The Marketing Function

• Role of marketing : to satisfy consumer demand at a profit. In order to fulfill this role, the Marketing Process must ensure that the orgn’s products or services meet the needs and wants of consumers, and that these products or services are delivered at the right price, in the right place, and at the right time.

• “Eternal Triangle of Marketing” – CUSTOMER, COMPANY, COMPETITION– Circumscribed by Environment; interplayed on by Technology and

Regulatory factors on one side and by Social / Economic factors on the other

• Critical issue : if you can change the shape of the triangle by finding out how to get closer to customers than the competition can manage to do, you win; conversely, you lose.– As the environment changes rapidly, the need to constantly re-evaluate

what is needed to “win” increases

• ““To more effectively determine customer potential and to increase To more effectively determine customer potential and to increase revenue, transport enterprises need to target potential customers.”revenue, transport enterprises need to target potential customers.”

• The concept of Airline Marketing approachThe concept of Airline Marketing approach

– Production-oriented approachProduction-oriented approach

– Sales-oriented approachSales-oriented approach

– Consumer-oriented approachConsumer-oriented approach

Customer Focus

• …..then we have to concern ourselves with :– Defining the customer : customer and prospect,

first-timer, repeat, regular, solus (loyalist), advocate

– Consumer motivation : needs, wants– Customer decision-making roles and processes

• Specifier, user, influencer;

• Co. decision on travel class, carrier, etc

Needs of different travellers

• Short-haul business travellers - safety, punctuality, convenience, price, comfort, loyalty schemes, inflight service

• Long-haul bus travlrs - safety, comfort, punctuality, convenience, inflight service, loyalty schemes, facilities

• Leisure trvlrs - safety, price, culture comfort, inflight service, punctuality, loyalty schemes, convenience

The Marketing Mix

• Customer-focused set of activities directed at satisfying needs and wants

• Integrated/coordinated activities known as the Marketing Mix

• The 4 P’s– Product- the tangible or intangible good to be interchange

– Place- is the place where the buyer and seller will perform the transaction. It also refer to reaching the customer.

– Price- establishing a fair and reasonable economic compensation for the good

– Promotion- is the information transmitted through communication channel to possible buyers related to your product

The expanded marketing mix

• 3 Additional P’s - related to service industry– People- Any person coming into contact with customers can have an

impact on overall satisfaction. Whether as part of a supporting service to a product or involved in a total service, people are particularly important because, in the customer's eyes, they are generally inseparable from the total service

– Process- This is the process(es) involved in providing a service and the behavior of people, which can be crucial to customer satisfaction. Standardization is a Best Practice

– Physical Evidence- Unlike a product, a service cannot be experienced before it is delivered, which makes it intangible. This, therefore, means that potential customers could perceive greater risk when deciding whether to use a service. To reduce the feeling of risk, thus improving the chance for success, it is often vital to offer potential customers the chance to see what a service would be like. This is done by providing physical evidence, such as case studies, testimonials or demonstrations.

The Marketing Process

• Market information

• Market segmentation

• SWOT

• Objectives and strategies

• Develop and implement plans

– Continuously review and correct

Market information

• Scan the environment

• Travel market overview : mkt size (dom/intl, other modes, etc), major mkt segments, growths, forecasts, character

• Macro-economic environment : eco growth (GDP), eco recession, money supply, inflationary factors, foreign trade and investment, foreign currency trends and interest rates, stock mkt, national BOP

• Micro-economic environment : changes in consumer disposable income, changes in travel expenditures, price sensitivity, shifts in expenses trends, consumer credit

The Political Environment

• Government policies such as travel taxes and ticket taxes• Immigration, visa and passport policies• Financial factors, such as foreign debt and balance of trade• Regulatory legislation that can affect ticket pricing and credit• Govt tourism policies that can stimulate travel• Political stability-instability can impact destination demand• Extensive new security procedures eg post 9/11

