Introduction
Located in Dubai, Mandarin Oriental Jumeira is part of a luxury hospitality chain Mandarin Oriental Hotel Group. It is one of the newest 5-star hotels in the area and thus competes with established hotels, including Four Seasons Jumeirah, Jumeirah Al Qasr, Burj Al Arab, and others. The hotel is located at the beachfront and has a large private beach and a spa center. At the same time, Mandarin Oriental Jumeira is close to several large malls, making it particularly suitable for leisure travelers. With its high prices, excellent design, and superior facilities, the hotel caters to the luxury travel market and has a very high rating on major travel platforms, including Booking.com (9.4/10) and Tripadvisor (5/5), allowing it to enjoy a stable flow of customers throughout the year. However, the success of Mandarin Oriental Jumeira would not have been possible without an outstanding marketing strategy, with segmentation, marketing, and positioning as some of its core components. Hence, the present case study will examine the hotel’s approach to segmentation, targeting, and positioning, supporting the inquiry with other analytical tools.
Literature Review
Segmentation, targeting, and positioning is three-step process that is part of most companies’ marketing planning. The primary aim of the process is to assist brands in identifying their target market and defining a brand image that would be used to attract customers from this market (Andaleeb; 2017; Camilleri, 2018). Each step of the process involves specific activities and leads to the next, thus guiding companies through the process of determining their target customer profiles and desired market position.
The first step is segmentation, which involves separating the overall market into segments based on specific characteristics. There are various types of segmentation, such as demographic, geographic, behavioral, and psychographic (Andaleeb, 2017; Camilleri, 2018; Schlegelmilch, 2016). Each approach uses different variables to distinguish between groups of customers. For example, in demographic segmentation, variables like age, gender, education and income level, family status, and related variables are typically considered (Schlegelmilch, 2016). In geographic segmentation, the focus is on specific locations where groups of customers live or work, which makes this approach particularly relevant to local businesses with diverse customers, such as grocery stores (Andaleeb, 2017; Schlegelmilch, 2016).
Psychographic segmentation is more complicated because it uses “attitudes, interests, opinions, values, and lifestyle to explain differences between consumers’ behavior and is often more appropriate than demographic segmentation alone” (Schlegelmilch, 2016, p. 66). Psychographic segmentation can also be used to split larger demographic groups into several segments. Behavioral segmentation is also popular because it focuses specifically on people’s purchase decisions and the use of the product. As explained by Andaleeb (2017), behavioral segmentation “is directed at finding out whether people purchase a product or not, how much they purchase, and how often they use the product” (p. 184). A similar type of response-based segmentation is benefit segmentation, which separates the market into customer groups based on the benefits they achieve from a particular product (Schlegelmilch, 2016). Choosing the correct approach to segmentation is crucial for companies as market segments identified in the process will influence the further development of the company’s marketing plan.
The process of targeting involves selecting the specific segments to which the company’s products and services will be marketed. There are three main targeting strategies used by companies, which include undifferentiated marketing, differentiated marketing, and concentrated marketing (Camilleri, 2018). Undifferentiated marketing aims at the mass market, thus promoting products and services using the same offer for a broad audience, ignoring differences between segments (Camilleri, 2018). A differentiated marketing strategy, in contrast, focuses on several market segments and creates an individual marketing plan and offering for each segment (Camilleri, 2018). Finally, concentrated marketing shapes the company’s offer to one selected segment, ignoring other groups of customers (Camilleri, 2018). This targeting strategy is highly risky because it relies on the response of a specific segment, but it can be potentially profitable.
Once the first two steps have been completed, companies have to determine their position in the market. According to Barton (2015), positioning “is the process of creating a brand, product, or service identity in the mind of the target market” (p. 48). It is often used by brands to differentiate their services or products from the competitors, thus creating a certain identity that would be translated to customers through marketing efforts. Positioning is typically defined in terms of various attributes, such as price, quality, and many others (Barton, 2015). A perceptual map can be used to highlight the brand’s position compared to its competition (Barton, 2015). Once the position of the brand has been defined, the company can start building its marketing plan.
