Core product

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  • 1. COMPETITIVE ANALYSISPRODUCT LEVEL ANALYSISThe product offered by airlines is essentially a service, although it can be supplemented by aumber of physical products too. The services offered are:1.In-flight services 2. On ground servicesThe services provided inside the flight include the core service of travel, crew, ambience andcomfort, in-flight entertainment etc. This is highly variable across competitors as per brand anddifferent classes of travel.The on-the-ground services include a convenient airport with car parking facilities, waitinglounges, duty free shopping quick and efficient checking of baggage, efficient service atreservation counter, transport to the airplane, etc. Although the physical infrastructure part ofthe on ground services are usually maintained by the airports authority but airlines likeKingfisher have gone a step ahead to make separate lounges for their customers to make themfeel special.CORE PRODUCT AND SUPPLEMENTARY SERVICESCORE PRODUCTThe core product of the airlines industry is the service of transporting passengers and goods todifferent destinations. This is supplemented by various other services mentioned aheadSUPPLEMENTARY SERVICES InformationUpto date information regarding flight schedules, ticket fares, promotion schemes, new policiesand systems, etc are available to customers.
  • 2. ConsultationAirlines are suggesting and designing products like packaged tours to the customer.Also, providing the customer with various options regarding the route of flight, in-flight cuisine& benefits asks them to play a role of consultant.Order takingThe order taking procedure is essentially the booking procedure of the airlines. The important aspectto be noted here is that the procedure should be smooth, easily understood and fast. Also provision ofinstantly updated information about availability of seats and fares is required.Hospitality & CaretakingWith the increased competition today hospitality has emerged as a key-differentiating factor. Itis tested right from the time of booking till the post flight help extended. It also includessafeguarding the baggage.Billing & paymentBilling options available to the customer are plenty including credit card & travelers cheque.Airlines use the open account system with their corporate clients. Frequent fliers are also givenspecial payment privileges. It is now being positioned between a full service and low cost carrier.BRAND MODEL FOR AIRLINESBranding of airline industry has to be based on delivering on its promises, long term customerengagement and continuous innovation in its services. For the airlines to build a brand imageconsistent with these, the following brand model proposed:1) Brand Expectation- Making an authentic promiseThis promise is a reflection of the brand’s identity and itsdifferentiation from other brands. Kingfisher airlines for example
  • 3. clearly promise its guests an unparalleled experience in the skies. Air deccan (when it existed)promised the lowest fares.2) Brand Experience- Keeping the wordThe promise has to be kept as literally as possible. For exampleVirgin Airlines in the US promises to “reinvent air travel” and does a great job in not just meetingthem but exceeding them too.3) Brand Expression- Engaging the customerIt refers to extending the engagement with the customer beyond the flight hours. Theengagement should ensure constant touch with them. For example: few airlines give away theirheadphones and in-flight magazines to passengers, which they subsequently share with morepeople. Low cost carriers lose out on this opportunity to invest in engagement with thecustomer.4) Brand Externalities- Dealing with industry uncertaintyThe externalities could be as small as a flight being delayed to a pilot union strike or agovernment regulation to a plane crash Nonetheless, all need to be handled effectively tomaintain the brand image. For example: Airlines like Jet Airways and Singapore Airlines havebeen upgrading to newer, more fuel efficient planes in good times to hedge fuel costs tocounter the rising oil prices.5) Brand Extensibility - Staying consistent over timeDelivering an experience requires meticulous planning and persistence. An opinion blog aboutKingfisher Airlines said “The amazing observation on Kingfisher is that all the employees (cabincrew, ground staff and others) project a consistent and common kingfisher brand image andlifestyle which is live king style and fly good times. This is proved by very pleasant
  • 4. approach and attitude of its employees towards all customers. Consumer satisfaction Indexabout a particular airline as perceived by consumers is given below :PRICINGPricing is the value perceived by the customer. Pricing decisions cannot be made in isolation ofproduct. Product and pricing decisions are made together. Deregulation in airline pricing hasgiven the companies an edge to charge fares.PRICING ENVIRONMENTWith the advent of sophisticated systems for managing the sale of seats it is easier to developsound pricing policies. Seats are sold on first-come first-serve basis, so passengers get cheaperfares by booking earlier. Airlines adjust prices as per demand and there is no difference inconditions.SELECTING THE PRICE OBJECTIVEWhen Airlines put in capacity (seats) and frequency (flights) between any two points, theymarket research the route in order to arrive at the total potential for that segment. Size of themarket is determined to decide the price. Pricing or fare levels are arrived at after taking into
