Air Transportation - Chapter 09.pdf - po ang - Januszek66

Airline Passenger

Marketing

Introduction

Development of the Marketing Concept

The Marketing Mix

The Consumer-Oriented Marketing Concept

Marketing Strategies Since Deregulation

Chapter Checklist • You Should Be Able To:

▪

Deine marketing, and discuss its importance to

carriers in providing air transportation services

Explain what is meant by the marketing concept and

how it has changed over the years

Describe what is meant by controllable marketing

decision variables (marketing mix) and the so-called

uncontrollable variables

Explain what is meant by the consumer-oriented

marketing concept and how it relates to market

segmentation

Give several examples of three diferent intensive

growth strategies

Discuss some of the postderegulation marketing

strategies used by the major carriers

▪

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I N T R O D U C T I O N

Marketing is certainly one of the most important activities in any company, and the airlines

are no diferent. Approximately one-half of a major or national carrier’s employees are

engaged in the marketing process. Reservations personnel, ticket and customer service

agents, baggage handlers, light atendants, food service representatives, passenger and

cargo sales representatives, and pricing and market research analysts are involved in

marketing the company’s product—air transportation.

Marketing is that broad area of business activity that directs the low of services

provided by the carrier to the customer in order to satisfy customers’ needs and wants and

to achieve company objectives. Marketing is more than selling: it involves a number of

business activities, including forecasting, market research and analysis, product research

and development, price seting, and promotion, including advertising. Marketing also

involves the inance activities such as credit and collection that are associated with ticket

sales. Marketing is customer oriented. Creating products and services that fulill the needs

of existing customers and atract new customers is the primary goal. Determining who the

customers are or could be and what their needs are is part of the process. Marketing must

also assist in achieving the company’s objectives: an acceptable return on investment, a

reasonable level of proits, and an adequate market share.

Why is marketing so important? Without marketing and sales, there would be no

airlines. Marketing is the stimulus that encourages innovation, research, and investment.

A carrier can have the latest equipment and the most eficient human and capital resources

available, but unless somebody is there to sell the output produced, it is all for naught.

Historically, airlines have not done a good job when it comes to market research

concerning route networks which ultimately has an impact on airline passenger marketing.

The type or types of passengers the airline serves determines speciic routes, therefore,

determining speciic airports the airline will operate at. Many airlines have failed because

of the poor quality of their research. In the United States, prior to the U.S. Deregulation

Act of 1978, airlines did not have a need to do research because there was almost no

competition. In other words, airlines had a monopoly on certain routes and passengers

were forced to ly certain airlines regardless of price or desire. The same applied to many

of the European Union (E.U.) countries until the mid-1990s when the Third Package was

implemented. The Third Package was the inal step of creating a liberalized environment

in Western Europe where carriers can ly to any destination, at any price, and compete

with other carriers as long as they are operating in a safe environment.

In the twenty-irst century, airlines around the world are inding that extensive research

concerning passengers and destinations is required, due to an increasingly competitive

environment. Many airlines now spend great portions of their annual budget on market

research because airlines have realized for the irst time in their existence that passenger

loyalty no longer exists. Passengers will ly with the carrier that provides the best price and

gets them to their end destination on time. In today’s aviation environment, passengers

are price sensitive whereas before, passengers were more time sensitive.

Even though extensive market research is necessary, there is no guarantee that the

airline will be successful. Forecasting techniques are simply forecasts and the only real

way to “test” a market is to operate an actual aircrat on a route. If successful, the airline

has virtually no worries. however, if this test is not successful, the airline must have a

contingency plan in place to determine how the aircrat will be utilized without it spending

time on the ground. The author of this book believes three trends are occurring within the

c h a p t e r • a i r l i n e p a s s e n g e r M a r K e t i n g

global airline industry. It is important for the developer of the airline business plan to be

able to identify future trends and select a speciic tier in terms of what category of airline

the business plan is to be designed around. The three tiers include: regional/feeder carrier,

new-entrant/low-cost/no-frills carrier, and the “megacarrier.”

D E V E L O P M E N T O F T H E M A R K E T I N G C O N C E P T

The carriers’ marketing history before World War II was considerably diferent from what

goes on today. In the early years, emphasis was placed on the carriage of mail, not passengers.

There was more proit in carrying mail, and besides, the mail didn’t complain if it arrived

late or was too hot or too cold. Furthermore, people still had a love afair with railroads

and automobiles. Market demand for air travel was just suficient to absorb the available

capacity. This era was the production-oriented period in airline marketing history—a time

when services were so scarce that customers accepted whatever was available.

Ater the war, airline executives knew much more about how to operate their companies

than they knew about how the product they produced—air transportation—should be

sold. This was natural in an industry in which the irst task had been to develop a product

in which the public would have conidence, an industry that ater the war was confronted

with selling something relatively new, and an industry that basically had to improve

its product entirely out of capital, not out of earnings. Furthermore, while many of the

newly hired airline personnel in the postwar period brought technical skills acquired in

the military, nobody really had any experience in marketing the product.

For hundreds of years, people had traveled by land and water. The airlines in the

postwar period had to ofer a higher-quality product than consumers demanded at the

time. Probably no other product ever ofered to the public had to be so perfect, so safe, so

convenient, so passenger oriented, and so reliable as did air transportation before public

acceptance could be expected.

As the carriers’ capacity increased, many companies assumed much more active roles in

convincing consumers to purchase the new services ofered. At this point, it could be said

that the airlines entered their sales-oriented period. More oten than not, this approach

produced services that relected the operations and selling talents of the company, and

only secondarily the needs of the lying public. It was basically a shotgun approach to

marketing, convincing people to ly rather than drive or take the railroad. The airlines’

success cannot be disputed in light of the tremendous growth during the two decades

following the war, combined with the demise of passenger rail service in the United States.

