Aeroflots global marketing approach in Russia & U.K - Case Study Example

07-01-2007 Analysis of Aeroflot's global marketing approach in Russia & U.K The global environment: Air transport is a large and growing part of world economy. The Air transport Action group forecast that by 2010 the economic impact would approach $2-$3 trillion, accounting for even 30 million jobs. Clearly the development of an efficient global air transportation system has enormous consequences not just for consumers, but for local, national and world economics as well. No other industry is regulated such a degree on an international level. The aviation industry to still dominated by flag carriers, which have historically been molded by the political concerns of national governments but now are under threat from the low cost carriers. At a time of high competition, particularly on most profitable routes, the difficulties faced by airlines are compounded by the high exposure this industry from outside control. Volatility in fuel prices, war, international tourism, industrial action and the impact of illness such as SARS and Avian flu are some of the risks. 2. Global activities of Aeroflot: The end of Soviet Union brought sweeping changes to the ownership and management of the industry with privatization and entry of new private businesses in the airline and airport sector. Presently only four commercial airlines -Aeroflot, Sibir, Pulkovo and UT Air - carry more than one million passengers a year. Aeroflot dominates the international market whilst in the domestic market it faces competition from the others (Sibir is the leading Russian domestic passenger carrier). Aeroflot provides 37.7% of the total seats supplied in the overall Russian-EU market with Lufthansa the next nearest carrier with 12.6%. As part of the privatization process, many of Aeroflot regional divisions became independent airlines and now compete with their former parent. Aeroflot is an open, joint stock company; with state owns 51% shares. Aeroflot flies to 126 destinations in 70 countries of the world. Russia has currently 215 registered airlines (267 in 2000), including 55 state-owned carriers, a number which is expected to decrease in the years to come with increased competition, more stringent governmental licensing procedures and the enforcement of higher safety requirements. Based on 2005 data, Aeroflot's share of the Russian airline market in terms of passengers carried would increase from 17% to about 35% on domestic routes and from 31% to 48% on international routes (i.e. from and to Russia). In terms of total passengers carried on both domestic and international routes, Aeroflot will control a 41% market share vs. 23% on a stand-alone basis, with a huge gap between it and its nearest competitors - Sibir (12%), UTAir (5%) located in the oil-rich Khantimansiisk region, and VIM Avia (5%), a recently established charter carrier operating a fleet solely composed of foreign-made aircraft. Domestic expansion, in addition to bringing returns to scale, should have the effect of establishing domestic feeder routes that would ultimately provide a basis for renewed growth in Aeroflot's international business. 3. Standardization Vs. Adaptation: As a principal objective of the Russian government is to develop domestic air transport through major restructuring in order to increase efficiency and quality of services. The state would pay for the new shares with its stakes in the largest state-owned airlines: 100% state-owned Pulkovo, GTK Rossiya and Dalavia, Krasair (51%), Vladivostokavia (51%) and Sibir (25%). Aeroflot would hence end up with stakes in all of its major competitors, while the state would increase its ownership in Aeroflot. Aeroflot management and the state since late 2004 and was initially suggested as a way to increase the company's market capitalization. The larger free-float probably resulting in a higher market capitalization, the Russian flag carrier would also expand the scale of its operations on both international and domestic routes, which is important given the airline business's low margins. This would also eliminate Domestic competitors, which would increase Aeroflot's pricing power in the regions. It would be much more difficult for them to compete with a larger and financially stronger Aeroflot, which in turn may force them to seek Mergers and alliances. That would of course be a healthy process, necessary to maintain safety in the Russian airline industry which currently consists of more than 200 airlines, the majority of which are too small to fund the renewal of their ageing fleet and pay reasonable salaries to their personnel. Its monopoly market position with better pricing power, stronger financials as a result of cost savings, and the unification of the various companies' route and fleet strategies, the company would gain additional growth momentum through both better route connections and the development of four major hubs (compared with only one now). The company faces only moderate competition on domestic routes and can offer attractive pricing on international flights, benefiting from the low cost base in Russia. Larger structure would have a higher market share, stronger financials, more hubs and a higher market capitalization. We include KrasAir, Pulkovo, GTK Rossia, Vladivostokavia and Dalavia in the new company's profile, while excluding Sibir. Taking over five state-owned airlines would enable Aeroflot to become the dominant airline on the Russian market, with more than 14 mn passengers carried annually and roughly $4 bn in revenue. By global standards, Aeroflot would however still be a medium-sized airline. As far as in international operations are concerned UK currently accounts for around 2% of outbound trips from Russia. Global Tourism Navigator shows us that UK was 12th in the actual ranking of top destinations (short and long haul included) for Russian outbound travel in 2004. According to online population in Russia, UK is ranked 4th out of 24 destinations that would be likely for a leisure visit "if money were no object". France, Italy and Japan are the top three destinations Russians would like to visit. The biggest proportion of Russian visitors comes to the UK for Business (37%). 