The process of segmentation, targeting, and positioning is essential for companies regardless of their size or industry sector. First of all, as noted by Camilleri (2018), the process enables companies to develop a deeper understanding of the needs and wants of their customers. As a result, they can build products and services that will be more popular among customers, thus generating more profits (Camilleri, 2018). Secondly, engaging in segmentation, targeting, and positioning makes businesses more competitive by assisting them in finding the qualities and characteristics that distinguish them from the competition (Camilleri, 2018; Writz, 2018). By translating these points of differentiation to customers through marketing, companies will be able to sustain competition and extend their market share. Lastly, segmentation, targeting, and positioning aid in reducing marketing expenses and ensuring that they translate into profits (Camilleri, 2018; Schlegelmilch, 2016). When a company does not use segmentation, targeting, and positioning, it risks producing an undifferentiated offer for the mass market. If the products and services are only attracted to one or two segments within the market, the company will spend too much on marketing without sufficient return on investment. By tailoring the offer and marketing efforts to the needs and wants of potential buyers, companies can increase their chances of success and gain more from smaller investments.
Segmentation Variables
The first approach to segmentation applied by luxury hotels, including Mandarin Oriental Jumeira, is demographic segmentation. In particular, the occupation, income level, age, and family status of customers are crucial to the hotel. Customers that the hotel and its services are made for are high-income professionals, businesspersons, and their partners, married or in a relationship, without kids or with older children. Consequently, the two age groups of interest for Mandarin Oriental are 25-30 and 40-55.
Another approach to segmentation used by luxury brands is psychographic segmentation. Here, variables like lifestyle, values, and attitudes are taken into account by Mandarin Oriental Jumeira. Additionally, the need for status has been suggested as a psychological factor relevant to luxury hotel customers (Yang, Zhang, & Mattila, 2016). Because experience is also a predominant factor influencing luxury markets, it is essential for hotels to segment the market in terms of the experience that customers seek (Atwal & Williams, 2017). For example, customers staying at luxury hotels can be traveling for business or leisure, but they tend to select hotels that have a reputation for excellent service, regardless of the price. These customers are used to luxury, so they are expecting the hotel to have an appealing design and comprehensive facilities, which might include swimming pools, a spa center, a gym, a conference room, and other features. Given its location and established a reputation for luxury, Mandarin Oriental Jumeira is more likely to be interested in leisure travelers with a high need for status.
The use of demographic and psychographic segmentation in luxury hotel marketing is fully justified. On the one hand, demographic segmentation allows identifying the segments that could be the most lucrative in terms of income levels. On the other hand, psychographics segmentation focuses more on the needs of luxury hotel customers, thus enabling the hotel to create a targeted offer.
Porter’s Five Forces
Porter’s Five Forces offers a useful way of looking at the competitive environment within the target market. Each of the forces serves to contribute to or moderate competition in the industry. Hence, evaluating the strength of every factor and its influence on competition in the selected market helps to explore the competitive landscape in which Mandarin Oriental Jumeira operates. On the whole, the hotel’s competitive environment is moderately difficult, and although there are many other players in the market, it is possible for the company to succeed by tailoring its marketing offer to the needs target segment.
First of all, the threat of new entrants into the luxury hotel market is minimal due to the high costs required to build and market a new facility. Most luxury hotels in the area are part of global hotel chains that can make a major investment to target lucrative markets. However, the number of available sites also limits other chains’ entrance into the market, making the overall risk rather low.
Secondly, the threat of substitution in this market is high, as most market players have already adjusted their offers to the needs and want of the target segments. Consequently, virtually all luxury hotels in the area would provide customers with excellent service while also offering a full range of facilities to account for every luxury traveler’s needs. Due to the high threat of substitutes, rivalry among existing competitors is intense. However, competitive strategies that can be used by luxury hotels are limited. For example, customers from the target segment are unlikely to respond well to promotions and may even be driven away by them (Pohland & Kesgin, 2018; Yang, Zhang, & Mattila, 2016). Hence, every hotel seeks to develop the quality of its facilities and service continuously to withstand competition and maintain its reputation.
The high bargaining power of buyers is linked to the previous forces. Buyers know that they will receive practically the same level of service and very similar experiences regardless of the hotel they select. Because these customers are not limited in terms of expenses, they can select from a wide variety of offerings based on brand image, design features, reviews, referrals, and more. Nevertheless, the number of players in the market is rather limited, and customers from the identified segments still need to consider the availability of hotels in their purchase decisions. This somewhat reduces their bargaining power, although it remains quite high.
Lastly, the bargaining power of suppliers is low to moderate because luxury hotels typically source from local suppliers and seek to establish long-term relationships with them to ensure that goods are delivered as planned and there are no gaps in the hotel’s service. For this reason, they can negotiate prices with suppliers in return for long-term cooperation and an opportunity to collaborate with a famous brand.
