Airline Industry on Service Quality and Relationship Marketing - