Differentiating a Service in a Highly Competitive Market
In the US, retail establishments that serve alcohol are called bars. The US bar and restaurant business is one of the most competitive retail industries. There is a wide variety of retailers in the industry ranging from fast food outlets like McDonald’s to high end cocktail lounges. In order to clarify the industry, one can note two major segments: one that serves mostly food; another that serves mostly alcohol. The segment that concentrates on serving alcohol is called the Bars, Nightclub and Drinking Establishment industry.
Industry sources note that the Bars, Nightclub and Drinking Establishment industry is highly dependent on the state of the economy. In addition, alcohol-related trends are important. In periods of economic stress, the industry usually suffers. For example, in 2009 the US economy declined with increasing unemployment. Those two forces caused consumers to question their spending and become more careful how they spent. Trips to bars or clubs became unaffordable luxuries to some and consumer spending in the industry declined. The industry experienced an increase in consumer spending in 2010. However, the long term picture is not highly positive with predictions of continued competition from outside the industry through 2015. Customers will be attracted to restaurants or may choose to stay home (NCIAA, 2011).
The US bar industry includes about 45,000 establishments with combined annual revenue of about $20 billion. In an industry of that size one would expect a measure of consolidation with several established players emerging as market leaders. However, each state regulates serving alcohol, a situation which complicates consolidation. As a practical matter, the regulations serve as barriers to growth across state lines. As a result, the industry is highly fragmented with predominantly smaller companies, whose financial strength is limited. In the restaurant industry, alcohol regulations are less important and larger national chains have emerged they tend to have more robust financial foundations (Hoovers, 2011; NCIAA, 2011).The bar and club industry is marked by one of the highest rates of enterprise failure of any retailer.Analogously, conservative figures show that 26.6% of restaurants fail within the first year of operation (Parsa et al, 2005).
One challenge that bars face is short life cycle times. Like the fashion industry, nightclubs and bars are subject to novelty effects. What is new can often create a following. However, novelty does not last forever. Venues that are popular when they are new often become stale and lose customers who are attracted to the next new offering. In such an environment continuous innovation is seen as vital to forestall the inevitable loss of clients.
Bases for Differentiation
As noted above, the industry is divided into two main segments based on whether they serve food. In fact, both segments have become similar. The NCIAA noted that while bars originated in colonial America, by the late 1980s, the corner bar, which sells nothing but alcohol, was suffering significant loss of customers. To adapt and survive, bars started to emphasize food and became more like lounges, which serve food and even emphasize the sales of food items over alcoholic beverages. One popular competitive tool is the ‘Happy Hour.’Happy Hour promotions initially offered lower priced alcohol
during the early evening hours to attract patrons after a workday. In an attempt to attract the largest number of customers, bars offer different promotions with a special offer each day. Competition has changed the nature of many Happy Hour promotions to feature reduced priced food. Some of them omit discounts on alcohol.
One other product/service differentiation is whether the bar offers entertainment. Entertainment can range from playing recorded music and videos, television feeds of programs or sporting events, the presence of video games and recreational sporting items like billiard tables, or to live entertainment by musicians.
Most US bars fall into two categories based on their construction. Most feature a long bar as well as tables at which patrons can sit and eat and drink. Many are decorated with signs and point of sale items from brewers and distillers. Some also have unique items like antiques or other items to make the environment unique. They may vary in some ways but most of them are constructed in a way which clearly marks the establishment as stuck in a particular city in the present.
There is one bar located in Baltimore, Maryland that rejected the focus on here and now. The manager, Kristian Castro, wanted a location that psychologically transported patrons from gritty Baltimore to some other place and some other time.One image that stuck in his mind was of the American Old West. In Western movies, cowboys would walk into a saloon, and ask the ‘barkeeper’ for a drink. The typical scene showed the bartender placing a bottle of whiskey on the bar. The patron would pour his drink for himself. Castro liked the image and knew that it would differentiate his product from others in town.
Entertainment districts – A crowded competitive environment
The presence of nearby competitors can increase the level of competitive pressure dramatically.As cities have undergone ‘urban renewal’ some neighborhoods have been adapted to purposes different from their original reason for being. Some industrial areas have changed into residential neighborhoods while others have become part of new ‘entertainment districts.’ Baltimore features several designated entertainment districts. One is located in an historic waterfront district, called Fells Point that originally served seamen and locals. Fell’s Point was founded in 1726 by William Fell, a ship builder from England. It was Baltimore’s original deep-water port for over a century and was the location of some important nautical innovations. For example, Fell’s Point ship builders developed the famed Baltimore Clipper. In addition,they built two of the first ships in the US Navy, the USS Constellation and the USS Enterprise, and financed the “privateers” that helped win the War of 1812 (Fells Point Preservation Society, 2011). Over time the city changed and port activities shifted to a new location.The working neighborhood became somewhat run down. In the 1970’s Baltimore and the School of Architecture at the University of Maryland at College Park began exploring ways to upgrade the buildings and attract newer residents as well as to transform Fells Point into an entertainment location.
Entertainment districts are an efficient method of organizing city services. Each district is a distinct destination which simplifies transportation. Public safety is more efficient since police services can be concentrated where needed for fast response. Also, health services like ambulance and paramedic teams can be situated more simply to reduce response time.
One consequence of an entertainment district is the concentration of competitors which raises the level of competition. Patrons can walk from bar to bar performing something called a ‘pub crawl.’The result is that bars must share a given patron’s time and wallet. In this competitive climate, service differentiation is vital.Attracting and keeping the right customer is the major focus of competitors.
The number of bar competitors in Fells Point can be seen on the following map.
Each dot represents a retail location that sells alcohol and beverages. The blue area is part of Baltimore’s historic Inner Harbor.Selected major bars are flagged with letter symbols.
The name of the bar Castro manages is called The Horse You Came in On, also known as the Horse. It is the oldest established bar in Baltimore with roots going back to colonial times. It was founded in 1775, before the US Declaration of Independence was written. While the Horse is recognized as a local bar, it had no distinctive brand personality. It was one of the bars in Fells Point. Over time, the Horse lost its distinctive connection with its customers. In the eighteen century the customers were seamen, dock workers, and other locals. In the twenty-first century, customers were the mass of weekend ‘bar hoppers.’In Baltimore, patrons may start the evening in one bar and move to one or more others as the evening progresses.
The quest for customer relationships
Marketers know that customer experience with a product or service is an important determinant of success. If customers have not visited a particular bar, they have no direct knowledge of it. What they do not know, they don’t buy or use.If they do know the establishment, how does management keep them?
The fundamental question was, “How would one form a sustainable link between a patron and the Horse?”
Your task – To be presented in Baltimore
In this scenario the establishment “Horse” has been closed for the past twelve months and you are now the new owner of this entity.Given what you have learned about the bar and the Baltimore environment, devise a marketing strategy.
The only submission requirements: (A) 12pt type; (B) Double space; (C) 1” margins foot, head and sides; and (D) Cover page with your name, a title, and course number.
Fells Point Preservation Society (2019), http://www.fellspoint.us/accessed August 6, 2019.
Hoovers (2011) http://www.hoovers.com/industry/bars-nightclubs/1817-1.html. Accessed August 6, 2019.