The Entry of Tiger Airways into the Australian Aviation Market - Case Study Example

1. External Business Analysis (Opportunities and Threats) (Part A) Opportunities Increased usage of Internet and facilities such as wireless connectivity allows for easy access of Tiger’s main medium of sales through the web. This also allows the company to practice its low cost business model with elimination of middle man agents and commissions; ticket less bookings etc to keep costs low and offer low fares (Strategic Plan 2002 - 2006 - Aviation” 2006). The large market size of the Australian domestic air travel with few operators (Strategic Plan 2002 - 2006 - Aviation”, 2006). Collapse of air lines such as Ansett which has consolidated the industry operators to mainly 2-3 players allowing for room to grow and expand for existing as well as for new entrants (Strategic Plan 2002 - 2006 - Aviation”, 2006). Increased traveling of international tourist arrivals. With Tiger’s stake holder affiliations with Singapore Air Lines there is a good potential for international tourists from Singapore, China etc destinations to Australia to increase which will again boost domestic air travel as well. Possibilities of Quantas., the national carrier being taken over by outside parties such as Air Line Partners Australia (APA) which had offered a take over bid which will erode the brand loyalty of local travelers if their national carrier is to be owned by foreigners (Bartholomeusz 2007). Quantas Group restrictions on Jetstar which limits Jetstar from flying in major routes in which Quantas is flying reduce number of competitors of certain routes which is an opportunity for Tiger ( Knibb, 2007) Threats Legislature and industry imposed targets on emission control levels will mean the air craft carriers will need to be upgraded at high costs, practice new measures which are deemed environmentally friendly and pursue the targeted emission controls (Aviation industry backs emissions plan 2006). Saturated market conditions due to aging population, developments in telecommunication substituting business travel are acting as dampeners of air travel worldwide. “The Centre for Asia Pacific Aviation estimates the number of airlines worldwide will decline from 300 to 200” (Strategic Plan 2002 - 2006 - Aviation”, 2006). Rising fuel costs and fluctuating currency situations with the escalation of political and terrorist turmoil in the Middle East will be a threat. In addition the “depreciating world currencies and rising third party insurance costs” will add to the cost burden which can threaten low cost carriers such as Tiger (Strategic Plan 2002 - 2006 - Aviation”, 2006). Threats of terrorism and incidents such as Bali bombing have affected the tourism industry in Australia and also cause undesirable experiences in terms of increased security checks and longer and additional processing delays (Strategic Plan 2002 - 2006 - Aviation”, 2006). 2. Process of Strategic Marketing (Part B) 2.1 Segmentation Process (Part B) In the Segmentation process, the market is divided in to distinct groups of buyers with different needs, characteristics or behavior. As the fist step of segmenting the market, it is important to identify the bases of segmentation or the criteria which will be applicable for the segmentation. Once the applicable segmenting criteria are identified, the level of importance of each criterion should be applied so that the segmenting is done progressively by applying these criteria in the order of its importance (Wisner 1996) For example, in the Domestic Air Travel market, segmentations can be done based on Geographic, Key Benefits Sought (KBS), Frequency of Travel and Socio Economic classifications. Once the market is segmented, it is also necessary to asses and evaluates each market segment’s attractiveness and selecting one or more of the market segments to enter. Various levels of market segmentation can be observed from Mass marketing to Segment marketing, Niche marketing and Micro marketing. Mass marketing represents no segmentation in one end of the spectrum while micro marketing involves complete segmentation. For segmentation to be effective, the market segments should be Measurable, Accessible, Substantial, Differentiable and Actionable (Armstrong & Kotler 2000). In evaluating market segments, three key factors should be considered. These include the segment size and growth potential, segment’s structural attractiveness and the company’s objectives and resources. In the case of Tiger Air, the budget travel market segments are large and having high potential for growth with increased tourism in Australia with the recovery of the 9/11 attacks as well as stimulation of air travel with new customers being persuaded to use air travel in place of other means due to low fares. The budget flight market segment is also structurally attractive for Tiger as there are only two competitors and profitability is achievable with efficient operations and low costs. Bargaining power of customers is medium while supplier strength is low. However the existence of substitutes is high (Porter 1996). 