The case of South Korea in 1993 - govt began experiencing an increasingly negative toursim trade balance whereby more Koreans were travelling and spending money abroad than visitors were spending in Korea. As this was resulting in a deficit of hard currencies, the govt introduced measures to discourage travel and spending abroad, including limitations on the amount of currency which could be taken abroad, tax audits on credit card expenditures and imported good purchases

Cultural and Social Environment

• Urban vs rural lifestyles

• Emigration and immigration which could affect seasonal traffic

• School vacation periods

• Size, race, age, and income of the population

• Decision making roles in the family

• Demographic and psycho-graphic factors– Demographic shifts

– Psychographic shifts

Shifts in Consumer Travel Behaviour

• The Old Way The New Way

How people book Thru travel agents

Thru internet

How people use travel agents

For advice, booking, ticketing & rebates

For ticketing & rebates

How people travel

As part of a large group

As individuals or families

Where people go ‘traditional’ destinations, eg Paris / New York

‘adventurous’ destinations like Kilimanjaro / Brazilian rain forest

The Technological Environment

• Industry highly technology intensive

• Aircraft development– Range

– Capacity

– Weight

– Fuel burn, etc

• Inflight pax comfort and amenities

• Product placement – electronic support and enhancement

The Internal Environment

• Company mission

• Capital structure and access to funds

• Assets and advantages

• Skills and remuneration levels

• Internal relationships

The Competitive Environment

• Comparative analysis on the factors mentioned in the previous slide

• Maintain updated records of the key changes and events– New routes

– New fares

– Marketing campaigns

– New aircraft launches

– Capacity evolutions

• Link changes and events in competitor activity to any information obtained on their traffic and revenue statistics

The Current Regulatory Environment

• All countries control their own airspace and domestic airline traffic rights

• Any international routes will involve at least two governments, and ‘bilateral’ agreements between these govts have been the process for regulating airlines

• ASAs• Freedoms of the Air• Growing trend towards liberalisation• The tussle between faster liberalisation and the restrictive approach• Airline alliances and the global portfolio, impinging upon traditional

ownership factors• Liberalisation leads to : innovation and product improvement, greater

competition, ‘artificial margins’ in the business due to restrictive regulations disappear putting pressure on revenue generation

Marketing Research

“The systematic design, collection, analysis, and reporting of data and findings relevant to a specific marketing situation facing the company”.

MR Programme

• Continuous Projects : regular and actionable updates on specific key trends that are important to your airline– Inflight surveys– Surveys of FFP members– Travel agent surveys– Surveys of internet web users

• Enables obtaining – mkt profile data dealing with reason for travel, destination, socio-demographic profiles (age, sex, income, residence, nationality), previous travel experience, and future travel plans

• Buying and usage behaviour eg plng / bkg lead times, internet usage, length of stay, travel companions

• Customer satisfaction ratings for key aspects

– Mkt profiling enables more effective mkt segmentation– Buying and usage behaviour readings to design new fare structures eg

APEX attributes– Inflt survey deficiency : needs careful sorting to distinguish amongst FFP

members, corporates, regulars, etc

……contd

• Special Projects

– Address non-regular research objectives

– A new route

– A business class relaunch

– IFE upgrade

– Competitor action and unexpected need for counter strategy

– There can be planned special projects and unplanned ones

Defining Objectives and Context

The following factors will help determine :

• Environmental scanning– Ongoing or new opportunities and threats

• Geographical, demographic, economic, political, etc

– Competition

• Co’s performance

• Specific missions or product projects

• Urgency of results required for decision-making

Research Methods

• Qualitative Research

– Involves the collection of a significant amount of data from a relatively small number of people in a fairly unstructured way, usually thru g d or in-depth personal interviews

– Due to the small scale, process can be completed quickly

– Provides real insights

– Guides in identifying which key issues are important to the customer

– Statistically not so reliable, sample being usually too small

Research Methods …..contd

• Quantitative Research– Involves the statistical analysis of information provided by surveying a

‘representative sample’ of respondents from the target mkt using a carefully designed questionnaire

