Marketing and Sales of AirAsia Company - Case Study Example

 Marketing and Sales of AirAsia Company Table of Contents 1. Introduction 2. SWOT Analysis: AirAsia a. Inbound Logistics b. Operations c. Outbound Logistics d. Marketing and Sales e. Service f. Infrastructure g. Procurement h. Human Resource Development i. Technological Advancements 3. Competitive Advantage of AirAsia a. Cost Leadership b. Differentiation c. Cost Focus d. Differentiation Focus 4. M-commerce a. M-commerce Enablers b. Drivers of Increased Use of M-commerce c. Difference between E-commerce and M-commerce 5. Recommendations for extending to M-commerce 6. Conclusion INTRODUCTION The objective of this report is to assess the performance of AirAsia since it has started using e-commerce in its business. First the SWOT analysis of AirAsia will be performed using Porter’s Value Chain Model. Then using Porter’s Generic Strategies, the source of competitive edge will be deduced. M-commerce technology will be described briefly. The objective of the report is also to identify the difference between the M-commerce and E-commerce technologies. The report will end with some recommendations for AirAsia for using the Vista application and extending to an M-commerce model. Many airlines have been able to reduce their costs by using E-commerce technologies. Customers are able to find complete information online and do not have to go through the hassle of contacting and visiting travel agents. Hence the intermediary costs are eliminated and the airlines are able to cut cost and provide cheaper tickets to the customers. In low cost airline carriers, E-commerce is of a greater importance because the airline is able to eliminate the admin. Another major factor for the importance of E-commerce in airline industry is that they are able to closely monitor the activities of the consumers and are able to conduct market research and collect customer data. SWOT Analysis: AirAsia AirAsia has been able to develop a competitive advantage in the industry by offering its customers a level of value that is exceeded by the cost of activities. This results in large profit margin for the AirAsia. The value-generating sequence of activities introduced by Michael Porter is found in every firm and using these activities, AirAsia’s value chain has been analyzed. Inbound Logistics This is one of the primary value chain activities of a firm introduced by Michael Porter. In the case of AirAsia, the inbound logistics is related to the aircrafts that AirAsia has booked for the anticipated growth in customer demand. AirAsia also has been able to build a strong relationship with Microsoft, the providers of Vista Gadget. AirAsia recognized the branding and commercial worth of innovations such as sidebar gadgets on Windows Vista. Operations Operations are the primary activities that are required in order to develop the products, in case the activities those are required to provide travelling services to the customers successfully. AirAsia has also been able to master the activities that are required to give travelling services to its customers. AirAsia operates from six hubs in Asia and has increased the capacity by continuous roll out of Airbus fleet. This has facilitated AirAsia to engage in a strategic expansion program by adding new routes and increasing the number of flights per day. AirAsia now flies five times to Bangkok each day and four times to Jakarta taking off from Kuala Lumpur. Outbound Logistics Outbound logistics is one of the primary activities and includes all the activities needed to distribute the products to the final customer. The seamless internet booking has escalated the process of sales of tickets and AirAsia has been able to make more sales online. This has been the major strength of AirAsia, because it has been able to master online booking of seats by embracing technology. The company also enjoys reduced costs as a result of elimination of the intermediate travel agencies and administration costs of physical locations. Marketing and Sales These are the activities that are required to entice the prospective or target customers to actually make the purchase and inform them about the product and services. The company has been able to retain most of the customers because of exciting online promotions and the convenience AirAsia provides by providing seat booking online. The company has been able to aggressively market online bookings. AirAsia partnered with TMS, a Microsoft certified technology solution provider, to deploy the Airline Management System and integrate it with the Vista Gadget on its online portal, www.airasia.com. This marketing idea proved to be an innovative one for AirAsia. AirAsia has been able to increase its sales through deploying the ticket management system and by integrating the Vista Gadget because AirAsia realized the opportunity of technological advancements. The company has been able to market to its customer through new marketing channels by partnering with technology service providers. Service Provision of services is one of the primary activities in the value chain that was introduced by Porter. This includes the activities that are required to retain the customer and related to the company after the product is sold and delivered to the customer until he makes a purchase again. With the new Vista Gadget, the AirAsia customers are able to instantly access and organize up-to-second travel information. The customers are able to directly benefit from this web-based service from their desktop computers having Microsoft