20% of Russian visitors are Holiday visitors and 18% VFR visitors. In 2004, 13% of Russian visitors visited the UK for study. Currently about 12,000 Russian students are in higher education in Britain and 6,000 Russians visit Britain to learn English every year. The Russian government has announced plans to significantly improve the overall competitiveness of Russian carriers by adapting to international, commercial, environmental and service-related standards and progressively liberalize the Market. Aeroflot which already became a globally-known brand now works on retaining its share while competing with such global brands as Air France, JAL, Lufthansa and others. Aeroflot brand advertisement and promotion in UK based on the following massage. "Aeroflot brand is based on the values of a multicultural nature," says Tatiana Zotova, Aeroflot Marketing Department Director "We don't single out segments on the basis of race, nationality or language. Our flights serve a lot of foreign citizens." The company believes that it's necessary to compete with global air carriers at the product offer level. The company offers specific brand products and services for UK market. Most of the passengers in UK book their tickets online so Aeroflot started booking tickets online especially for UK market and upgraded its system. The focus is on the high-income group - business class passengers. One of new features introduced were the fully reclining seats on medium-haul flights, which were previously offered only on long-distance flights. Many leading air carriers are now installing modern cocoon-like reclining seats in the business class of their long-haul flights. According to Zotova, Aeroflot cannot ignore this convenience, which, in fact, has become a standard for the industry. Aeroflot presents itself as an international company and does not specifically target the Russian-speaking audience; its Russian origin is an integral part of its image. Aeroflot emphasizes this by supporting major cultural events promoting Russian art and culture abroad. The highest proportion of EU-Russia air traffic is between Russia and Germany (39% of EU frequencies with Russia), followed by traffic with Spain (12%), France (11%), UK (8.5%) and Finland (7%). Most Russians still prefer to travel with Aeroflot, the state run airline, because their ticket prices are still lower than most Western carriers. UK market is now facing competition from low cost carriers (LCC) such as Ryan air. Almost 42% of UK bookings have been done online for LCC. So Aeroflot has to device its pricing strategies differently for UK market. "Aeroflot to improve onboard catering for economy class". While the airline is promising "a wider range of meals"EUR it concedes that it has abolished free vodka and other drinks because of "an upsurge in fuel prices". Initially aeroflot used to be "no frill" airline but due to competition in UK market it follows the other competitors on providing fecilities to its passengers. Aeroflot in UK has initiated another "mile gain" bonus programme for frequent fliers. They have been provided various facilities and privileges like stay in hotel, providing additional flights etc. on spending accumulated miles. Children bonus programme, access of personal accounts via WAP through mobile phones has been the feature of Aeroflot UK. Cheap tickets on advance bookings in certain class and routs have also been provided by Aeroflot UK. Other major airlines offering convenient connecting flights to the UK are Lufthansa, Swiss and newly established in Moscow SN Brussels offering flights to London, Birmingham, Manchester and Edinburgh at competitive price. In 2005 an online survey was conducted in Russia to identify "Best Prospects". 72% of "Best Prospects" would travel to Britain for holiday purposes. "Best Prospects" tended to be younger and from higher income households than non-best prospects. 75% of "Best Prospects" were under the age of 45 (35-44 and 25-34 were the largest groups). 93% of the Russians in the online survey treat themselves to the best they can afford on an international holiday - that's online Russians across the board and not just Britain's "Best Prospects". The IPS shows that 37% of visits to Russia are for business purposes. According to IPS 2004, 69% of Russian visitors had visited the UK previously within the last 10 years. The key sources of information when planning a trip are: the Internet, Word of mouth and Travel agent. Whilst research may be conducted on the Internet, the actual booking is made in the travel agency. Travel agents play a more important role in Russia than they do in Britain. The vast majority of Russian business and leisure travellers will book their trip through a travel agency. This is because in Russia many banks will not allow you to use your credit card to book over the Internet. Russians do not tend to use the Internet for comparing prices of flights and hotels. There is little point in this, as they cannot book through the Internet, so instead they compare prices between travel agents. So Aeroflot have to be different in marketing strategy for British and Russian people. Russian people normally inclined to use Aeroflot due to nationality feeling and cost and wealthy Russians who tend to use other airlines due to pride and prestige may comeback