  • 5. consideration various factors like type of aircraft, configuration of aircraft (number of seats),density of route, competitor activity and minimum breakeven cost.PREMIUM PRICINGThe airlines may set prices above the market price benefited by its ‘brand-image’ to reflect thequality of their service. Example: Jet Airways, Kingfisher, Indian Airlines, etc charge a premiumprice for providing frills and extra comfort to the customer. They provide options like first class,executive and economy. A trip from Mumbai to New Delhi will cost anywhere between Rs 6000to Rs 23000 depending on the class and time of flight.VALUE FOR MONEY PRICING:Low Cost Airlines like Air Deccan, Spicejet, Indigo, Goair, etc go for value for money to chargelower by operating cost cuts. Low cost carrier model go for dynamic pricing strategy. Theyfollow low and simple fare structure .They point-to-point links between primary and secondaryairports with high frequency. The airlines provide basic services nd just one class. The objectivehere is to undercut the competition and price is used to trigger the purchase immediately. Unitprofits are low, but overall profits are achieved by volume. Prices are as low as Rs 4000 whichincludes mostly the tax componentDETERMINING DEMANDThis industry is highly price sensitive . With the development of Global Distribution Systems thecustomer can assess all the tariffs; they shop on internet where it is easy to compare ticketprice, flight time and number of stops in route. In case of recessionary periods when supplyexceeds demand, airlines find it difficult to fill seats and pricing becomes extremely important togather market share. For example, for a flight leaving to a business destination on a Mondaymorning, very few seats will be sold at low prices. Almost all the tickets will be sold at high faresand bookings sold at relatively shorter time.ESTIMATING COSTSThe aviation turbine fuel (ATF) and staff( flight, ground, reservation and ticketing staff) form themajor part of the operating cost. Other part includes navigation, landing and parking costs,
  • 6. repair and maintenance. Apart from operating costs there is insurance, Inland Aviation travelTax(IATT) and Passenger Service Fee (PSF).ANALYZING COMPETITOR’S COSTS, PRICES AND OFFERSLCC reduces their prices by having high seat density, reducing costs by providing no frill. Theyalso go for uniform aircrafts to share parts; they go for high airtime and generate revenuethrough alternate resources. Full Service Providers charge extra premium for extra services likein-flight cuisines, magazines, entertainment, the flexibility and comfort provided to thecustomers.ADAPTING PRICESPRICE DISCOUNTS AND ALLOWANCESPrice discounts need to be carefully done otherwise it may result in diluting the revenue ofairlines and affecting their brand-image. Discounts are given on off-peak flights which might goempty if not filled. Discounts can also be given by provided fewer services to the customer.DIFFERENTIAL PRICINGAirlines usually practice differential pricing. There are three classes:The First Class, The Executive or Business Class and The EconomyClass.Fares for each class are different since the facilities provided and the comfort and luxury level isdifferent in each class.Though all the passengers get the same tangible product features but the intangible featureslike flexibility is different. This justifies differential pricing.INITIATING AND RESPONDING TO PRICE CHANGESAirlines went for a price cut with the entry of Air Deccan in 2003. It was done to retain theirmarket share. In a price sensitive market like airlines increasing the price might lead toconsiderable drop in market share so any major price increases are done in coordination withcompetitor airlines. Price increase leads to higher profits.
  • 7. MARKETING COMMUNICATIONSThe users of air services typically include business executives, cine artists, politicians anddomestic and international tourists. Hence, creativity becomes an important criterion. With thelooming worldwide financial crisis, airlines are facing financial crunch and it has becomeimperative to use different components of marketing communication optimally:ADVERTISINGAdvertising should be done keeping in my mind the quality and nature of the target audience aswell as level of expectations. Advertisement slogans, message and campaigns need to beproactive. Air India has been facing the image problem but advertising may be efficacious intransmitting the facts and removing the image problem.SALES PROMOTIONMany domestic low cost carriers (LCC) like Indigo, Go-Air mainly advertise the low base ticketprices and promote advance bookings to avoid poor occupancy. Also to improve the brand
  • 8. recall, promotional incentives are given out e.g. Indigo has a crazy assortment of gifts beinghanded out which includes LCD TVs, Refrigerators, laptops, mobile handsets, etc.PUBLIC RELATIONSStrengthening public relations activities is essential to promote the nbusiness airlines or airways.The Public Relations Officer, Receptionists, Travel Agents, Travel Guides, Media people aresome of the important people who publicize the business. But, the most crucial point in this isthe co-operation of media as it directly affects the brand imagemanifold.TELEMARKETINGBooking counters, enquiries, reception counters, users’ complaints cell, announcers are foundplaying an incremental role in promoting the air business because most of the travelers make animpression about the airlines depending upon the tele-support that they get while using theairlines service.IN-FLIGHT ADVERTISINGThis concept which is originated overseas has recently been identified as an effective promotionmedium in which audience is hundred percent captive. This is achieved through airingadvertisements during entertainment programs on television sets installed on the aircraft.Otherthan advertising via television screens, advertisers hop on board and communicate throughlatest ad films inside and outside the aircraft. Kingfisher Red, formerly Air Deccan had partneredwith Cutting Age Media to effectively communicate through this non-traditional niche media.