– Personal interviews– Telephone interviews– Self-completion questionnaires mailed, emailed or distributed during the

travel process such as inflt surveys– Web-based surveys

• Techniques above are listed in order of cost

– Selecting the right method will depend on the trade-off between cost per interview and your judgement of the value for money that each method can deliver for a particular project

In some cases, your objectives will make the choice of method. However, more often than not a mix works, or one method to start with and

based on that go on the more extensive quantitative route

Research Design

• Designing Qualitative Research– Focus groups

– Individual ‘depth interviews’• Defining the profile of the respondents

• Designing Quantitative Research – balance between cost per response and likely ‘reliability and quality’ of data– Designing samples : target respondent; sample size; sample choice –

random / non-random

– Choosing the right technique : personal interviews, telephone interviews, questionnaires – distributed, emailed, mailed

– Questionnaire design : creating/maintaining involvement, a logical sequence, maximum clarity, employ relevant questioning methods, test for completeness, test for ease of processing and analysis

Analysing Research Results

• Application of statistical and other tests : stat tools and logic of views

• Need to relate results to other known information

• Need to apply “so what?” and “which means that” to each major finding

• Importance of testing established and new hypotheses

• Potential for building models : forecast enablers

Presenting Research Findings

• Verbal Report

• Written Report

The Lead Up To Marketing Strategy :Marketing Audit, Segmenting, SWOT

• Three steps need to be completed before we reach the key areas of setting Objectives, determining Marketing Strategy, and preparing Marketing Plans

– Marketing Audit - gathering mkt information

– Segmenting the market

– Conducting SWOT analyses

Marketing Audit

• Internal :– Orgnl structure and functional resonsibilities

– Network and routes

– Fleet

– Operating performance

– HR

– Fresh initiatives

• Competition :– Evaluate and compare on above points

– Any additional attributes

Mktg Audit …..contd

• Customers– Total market

• Volume

• Types of traveller

• Destinations

– Airline’s own market• Market share by destinations

• Fare type sales

– Customer knowledge thru inflt surveys, sales force feedback, special research projects

• Comparative travel by class and pax profile ie vs competition

• Comparative trends

• Brand related feedback

…..contd

• Environmental scanning

– Political : stability factor, policies

– Eco : GDP growth, trends by business sector, per capita income, currency trends

– Social : foreign nationals, ethnic, holiday travel

– Tech : innovatives affecting which areas eg internet

Market Segmentation

• Segmenting the market means dividing it into different ‘customer groups’ that are distinct from one another in order to :– A mkt segment is an identifiable group within a mkt that seeks the same

benefits or has the same needs

– Develop and launch new customer propositions that cater for each segment

– Establish the relative attraction of each segment

• Airline marketers have used the following segments over the years :– Business travel

– Holiday travel

– VFR (visit friends and relatives) travel

Business Travel

Needs

Good schedules

Speed

Comfort

Product & Prices responses

Suitable timings, high Fq

Non-stops

Business class, Sleeper cl

Wants

Excellect service

Price sensitivity

Low – prepared to pay for quality, flexibility

Better trained crew, IFE

Hold or increase prices to up revenue

Holiday Travel

Needs

Package of air+land content

Pre-planned solution

New places to see

Product and price responses

Inclusive tours, airline holiday programmes

Brochures featuring departures for a year ahead, guaranteed bookings

Development of new destinations

Wants

Security

Tour guides & representatives

Price sensitivity

High – low price is key

Cut prices to increase revenue

VFR Travel

Needs

Air fare only

Pre-planned solution

Same people and places to see

Product & price responses

Individual excursion fares

Advance booking or purchase featuring flts for a year ahead

Build up capacity to main destinations for VFR travel

Wants

Security

Travel insurance, association membership

Price sensitivity

High – low price is key

Cut price to increase revenue – develop new fare concepts

Approach Deficiencies

• Over-generalisation– Applying the same yardstick to all : there can be sub-segments – price-

sensitive business traveller

– Holiday trvlrs seeking quality and willing to pay higher

• Lack of key information : ie beyond simple journey motivation– Fqy of travel

– Travel pattern – destinations, seasonality, indiv or group

– Decision-making – who decides for the travel

– Socio-demographics – business profile, social class, ethnicity

Individuals & Segments

• Ideally, a marketer would provide individual attention ie ‘segment of one’!