to Aeroflot due to its services, improved brand image, comfort, safety and security and for British people Aeroflot has to improve/change its wrong perception through better public relation management, improved satisfaction to its customers, services, safety, security, better connectivity, technology, trained manpower to handle foreign customers, modern western built aircraft and cost. As we find that British people are more aware than Russian counter parts so they must be provided with better plans and products to use Aeroflot. Aeroflot has been working towards redefining itself as a safe and reliable airline. In the era of information revolution, branding becomes so important that brands itself depicts its services or products. Knapp's, in Les Seminal book, "The Branding Mindset" (2001) defines brand as" the internalized sum of all impressions received by consumers resulting in a distinctive position in their Mind's eye based on perceived emotional and functional benefits." David understands a brand as" all of the promises and perceptions that an organization wants its customers to feel about its products and services offerings (Davis, 2003). Kotler (1997) sees it as "A sellers promise to deliver a specific set of features, benefits and services to the buyers". Blumenthal's approach (2003), states, "Brands provide a sense of meaningful identity that is distinct from the particular product or service being offered." From the above definitions of brand it have been quite evident that it creates a separate identity, special perceptions in the minds of consumers and ultimate loyalty or disliking about the brand. It is an added psychological value to the product (Lepla & Parker 1999; Macrae, 1996). 4. The total global marketing effort: Aviation industry having presence across globe must have brand image. Aeroflot, being a Russian national carrier often arouse the nationality feelings among the customers and psychologically influence them to prefer Aeroflot. Aeroflot - Russian Airlines" OJSC presented a new uniform for the airline's employees of ground services and a new standard of uniform for flight crews and cockpit personnel. The well-known Russian Fashion House of Victoria Andreyanova has designed the uniform. The uniform of the cockpit and ground personnel is not just functionality but also an important element of the brand expressively reflecting its corporate value - Russian hospitality, kindliness and sincerity. In 2004-2005 all the members of the on-board service personnel and employees of the flight complex changed their dresses to a new uniform, and the employees of the sales centers of air tickets, aviation safety services, airlift-airfield complex, representative offices abroad and within Russia - in 2005-2006. Now the new color of the planes, new design of cabins, new service and new uniform keep to the unified recognizable Aeroflot style. Aeroflot having undertaken a successful rebranding exercise over the years. New advertising campaign aimed at building on passenger's positive responses to the airline's new corporate identity developed by UK consultant Identica that has affected everything from aircraft livery to uniforms. The target audience for the advertising says Aeroflot, will be travellers in business and first class, but that it expects to benefit from the increase in general awareness of the airline's offering and improved standards. The campaign says the airline, being seen as a longer-term exercise in raising awareness and improving perceptions rather than something that will bring immediate sales benefits. An approach, that is in marked contrast to the current advertising of Russian carriers principally focused on price. The agency identifying the unique difference for other carriers as being the airline's Russian "soul". A soul that manifests itself in generous Russian hospitality and the campaign seeks to reflect this. The three TV ads and three billboards showing delicious food, comfortable seats and welcoming cabin staff, with the strap line "because of big soul" perhaps better interpreted in English as from "the bottom of our hearts". At present, Aeroflot in Russia's only network carrier, which gives it single most competitive edge well diversified network of international and domestic routes flown by its partners under codes sharing agreements allows Aeroflot passengers to reach virtually any point on the globe by way of a single ticket. In 2004, the company adopted a new corporate slogan "Sincerely yours, Aeroflot" Aeroflot became first airlines in former USSR to join a global alliance (Sky team, another option was entry into star Alliance). Russian visitors are prepared to pay for a wide range of services, but expect high standards in return. UK, France and the US are still considered to be the 3 most prestigious destinations, but the high profile activities of other countries mean competition for Russian visitors is getting tougher. Brand quality is one of the key factors that determine the company's competitive ability in the market place. Aeroflot's strategy involves delivering a product, which conveniently differs from that of its competitors and which meets the highest world-class standard. The core components of company's brand are safety and reliability. Aeroflot will endeavor to maintain its safety rating at the highest level in the industry, while striving to reach the punctuality and regularity indicators of leading global air carriers as well as their standards of luggage safekeeping. The main task of Aeroflot's marketing strategy will be to attract "high end" revenue passengers. This will require investing in quality enhanced servicing and making a number of extra services available. Aeroflot re branded its product with a distinct national coloring. Another