Vista. AirAsia believes in enhancing customer experience by depending on cutting edge technology such as Microsoft Vista. The customers are able to get instant information on AirAsia’s latest news to the region and its recent travel promotions through new marketing channels. The gadget also allows the customers to have an access directly to travel information such as pricing and availability of seats and information about destinations. The customers are not only able to book tickets from the AirAsia’s portal but they are also able to search for and book hotels and accommodations with discounted deals. Infrastructure This is one of the secondary activities that is required to keep all the departments of the company together and align their objectives. All the departments of the company focus on customer service improvement and innovate ways to excel in it. The communication with its customers is direct now, therefore eliminating most of the intermediaries such as travel agents, sales agencies and physical offices. With the use of E-commerce is its business, AirAsia has been able to integrate the functions of all the departments by streamlining their objective: “to enhance customer experience with our brand.” The sales and marketing department works for the promotions of AirAsia in collaboration with the accounting, planning, customer service, human resource and quality assurance department. This ensures that all the departments know about the marketing strategies of the company and hence work accordingly. Procurement This is also one of the secondary activities of the firm in the process of value creation for the customers and it ensures the timely acquisition of inputs. In this case, the inputs are new aircrafts, new travel routes and new technologies. AirAsia’s procurement department can be said to be the most active and contributing department and it plays a crucial role in the success of the company and its value creation for the customers. It has been able to book 40 Airbus aircrafts, plan more regional routes and launch more flights per day. Human Resource Development This is one of the secondary activities for AirAsia and it involves recruiting and training pilots, engineers, maintenance staff, airhostesses and other ground and air crew. With the implementation of the aggressive expansion plan, the company AirAsia will recruit more staff and train them accordingly to give the best service to the customers. Kathleen Tan (2006), who is the vice president of AirAsia, said “a strong testament to the appeal of our low fares and the strength of our unbeatable product – brand new modern fleet of Airbus 320, fun and friendly service, convenient booking channels and an extensive regional route network of 2,450 weekly flights.” Technological Advancement This secondary level activity relates to the transformation of the firm’s departments or the whole firm by embracing new technology. AirAsia has been able to make technological breakthroughs and innovate in many fields because of which it expanded from a fleet of 2 aircrafts to 45 aircrafts. In the news article, Tan (2006) mentioned “Asians today are embracing internet technology.  Being a forerunner in technology and the first airline to champion and aggressively market online bookings, our website www.airasia.com is now one of the most popular e-commerce and search websites.”  COMPETITIVE ADVANTAGE OF AIRASIA The Porter’s Generic Strategies are required to achieve competitive advantage by wither differentiating the core products or by providing the lowest costs to the consumers for the same services as the other competitors are providing. Within these two strategies, companies have the options to either target their products by a broad target or by focusing on a narrow target. The four strategies for AirAsia are discussed below. Cost Leadership AirAsia is a low cost carrier and therefore concentrates on cutting costs and forward the benefit of lower costs to the customers. Although the customers get much lower costs, they do not get the same service level as the other airlines such as complementary food and drinks. In all AirAsia flights, the passengers have to purchase food items from the service people or book their meals in advance. A firm having cost leadership, according to Porter (1985), should reduce its cost by finding and exploiting all sources of cost advantage but not decrease the level of service by providing the same product as the other competitors are. Therefore AirAsia does not have an overall cost leadership in the industry although it may have average prices in the low cost carrier industry. Differentiation AirAsia depends mostly on differentiation of services and customer service. In a differentiation strategy, “the firm must seek to be unique in its industry along some dimensions that are highly valued by their customers” Porter (1985, pg. 11-15). This is the case with AirAsia as it has always been unique is some dimension that the customer highly values and appreciates. It was the first airline to innovate in new booking channels and provide them to the customer for their ease. Its extensive route and a very friendly service were also contributors to the uniqueness of its services which set it apart from many other competitors. The seamless internet booking was another differentiating dimension that the company as well as the consumers benefitted from. By taking advantage of the Vista technology and developing a Gadget for its customers, the company was again able to differentiate its product from the other. This airline which was the