of rooms, tickets, and other package components incurred
with the sale of each package.
Package price is the actual sale price of the package.
Packaging Example
The Lake Hotel plans to offer a weekend sports package
during the professional baseball season to include
tickets, room, a ride to the stadium, two meals, and
executive hotel service. The total fixed cost of
developing this program, including marketing expenses, is
$5,000. The variable cost of this weekend package is $100
a day per person. Lake Hotel is selling this package for
$125 a day per person. The break-even analysis:
Break-even sales =
$5,000 = $5,000 = $5,000 = $25,000
___________ ______ ______
1-($100 + $125) 1.0-.8 .2
The Lake Hotel must have package sales of $25,000 or sell
100 weekend packages before it makes any profit from its
package program.
Package Pricing Worksheet
Use the worksheet on the following page to estimate the
cost of your package. You may need to rework the cost
estimates several times to get a mix of package products
at a price that is attractive and will generate a profit
for your business.
Package Pricing Worksheet (Vis. 1)
Sensitivity Analysis
Sensitivity analysis is a technique used to evaluate how
changes in package costs or prices will affect the number
of packages a business must sell to reach the break-even
point. A sensitivity analysis can help a business
determine where to place its efforts if changes are needed
in the cost structure of a package.
Sensitivity Example (Vis. 2)
Time Line for Preparing a Package (Vis. 3)
Bibliography
Abbey, J. (1982). Package tour design: A comparative study
of demographic and lifestyle trends. Tourism Recreation
Research (pp. I I - 16). New Delhi, India: Himachal
Pradesh Tourism Development Corporation, LTD.
Bach, B. (1984). A case study of the State of Minnesota
package tour marketing program. Unpublished paper. State
of Minnesota, Office of Tourism, St. Paul.
Kaul, R. H. (1985). Dynamics of Tourism. Vol. 3. New
Delhi, India: Sterling Publishers.
McIntosh, R. W. (1974). Vacation packaging in the
lodging industry (Extension Bulletin E-793). Michigan
State University, Lansing.
Morrison, A. M. (1989). Hospitality & Tourism Marketing.
New York: Delmar Publishers.
Sarka, M. F.; Langan, W. J.; Duricka, P.; Fordyce, L. A.;
Fisher, B. (Eds.) (1983). Discover America: Package Tour
Handbook. Washington, D.C.: Travel Industry Association of
America.
Sheldon, P. J. (1986). The tour operator industry: An
analysis. Annals of Tourism Research Vol. 13, No. 3 (pp.
349-366). Menomonie, WI: University of Wisconsin-Stout.
This information is for educational purposes only. References
to commercial products or trade names does not imply
endorsement by MSU Extension or bias against those not
mentioned. This information becomes public property upon
publication and may be printed verbatim with credit to MSU
Extension. Reprinting cannot be used to endorse or advertise
a commercial product or company.
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