2.2 Identifying the Segmenting Criteria (Part B) In segmenting, there are various criteria which can be chosen. The main segmenting criteria include geographic, demographic, psychographic or behavioral factors. In Geographic segmentation, nations, regions, states, countries, cities or neighbor hoods are used to divide the market. In Tiger Air case, the total market is segmented in to domestic and international travel. While demographic segmenting considers factors such as Age and stage in life cycle, income level, gender, life stage and generation, the behavioral segmenting is done on decision role criteria and behavioral criteria (Armstrong & Kotler 2000). Income levels are useful demographic criteria for segmenting the air travel market. The Decision roles can be of an initiator, influence, decider, buyer or user where all these roles may be played one person or shared among family members, peer groups etc. Behavioral criteria such as usage occasion, buyer readiness, usage status and rate, benefits sought, consumer attitudes and loyalty status form some of the most targetable segmenting criteria. Psychographic segmentation divides buyers in to groups based on their social class, life style or personality traits. For Tiger Air the following segment profile is proposed. Geographical : Within Australia (Domestic) Key Benefits sought : Economy and speed Economic Class : B, C1, C2 (Lower and Middle Class) Usage Status : Frequent Flyers - seeking speed and economy of flying Usage Occasion : Business Travel for small business / Leisure Travel / Corporate Travel for non executive staff as sales persons 3. Targeting Strategy (Part B) Having segmented the market the company needs to identify which segment or segments it wishes to target. There are many targeting strategies, which a company can pursue. These can range from undifferentiated targeting to differentiated and concentrated market coverage tactics. When firms does not have large resource base to go after many segments or the whole market, the concentrated targeting is recommended. While concentrated marketing allows companies to make above average profits, it’s also a risky strategy. The firm’s decision to choose a particular targeting strategy will also depend on key factors as company resources, product variability, products’ life cycle stage, market and consumer variability as well as competitors marketing strategies. Tiger with its small fleet and the introductory stage in its product life cycle will opt for concentrated marketing where only budget flyers segments are targeted. Later on, similar to Ryanair which now have moved from strictly budget flyer segments in to other segments in its Trans Atlantic routes, Tiger Air can also look in to differentiated targeting strategies in future. 4. Positioning Strategy (Part C) Positioning means creating an image of the product in the minds of the buyers. The marketing company develops this position for consumer goods and services and it is critical for marketing success (Reis & Trout 1981). The aim is to own a place in the customers mind with a favourable image of the product or service so that at the time the customer chooses to make a purchase, the product name is at the forefront of the customer’s mind. Positioning task involves three key steps of identifying a set of possible competitive advantages upon which to build a positioning; selecting the right competitive advantages which the firm can credibly support and finally communicating and delivering the chosen position to the targeted market segment (Kotler & Armstrong 2000). Companies can choose from a range of differentiations to establish its positioning strategy. These, includes product differentiation, service differentiation, people differentiation or image differentiation. In the case of Tiger Air, some of the identifiable possible competitive advantages which relates to the air line industry involves comfort, excellence in cabin crew service, safety and reliability, on time record, or low fares. An air line can also choose to build its competitiveness through offering a comprehensive network of flight destinations. Examples of people differentiation being used in Air Line business can be seen in Emirates which boasts of its cabin crew from over 100 nationalities and who can speak up to 5 languages. Singapore Air lines use its cabin crew’s friendliness as a competitive flat form to differentiate and position itself in the minds of its customers. Tiger Air is using product differentiation where dramatically low air fare are expected to revolutionize the