pioneer of E-commerce use in the industry constantly looks for new and innovative ideas that strengthen its competitive advantage over the other competitors. Cost Focus In this type of strategy, the firm can be a cost leader in one market niche or a segment. This strategy is based on some of the specific needs and wants of customers is some special segment also called a niche (Small-business Marketing Plans, 2007). This strategy targets the smallest buyers in the industry who cannot afford the normal products of the firm. This is not the case with AirAsia as it does not provide lower cost to some of its customer segments. It provides low cost carriers for all of the air travel market. It does provide lower costs to some of its customers in the form of promotions and other advertising strategies but it does not follow the cost focus strategy. Differentiation Focus This strategy requires customization of products, according to the needs of the consumer only, to be implemented (Small-business Marketing Plans, 2007). The products and services are changed and customized according to the needs of the market in the niche. This strategy can be only successful when the company has products that are very high priced and the customers are ready to pay a premium for the quality of the product (Open Learning World.com, 2007). AirAsia does not differentiate itself in a narrow market and hence it does not employ this strategy to be a source of competitive advantage. M-COMMERCE M-commerce refers to the use of wireless digital devices (Laudon, 2007) and cell phones to facilitate transactions on the internet. Once the mobile consumers are connected to the internet, they can perform a variety of transactions including stock exchange, price comparisons, e-banking and airline ticket reservation (Laudon, 2007). Trend is now going more towards thinner and smaller devices to stay in touch with the world all the time. M-commerce has given birth to a new channel to market products and to increase the sales. For the consumers, M-commerce has given them a more convenient and reliable form of shopping. M-commerce has gone to an extent today where the consumers can even pay their utility bills through their mobile device. It has provided an opportunity to the consumers to make purchases online, make reservations for travelling, avail banking services and purchase and download contents such as wallpapers and ringtones from service providers. M-commerce is much cheaper and an easier way to market products and engage in transactions. Payment methods for M-commerce include credit-cards, charging from the mobile number balance or charging through the mobile number bill. M-commerce Enablers Most of the wireless devices and mobile phones use General Packet Radio Switching (GPRS) or Wide Area Network (WAN) technology (Laudon, 2007) to connect to the internet wirelessly. GPRS carries data packets on radio frequency just like the internet, hence enabling wireless communication (Laudon. 2007). WAN is a connection to the internet through radio frequency and it can be thought of as a wireless Local Area Network (LAN) with more geographical dispersed coverage. Wireless Application Protocol (WAP) is a protocol that is used to support all the wireless networks. Short Messaging Service (SMS) is like an instant message that can be sent to any number without the recipient being charged. SMS was the beginning of mobile advertising and marketing. These were some of the enablers of M-commerce which enabled the companies and consumers to interact wirelessly. Drivers of Increased Use of M-commerce Some recent technologies which are much faster are 3G and Wi-Fi (Laudon. 2007). 3G is the third generation of cellular devices standards and can connect the users at a speed of up to 3.1Mbps (Laudon. 2007). It is far more powerful and has much more features than the GPRS. Wi-Fi is a wireless connection to a LAN using short range radio frequency (Laudon. 2007). This is the connection to LAN without any wire. Another driver for the increased use of M-commerce is availability of cell phones with everyone and their decreasing prices. Cell phones which have 3G technology, Wi-Fi connection and GPRS (BlueWater Systems, 2009) are now available at very affordable rates and today no prospective consumers are living without a cell phone. Difference between M-commerce and E-commerce M-commerce is the “use of wireless devices and technology to enable transactions on the Web” Laudon (2007, pg. 55). Therefore it is a part of E-commerce with just a technology distinction but not a subset of E-commerce, as E-commerce is the “use of internet and the Web to transact business” Laudon (2007, pg. 46). One of the major differences between E-commerce and M-commerce is that M-commerce is much more accessible than E-commerce. At any time and virtually every place, mobile devices enable the users to transact. This is not the case with E-commerce, as it requires a personal computer to connect to the internet through a wired connection and then transact online. Another big difference is that the M-commerce transactions are much more expensive to the consumers as they have to pay higher prices to get connected to the internet. The wired internet is much cheaper than wireless internet such as GPRS and 3G. One more major difference is that in M-commerce the existing mobile devices and networks should be used for the implementation of services and applications (Sugiato, 2007). M-commerce therefore is very much dependent upon the infrastructure and the availability of mobile phones in a region and