• Therefore, airlines have FFP – a CRM enabler

• But the cost and overall burden of doing so, would be impractical

• Hence the importance of identifying segments

• Using their FFP databases, some airline have identified up to 25 different segments

• The question to answer is : how do we make segments that are sufficiently detailed to establish homogeneity for mktg strategies ?

Segmenting the Business Market

Illustrative parameters :

• Value – business pax travelling in Y less in value, but may travel more

• Motivation – travel for business exploration or fulfilling existing contracts

• Travel pattern – fqy, no. of destinations

• Buying pattern – who buys and how

• Needs and wants

• Satisfaction factors

• Influence

• Demographics

The Segmentation Direction …..

• Further to the listing in the last slide, there are several other ……– Is there a very specific reason for trip being made, eg religious,

honeymoon etc

– Who is paying and deciding on travel class and airline

– Individual travel or goup

• Based on all of the above factors, airlines have developed broad master segments as follows :

Market Segments

Business Segments

(sponsored by a co.)

Corporate business trvlrs

Individual business trvlrs

Meetings and conventions

Incentive groups

Ship crews

Labour traffic

Leisure Segments

(Self-sponsored)

Group vacationers

Indiv vacationers

Sports interest trvelrs

Adventure trvlrs

Cruise pax

Eco-cultural trvlrs

Other Segments

(sponsored by an orgn)

Govt workers

Refugees

Non-govt orgns (NGOs)

Teachers

Military

Other Segments

(self-sponsored)

Students

Immigrants

VFR

Religious trvlrs

Segmentation …..contd

• Each of the foregoing can be further subdivided to give a more detailed segmentation for mktg purposes

• This is particularly true of the first of the 6 business travel segments.

• Corporate business trvelrs - this large segment contains all the business trvl rerated by large orgns. – Can range from senior execs trvling in F Class down to relatively junior

emps in Y (job status is the main criterion used by these orgns to decide on the class of travel

– Airlines have learnt a great deal thru analysing the customer data from FFP

– This enables airlines to develop and use additional criteria to refinie their Mkt Segmentation approach, related to individual customer behaviour

Mkt Segments and ensuring relevance …..

• Multi-criteria segments approach is useful

• The more relevant criteria that can be applied to the segmentation process, the better; eg adding the criteria of value and destinations visited to corporate business travel helps fine-tune seg strategy

• The significance of relevance - if your airline flies between BOM and LON, spouses of British executives based in BOM could be an important segment to define; however, if your airline does not serve LON, this segment becomes irrelevant

• Another test of relevance : how large the segment is in the mkt(s) that you are responsible for; if this segment accounts for only 2% of the mkt, it is not going to be as relevant as it would be if it accounted for 52%

Why Segment ?

• Benefits of segmentation– Identification of customer needs

– Identification of new opportunities

– Discovery of new trends

– Mktg resource efficiency

• Mkt segmentation versus Target segmentation– First segment the mkt and then decide on which segments to target

• Focus

• Identifying resource requirements

• Setting priorities – ranking segments

Ranking Market Segments

• Try the BCG Matrix

• The key to ranking market segments consists of three variables :– The attraction of the segment

– Your airline’s performance in the segment

– The size and growth prospects of the segment• Growth rate

• Volume

• Operating margins capability

• Critical insight to be directed at : ‘with segmentation, we map the market and decide which segments we want to fight for’ !