strategic area involves Aeroflot trademark bolstering. Re branding programme given new look to Aeroflot. The company's new image is reflective of its core values such as courtesy, reliability and specific Russian nature of Aeroflot. Aeroflot adopted various cost cutting measures and optimization of services process to remain competitive at the pricing front of its products. Aeroflot is poised to remain competitive by implementing cost containment, optimizing its business processes, improving labour productivity and cutting fixed expenses. Great attention has been paid in management information system and applying management accounting in the company. It facilitates flexible cost side structure, which is readily adaptable to the current market environment. Company's trying to optimize its current resources like aircraft serviceability rate, cutting turnaround time, raising aircraft utilization and flexibly managing capacity based on traffic demand improve its costing. Maintenance of aircrafts, cutting costs on fuel-efficient use, servicing are the areas where company is trying to improve. Aeroflot intends to drive up sales by optimizing the existing chain of representatives expanding direct sales and rolling out zero- rated agent fees. So in that Way Company's pricing strategy is optimize. Aeroflot continued to scrutinize the needs of its passengers and raise the competitive edge of its products. On international market, Aeroflot intends to raise the number of destinations and frequency of flights available to its passengers, with the main focus on expending partnership relations with foreign airlines. Aeroflot intends to raise the connectivity of its network in order to draw in transit traffic flows from Russian regions abroad and also those from Asia to Europe or America or vice-versa. Company is trying to raise its share of high yielding traffic compared to foreign competitors by enhancing network and service quality. Appendices: Team action plan Due to rising demand for air transportation on European destinations Aeroflot have to upgrade its fleet. Aeroflot is trying to improve its performance at global level by adopting various marketing techniques. Marketing plan specify the marketing tactics including product features promotion, merchandising, pricing channels and service. All corporate undertake four planning activities i.e. defining corporate mission, establishing strategic business units, assigning resources to each unit and planning new business ("The new bread of strategic planning", Business week, 7 September 1984, pp 62-68). To define mission, Peter Drucker questions what is our business Who is the customer What is of value to the customer What will our business be What should our business be ( Drucker, 1973). The strategic planning process consists of 8 steps i.e. Mission, PEST and SWOT analysis, Goal formulation, strategy formulation, program formulation and implementation, Feedback and control. Steps to the market process consist of analyzing market opportunities, researching and selecting target markets, designing marketing strategies, planning marketing programems and organizing, implementing and control managerial effort. (Perrault & Mc Carthy, 1996; Dekimpe & Hanssens, 1999) Now if we analyze Aeroflot marketing strategy as per the theories discussed above we find that: Aeroflot has clearly defined its mission and goals and placed its products quite nicely. It started with positioning itself with the help of new branding out advertising policy by appointing external PR consultants. This will boost its image in UK market. Branding it as the national carrier as well as one of the largest carriers in the business and taking out from past perceptions and image is the main aim for Aeroflot branding and advertisement campaign. The next important aspect of Aeroflot global marketing strategy was the optimization of its services by providing range of flights and optimization of schedule. It also optimizes the additional services by booking and purchasing Air Tickets. It provides the services, which have been needed, for its customers and onboard services. It also provides services such as less clearing timings and on land passengers servicing. So by this way Aeroflot optimizes its services. Traffic policy adopted by Aeroflot is well planned. It adopted certain strategies of cost cutting better utilization of its resources and Assets placed Aeroflot as one of the best cost effective airline, which is its strength. Similarly better sales and distribution policy such as direct selling single ticketing, connecting, networking and sales and distribution policies adopted by Aeroflot proves to be efficient. Better PR management is also the important aspect of global marketing strategies. The perception of passengers towards Aeroflot about behaviour of staff with passengers is not very good. So this perception must be addressed properly. It will improve the overall, image of the company. So Aeroflot successfully integrated itself into global market and adopted some best corporate governance styles. Aeroflot has standardized its operations and well adapted to international norms despite of initial hiccups due to perceptions of government owned airline and Russia's political and economic situation. Aeroflot is also facing and competing with other major airlines of the world. Despite of certain risks, aviation industry faces in recent years, the Aeroflot preserves its competitiveness and sustainability. Presently Aeroflot is one of the largest airlines operators and forging new alliances to move ahead. So Aeroflot as a brand of national pride became competitive and sustainable. ********************************************************************* References: 1. 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