the statistics vary from country to country (Sugiato, 2007). RECOMMENDATIONS FOR EXTENDING TO M-COMMERCE Microsoft’s Vista Gadget can be easily applied to the emerging M-commerce technology by AirAsia. The Vista Gadget which was developed by the solution providers TMA can be extended to M-commerce for flight reservations and information. This will allows the AirAsia’s web-based services to be accessed directly from their wireless devices such as cell phones and PDAs. One of the ways Vista Gadget can be implemented in M-commerce is by providing this free gadget to each customer online. This free gadget once installed on the mobile device by the customer, will allows the customer to use it whenever he wants and get information on the gadget without even going to the website. This will require the gadget to be able to run on any operating system. Another way the gadget can be applied to M-commerce by AirAisa is when the customer accesses the AirAsia website portal by connecting to the internet through the mobile device. The customer when connects to the AirAisa website through a mobile device, the customer should only be able to see only the important features of the website with the Vista Gadget. This will allow then to get all the information through the gadget without viewing the whole website contents. One more way to apply the Microsoft Vistas Gadget to M-commerce is by partnering with the major mobile device and cell phone manufacturers and giving them some incentive to install the Vista Gadget application in every mobile device they produce. Therefore the Vista Gadget will be preinstalled in the wireless devices that are sold to their customers. Benefits for AirAsia AirAsia will benefit from escalated sales as the consumers will be able to make purchases more easily. As the consumers make more purchases from wireless devices, the cost for AirAsia will go down as the intermediate costs will go down. By extending to the M-commerce model, the company can target more customers. It can extend to a larger customer base by using M-commerce when the Vista Gadget will be pre-installed in the mobile devices. The Vista Gadget in mobile devices will not only help the company make more sales through mobile devices, but also from other channels. This is because this gadget will provide complete information and promotional offers through which AirAsia will also be able to market and advertise in a very cheap way. Benefits to Customers Customers can make reservations using the internet and the gadget anywhere they are and the availability of the gadget will not be a difficulty anymore. They will not have to especially go to the sales agents and even on their desktops to make flight reservations and can make reservations whenever they want. The consumers will be able to access the information about flights and the most recent promotional offers to benefit from them. Even if they are in some place where they cannot access a desktop, they can easily make reservations for flight and as well as hotels. The customers will have access to live travel information in their hands which will allow them to manage their travelling even without a desktop and a wired internet connection. CONCLUSION It is clear in the assignment that the main source of advantage for AirAsia is the innovation which leads to the differentiation of services by the company. This differentiation is highly valued by the customers. The company has been able to eliminate many intermediaries to cut cost with the help of E-commerce. 70% of the transactions for AirAsia now take place on the website. With more innovation steps such as implementation of Vista Gadget, the company can completely eliminate the physical intermediaries and solely rely on E-commerce to engage in transactions and to market their brand. In the first part of the assignment, we analyzed the nine activities of AirAsia that are used to generate a superior value for the customer and are the contributors to the competitive advantage for the company. The ability of the firm to anticipate the demand of their services and ordering new aircrafts before time has made them capable to expand from a fleet of 2 aircrafts to 47. In the second part of the assignment we concluded that the main source of competitive advantage for AirAsia is its innovation in services and the quality to embrace new technological solution. Therefore the company follows the strategy of differentiation as it differentiates itself from the competitors by being pioneer is new technologies. Mobile commerce was discussed in the last part of the assignment. It was recommended that AirAsia uses M-commerce technology to market its brand further. The ways that were recommended were by collaborating with the mobile device developers, by allowing the customers to download the gadget and by integrating it with the M-commerce website. BIBLIOGRAPHY Book Rowe, M. Dickel, M. (1994). Strategic Management: a methodological approach. 4th Edition. Addison-Wesley. Reading Mass. Porter, M. (1985). Competitive Advantage. New York. The Free Press. Laudon, C, K. Traver, G, C. (2007). E-commerce. Second Edition. India. Dorling Kindersley. Author Last Name, First Name Initial. (year) Title. Book Edition. Place. Publisher Website NetMBA. (2007) The Value Chain. Available from http://www.netmba.com/strategy/value-chain/ [accessed November 29, 2009]. MobileInfo. (2001). M-Commerce. Available from http://www.mobileinfo.com/mcommerce/differences.htm [accessed November 29, 2009]. Sugianto, L. Et al. 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