Applying SWOT Analysis• Involves careful consideration of the strengths, weaknesses,

opportunities, and threats in each major target mkt segment– A ‘mktr’s balance sheet’, with assets on LHS and liabilities on RHS

Strengths

Mkt leader based on share & approval

Superior schedules & svc

Effective FFP

Weaknesses

Lack of some key routes

Recent punctuality poor

Shortage of account mgt staff

Opportunities

Continued total mkt growth

New fleet = better reliability & comfort

Be a leader in better ground service

Threats

Temporary economic downturn

FFP competition

More use of substitutes

Setting Marketing Objectives

• Objectives need to be SMART– Specific, measurable, achievable, relevant, and timed

• Process often followed :– Total market forecasts

– Growth in traffic and revenues

– Analyse SWOT outcome

– Set target Mkt Share, LFs, etc

– Breakdown to mkt regions / routes / flts and repeat the exercise of growth, MS, LF, margins, etc

Marketing Strategy

• Three main forms of strategy– Aggressive : where the objective is to increase mkt share– Defensive : where the objective is to maintain mkt share– Customer focus : where the objective is to obtain customer commitment

or loyalty

• With each of the above, a strategic mix is used that focuses attention on 4 key issues :– Important customer needs and wants that the competition provides for– Important customer needs and wants that the competition does not provide

for– Unimportant customer needs and wants that the competition does provide

for– Unimportant customer needs and wants that the competition does not

provide for

Aggressive Market Strategy

Competition

offer do not offer

important

Customer

Viewpoint

unimportant

outmatch upstage

match monitor

for change

Defensive Market Strategy

Competition

offer do not offer

important

Customer

Viewpoint

unimportant

Match – but build brand strength Careful use only

Don’t match monitor

for change

Customer Focus Strategy

Competition

offer do not offer

important

Customer ->>>>>>>>>>>>

Viewpoint

unimportant

Respond to

the customer !

Airline Examples

• In sequence

– Virgin Atlantic– British Airways– Icelandair

Customer Focus Strategy requires …..

• Direct feedback from individual customers

• Involvement of front line staff

• A more transparent and responsive orgn

Exploring Strategic Directions

• One segment : ‘niche’, LCC, Charter, air taxi for corporates

• Multi-segment : Elite 1 business travellers, independent holiday customers, VFR, group holiday customers

• Expanding/increasing market position : raising position, requiring an aggressive or customer focus strategy

• Devolving : reducing market position and almost always involves defensive strategy; the strength of this defence will depend on the short-term importance of getting revenue and profit from the segment involved

• Selecting strategy

Selecting Strategy

Segment1. Elite 1 business travel

2. Independent holiday

3. VFR

4. Group holiday

Suggested Strategy Customer focus

Aggressive

Strong defensive

Weak defensive

Marketing Plan

• The preceding act as inputs to the Marketing Plan

• At this stage, we need to analyse the major strategic considerations related to :– Pax data, eg FFP information

– Pax needs and wants segment-wise

– Competitor offers and action

– Fleet edge

– Innovation and ability to upstage (competition)

– Optimize resource utilisation, eg not waste on unproductive segment

Nature of Airline Products & Services

• The airline product is viewed in the following terms :

– Product hardware - features of the product that are mainly to do with equipment and facilities in the air and on the ground

– Soft side of the product - features that are mainly to do with how an airline’s staff treat its customers throughout

Product Hardware

PRODUCT

Scheduling features

A/c type, fqy, timings, no. of stops

Class of svc features

Inflt : cabin, seat access, seating,

Catering, IFE

Ground : Chk-in, lounge, baggage

Supplementary features

Reservations, bookings, spl svcs

Airline Products – the soft side

• Concerns the additional “Ps” of the mktg mix – people and process

• Main factors :– The skills, experience and motivation of customer contact staff

– The “user friendliness” of the systems and procedures they have to work with

– The degree of responsibility that they are given to resolve problems on the spot; also known as “empowerment”

• Customer touchpoints :– Airline web site when planning/researching

– Reservations staff when booking

– Ground services staff when checking in and proceeding to departure gate

– Cabin crew on board

– Baggage handlers on arrival

– Follow-up email queries regarding Frequent Flyer credits

Product Design

• Length of haul– Short haul : first frequency, second timings, third ifs

– Medium haul : timings, frequency, ifs

– Long haul : ifs, timings, frequency

• Length of haul concept– Medium haul : around 2-4 hours

– Long haul : more than the above

• Non-stop and no. of stop en route

• Networked flight connections

Redesigning Cabins

• Seats– Specs

– Pitch

– Premium class seating variations

• PSU features– FSC and LCC models

• IFE

• Cabin features : windows (size, shades, etc), overhead lockers

• Section bulkheads

• Lavs

Designing Ground Services

• Check-in

• Departure gate– The greater the e-orientation, the better for both above

• Lounges

• Baggage handling

• Airport sales/ticketing point

• Limousine service ?