By the late 1960s, market demand had outstripped available capacity, and so the wide-

bodies were developed to alleviate this problem.

Unfortunately, the airlines have been plagued with excess capacity ever since

the introduction of the wide-bodies in the early 1970s. Since that time, many carriers

have focused on the marketing concept, which stresses shaping services to meet

consumer needs rather than molding consumer needs to it the available services.

This concept has played an important part in the emergence of the consumer-

oriented period in the airline business, with its many tests and new-product surveys

designed to discover what consumers really want. we have moved from the shotgun

approach of marketing air transportation to the target market approach—that is,

identifying the speciic groups of customers to whom the company wishes to appeal

with its services. Once this is determined, the next step involves the selection of the

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a i r t r a n s p o r t a t i o n

appropriate blend of marketing activities, the kind and amount of activities necessary

to reach the target market. Let’s take a look at these marketing activities, which many

analysts refer to as the marketing mix.

T H E M A R K E T I N G M I X

The marketing mix consists of the types and amounts of controllable marketing-decision

variables that a company uses over a particular time period. Commonly referred to as the

“four Ps,” these variables are:

Product. The right product (or service) must be developed for the target market.

Price. A price that gives good value to the customer and adequate revenue to the

carrier must be set for the product.

Promotion. Personal selling and advertising must be used, both to communicate

information about the product to the customer and to facilitate sales.

Place. Appropriate channels of distribution must be found to ensure that the product

reaches the target market at the right time and in the right place.

These four elements are the controllable marketing factors that should be used to reach

the target market. Thus, any discussion of the business activities that direct the low of

services to customers must stress the four Ps. Because all four elements are present to some

degree in any marketing situation, the airline marketer’s task is not to decide whether to

use a particular element, but rather to determine the relative emphasis to place on each

element in the inal marketing program.

It must be recognized that the marketer must contend with certain uncontrollable

variables. Unfortunately, the marketing team does not work in a vacuum. Its actions and

strategies will be afected by some or all of the following variables:

Cultural and social diferences. These are the traditions and values of various ethnic

groups that represent potential customers. Such traits as eating habits can vary con-

siderably in diferent parts of our own country, to say nothing of diferent countries.

Political and regulatory environment. Political climates are constantly changing. New

levels of taxation and government spending can afect marketing strategies set by the

carriers. Regulatory requirements, such as allocations of landing quotas at certain

airports because of extreme peaking in the number of lights, can undermine the best

of marketing plans.

Economic environment. A good marketing program might be a lop if the economy is

going through a recession or rapid business downturn. Airlines are very sensitive to

changes in the economy.

Existing competitive structure. The number and types of competitors the marketing

team must face in its target markets may vary considerably.

c h a p t e r • a i r l i n e p a s s e n g e r M a r K e t i n g

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Resources and objectives of the company. Top management really controls these vari-

ables, and the marketing team must work within the restraints imposed on them. For

example, if management has placed great emphasis on short-term proits and less

emphasis on long-term market share on a particular route, the marketing team must

develop a strategy consistent with the company’s goal.

Although the marketing team can do litle or nothing about these uncontrollable variables,

it certainly must recognize them and be in a position to respond to them by altering its

marketing strategy. The term marketing strategy is used to describe the process by which

the marketing mix is changed.

Now let’s take a closer look at the four Ps.

P ro d u c t

To the average consumer, a product is simply a physical item with certain uses and a

particular appearance. In terms of the marketing mix, it is much more than this. A product

purchased by consumers encompasses functional, psychological, and aesthetic features as

well as convenience, reliability, and so forth. All of these characteristics are simply called

the product.

The airline product is not a physical item at all, but services that consumers ind useful.

Safety, on-time reliability, convenience in terms of airport proximity or seat availability,

frequency of departures, in-light cabin services, ground services including ticketing

and baggage handling, aircrat type, and even the carrier’s image are part of the airline

product. This deinition is consistent with the airline marketing concept, which stresses

the importance of services that satisfy certain consumer needs.

Quite frequently, airline marketing analysts discuss the product diferentiation that

exists in the industry. If we consider the output of an airline to be a seat departure, some

analysts will argue that we are basically dealing with an undiferentiated or standardized

product. A seat departure on United is the same as one on Delta or American. Or is it?

A seat departure from Chicago to New York at 11:30 a.m. and including meal service is

not the same as a seat departure at 1:00 p.m. with no meal service. Thus, the product is

diferentiated. There is some truth to both arguments. If three carriers are serving the same

market, all using the same aircrat and providing basically the same cabin service, on what

basis do they compete? generally, the answer can be found in the frequency of service.

The carrier with the most frequent service at times consumers wish to ly will generally

capture the largest market share. Consequently, each carrier atempts to schedule more

lights than its competitors around the popular early morning and late aternoon hours

to capture the biggest share of the market. Unfortunately, too much capacity in terms of

seat availability will reduce load factors to a point at which no one can earn a reasonable

proit. As a result, there is a tradeof between meeting consumers’ needs in terms of seat

availability and meeting the company’s objectives, including a reasonable return.

In marketing the airline product, certain unique characteristics must be recognized:

1. The product (service) cannot be kept in inventory to match luctuations in demand.

The revenue lost as a result of an unilled seat when the aircrat departs is lost for-

ever.

Air Transportation - Chapter 09.pdf

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