Overall, the target customer segment identified in the previous section is moderately difficult to approach due to a high level of competition. Still, the segment remains highly attractive because customers are likely to pay more for the service they want, resulting in higher profitability. Both factors make the segment particularly important to established luxury hotel chains as they have the necessary resources to enter the market and attract customers.
Points of Parity
Points of parity are the attributes, qualities, or benefits that consumers associate with the brand and its competitors. In the luxury hotel industry, points of parity are essential as they highlight the hotel’s ability to meet the needs and wants of customers to the same extent as their competitors do. The first point of parity of Mandarin Oriental Jumeira is excellent service. Like other five-star hotels in Dubai, it is staffed with highly qualified personnel who receive above-average pay for the service they provide to customers. In addition, the hotel features a comprehensive range of facilities, which cover the entirety of customers’ needs during their vacation. The third point of parity is the design of the hotel. Although they might have distinctive themes in terms of design, all luxury hotels have to be visually appealing and well-maintained. These points of parity help the hotel match the image of other luxury hotels in the area, thus attracting customers from the same segment.
Points of Differentiation
Points of difference, or points of differentiation, are the associations unique to the particular brand or service outlet. PODs serve as a critical aspect of the company’s marketing strategy as they influence customers’ decision-making process. For example, a customer might choose to stay at Mandarin Oriental Jumeira and not at Four Seasons due to the former’s PODs. The main point of difference of Mandarin Oriental is its location. While the hotel is placed on the beachfront, it is also close to the city, meaning that customers have short-hand access to malls, entertainment venues, and other infrastructure. This is essential for customers as it means that they do not have to compromise between exploring Dubai and enjoying their rest on the beach. Another point of differentiation for Mandarin Oriental is a novelty. Whereas other hotels in the area have been welcoming guests for at least 5-10 years, Mandarin Oriental Jumeira opened at the end of 2018. In many cases, novelty can drive customers away due to low trust. However, Mandarin Oriental Jumeira has an established brand behind it, meaning that customers from the target segment are already familiar with it and know what to expect. Therefore, novelty can attract customers to this service outlet.
Perceptual Map
Figure 1 presents a perceptual map of Mandarin Oriental Jumeira based on two aspects common to luxury hotels’ market offers: price and location. The map reflects the hotel’s approach to pricing while also identifying its main point of differentiation, which is the location.
Conclusions and Recommendations
In conclusion, Mandarin Oriental Jumeirah is one of the more recent additions to the luxury hotel chain Mandarin Oriental. In order to increase its market share and grow profits, the hotel requires an excellent marketing strategy. Based on information from the literature, as well as from the company’s website and market offer, the company uses a combination of demographic and psychographic segmentation, which results in a well-defined target market. The attractiveness of the target market is influenced by the moderately difficult competitive environment, but the chosen segment remains lucrative due to its potential to bring profits. In order to ensure success with the target market segment, the company uses points of parity and points of distinction, thus showing that it meets market standards of service while also offering additional benefits.
The marketing strategy selected by Mandarin Oriental Jumeira is effective and highly relevant to its industry. Still, there are two recommendations that the hotel could consider to improve its marketing further. Firstly, it is essential for the company to abstain from price-based promotions because these can reduce its popularity among customers with a high need for status (Yang, Zhang, & Mattila, 2016). Secondly, the company should consider adding behavioral segmentation to its approach, as it would help to distinguish between customers who pay for their own stay and those whose partners or family members provide funds for them to travel. Because of the differences in decision-making processes between these two groups, they might require different marketing approaches.
References
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Atwal, G., & Williams, A. (2017). Luxury brand marketing–the experience is everything! In J.-N. Kapferer, J. Kernstock, T. O. Brexendorf, & S. M. Powell, Advances in luxury brand management (pp. 43-57). Palgrave Macmillan.
Barton, L. (2015). Active positioning: The importance of relevancy. Journal of Marketing Perspectives, 1(1), 48-57.
Camilleri, M. A. (2018). Travel marketing, tourism economics and the airline product. Springer.
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Schlegelmilch, B. B. (2016). Global marketing strategy. Springer.
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Yang, W., Zhang, L., & Mattila, A. S. (2016). Luxe for less: How do consumers react to luxury hotel price promotions? The moderating role of consumers’ need for status. Cornell Hospitality Quarterly, 57(1), 82-92.