Australian domestic travel industry, similar to how Ryan Air did in Europe. This differentiation will have to be combined with service differentiation where reliable and speedy on schedule flights are maintained with high standards of safety assurance. In its recently launched Gold Coast flights, Tiger has experiences many delayed take offs and deviations from flight schedules (Singer 2007). Such incidents can act detrimentally and affect the desired positioning of the company. It is important that when a positioning strategy is identified and communicated, the company actually deliver the promised claims of what makes Tiger different from others because it is this Promise that actually persuades the customer to travel with Tiger Air. If the company fails to live up to the claims if makes to its customers, the resulting negative customer dissonance can be costly in terms of customers lost, possibly for ever. Having identified the competitive advantage on which it will build its market position, the last step of the positioning strategy is to communicate this position to the consumer (Aker 1996). To do this, the company should make use of marketing communications in an integrated manner so that all modes of promotions will convey the same single message to the consumer. For example, from TV and radio advertising to Press releases, publicity activities, outdoor advertising like painting the terminal towers in Airports with Tiger brand, the message intended should be clear and precise. In the case of Tiger Air it the position they take is lowest cost and on-time air travel within Australia. As a new entrant to the market, the company will need to invest substantially in developing its brand in the market and registering it in the minds of the consumers as a choice worth considering when domestic travel has to done. The fact that Tiger offers extremely low air fares should be communicated to persuade those travelers who usually choose other modes of inland travel due to their comparatively low cost compared to customary air travel. Tiger can register such positioning message through comparing the price of fuel cost for a one way trip to Gold Coast from Melbourne or the cost of a rent a car with the cost of Tiger Air one way fare which starts from as low as $ 69.95 inclusive of taxes. Tiger can also use comparative branding tactics with messages such as “Before the Tiger Pounced on Australian soil… air travel was luxury but now its history” Such branding messages will convey to the consumer audience that Tiger air is positioned as a comparatively low fare carrier compared to other carriers in the industry. The following positioning map used by Tiger Air places its product offer in relation to other products in the market based on the dimensions of prices and comfort and product attributes. Figure 15 – Market Map for Positioning for Australian Domestic Air Travel From the above positioning map, Tiger is placed in extremely low price/low comfort quadrant while Quantas the National carrier of Australia is occupying the High Price/High Comfort quadrant which is sought by high end customers. The other two carriers, Virgin Blue and Jet Star are both offering medium price for low comfort. Virgin Blue with its single isle planes offer their passengers with no frills travel at lower than Quntas prices but with Tiger entering the market with much lower price offer Virgin Blue and Jet Star’s positioning is at a disadvantage. Jet star which is a subsidiary operation of Quantas is having prices higher than that of Virgin Blue. References Aaker, D.A. (1996) Building Strong Brands. New York: The Free Press. Armstrong, G. & Kotler, P. (2000) Marketing: An Introduction. 5th ed. Singapore: Person Education Inc. Rise, A. & Trout, J. (1986) Positioning: The battle for your mind. New York: McGraw-Hill Book Co. Wisner, B. (1996) Applied Marketing. New Jersey: Prentice-Hall Inc. Porter, M. (1996) Competitive Strategy. Harvard Business Review. “Strategic Plan 2002 - 2006 - Aviation” (2006) Retrieved on 30.12.2007 from http://www.tourismvictoria.com.au/strategicplan/plan2002_2006/10_aviation/section10_index.htm Melissa, S. (2007). “Tiger struggling to earn its stripes”. www.brisbanetimes.com.au, 18 December 2007. Retrieved on 30/12/2007 from Bartholomeusz, S. (2007) “Tiger Airways take-off announcement a timely piece of precision flying” . Fairfax Digital. The Age.com.au. May 4. Retrieved 02.01.2008 from: http://www.theage.com.au/news/business/tiger-airways-takeoff-announcement-a-timely-piece-of-precisionflying/2007/05/03/1177788311151.html Knibb, D. ( 2007) “Jetstar to launch services in Sydney-Melbourne-Brisbane triangle” Air Line Business. Flight.com. Retrieved on 29/12/2007 from http://www.flightglobal.com/articles/2007/07/26/215668/jetstar-to-launch-services-in-sydney-melbourne-brisbane-triangle.html Read More