Product Design & Mktg Strategy

• Scheduling features

• Class of service features in the air and on the ground

• Clarity on service model essential - the FSC – LCC conflict

Significance of Brands

• What is a Brand ?

A brand is what the customer sees, feels and thinks about one particular make of product that makes it distinct and preferable over other similar products on offer

• Master Brand / Sub-Brand– Eg Singapore Airlines

– S-b are all the individual names that an airline will have for its different products and services. Eg Raffles Class (Business C); KrisFlyer (name of SQ FFP)

…..contd

• Brand positioning - where your brand fits into the market in relation to competitors’ brands

• Brand image - how the brand is perceived : eastern carriers are exotic, German carrier is efficient

• Brand value - perception of the brand’s capability to satisfy needs of the target mkt segment

• Brand preference• Brand loyalty• Brand premium

Brand management is the process of building on the strengths of your brand family - working on the all the above aspects, then

auditing, and modifying as needed

Frequent Flyer Programmes

• The basic FFP customer proposition consists of three core elements :– Rewards

– Recognition

– Relationship

• FFP enables the airline marketer to :– Identify and communicate with individual trvlrs

– Segment the mkt on the basis of actual customer usage and value

– Deliver recognition benefits to the most valuable customers

– Build new relationships with the FFP membership base

• FFP loyalty schemes

Significance of the Airline Schedule in the Mktg Mix

• Concept : plan the flights and operating patterns of the airline’s aircraft in order to meet the following objectives :-

– Customer satisfaction

– High aircraft utilisation

– High load factors

– High connectivity

– Generate and maximize financial margins

– Productivity of human resources

Flight Patterns

• Major types :– O-D non-stop

– Linear : multi-stop

– Triangular : co-destination

• Connectivity patterns– Hub and Spoke

– Multi-Hub and Spoke

Marketing Mix ‘P’ - Promotions

• To create awareness of the product and its attributes

• To form a communication bridge between the airlines product offers and the target audiences for them

• Also referred to as marketing communications

• In today’s crowded marketplace, airline needs to be effective at promoting its products to the target audience if it is to be noticed, understood, and considered for purchase

• Market globalisation – thanks to deregulation and new technologies like internet, airlines now have to consider their market as being a borderless globe that is open 24 hours a day, 365 days per year– Websites and internet bookings are now critical tools

Promotions based on AIDA

• Attention : the targeted audience becomes aware of a need-satisfying offer

• Interest : the targeted audience takes interest in the offer

• Desire : the targeted audience desires to take advantage of the offer

• Action : the targeted audience takes action ie buys the product or service

Promotional Mix

• Personal selling

• Advertising

• Joint promotions using direct mail

• Electronic media

Personal Selling

• Benefits of Personal Selling

– Focus

– Flexibility

– Effectiveness

• Disadvantage– Expense

Advertising

Types of advertising media

• Print media : newspapers, magazines

• Outdoor

• Broadcast media : TV, radio

• Direct mail

• Direct e-mail : low cost, personalisation possible, time-to market

• Joint promotions : co-branded credit cards, joint mails with cr card cos and hotels, etc

Effectiveness of Advertising & PR

• Selecting the right media– Match with market segments

– Combination of media

– Expenditure allocation

• Using advertising agencies– Track record, versatility, creativity, commitment, purchasing skills

• Co-operative advertising– With hotel chains, travel agents, etc

• PR– Press conferences and press releases

– Media kits : information brochures, CDs, etc

– Hosting meals for journalists

– Other speaking opportunities

Sales Promotion

• Corporate sales

– Corporate prospecting

– Corporate contract

• Role of Travel Agents