  • 9. PRODUCT LEVELSVarious product levels at which the airlines compete are:THE CORE BENEFITIt is the benefit which the customer is actually buying. In our case it is the service of traveling ortransportation of goods.
  • 10. THE BASIC PRODUCTAt this level the core benefit is converted into a basic service package. This includes from buyingthe ticket to reaching the destination. The low cost airlines like Indigo, GoAir, Spicejet offer theproduct at this level and compete on the basis of price.THE EXPECTED PRODUCTThis includes a set of services and products that the consumer normally expects to receivealong with the core benefit. For example: In flight snacks, comfortable seats, on time departureand arrival etc. The low cost model of airlines labels these addition services as ‘frills’ and trieseither to eliminate or charge separately for these.THE AUGMENTED PRODUCTAn augmented product exceeds customer’s expectations. For example: Serving hot food, warmand friendly crew, provision of in flight entertainment etc. Jet Airways, Kingfisher Class, Air IndiaIC compete in this segment.THE POTENTIAL PRODUCTAt this level all possible augmentations are offered and the companies try to encompass newand innovative ways to satisfy customers. Where Emirates airline offers onboard shower spasfor the first class customers, Thai Airways offers a limousine service at the airport and VirginAtlantic offers an onboard massage. As the level moves from the core benefit to the potentialproduct, the competition moves from price to service and experience of the customer. Variouscompetitors operating at different product level in India are shown in the diagram in Annexure.BRAND RELATED ASPECTSBRAND POSITIONINGIn a highly competitive scenario it is imperative for any airline to build its brand and have afocused marketing strategy.
  • 11. POSITIONING OF A FEW AIRLINE BRANDS OPERATING IN INDIA1. Kingfisher Airlines - Full Frills - True Value CarrierThe Brand Kingfisher has been made synonymous with `Good Times’ in India. Coherent andclear positioning has also enabled Kingfisher Airlines to differentiate itself in a market. Kingfisherhas implemented this positioning by making service and hospitality their main focus.2. Spicejet - McDonalds of the skiesSpiceJet seeks to position itself as an innovative, modern, safe and customer friendly airline. Theairlines philosophy is to make air travel accessible to a growing market of time and costconscious consumers yet at the same time open newer markets.3. Jet AirwaysJet Airways is positioned as a global airline with the highest international standards but with atouch of India. They have retained many of the familiar elements of our corporate identity, buthave contemporized them to make the brand more relevant to global markets.4. Air Deccan - Simplifly Deccan - Kingfisher RedAir Deccan had substantial brand equity among the consumers and had became synonymouswith low-cost travel in India. The rebranding followed an exhaustive market study which showedthat although the brand was closely associated with pioneering the low-cost airline business, itwas perceived as a carrier that was consistently late and suffered serious service issues. Thebrand’s makeover by Kingfisher to first Simplify Deccan and then to Kingfisher Red has alsobrought a change in its positioning. It is now being positioned between a full service and lowcost carrier.
  • 12. TOP 5 ADVERTISERS OF AIRLINE SECTOR IN 2007 Top five Domestic Airline advertisers togethercontributed 98 per cent share of overall Domestic Airline advertising on TV during 2007.(Merger of Deccan Aviation and Kingfisher Airlines took place in Dec 07. Hence, the two entitiesare separate above)
  • 13. FLIGHT CLASSThe flight class graph indicates that the proportion traveled by business class is very small incomparison to that traveled by economy class. This indicates that most business travelers areflying Economy class as well. Flight Class Business % Economy %In the above chart, in the airplanes mostly there are more of economy class (88.4%)seats thanthe business class (11.4%)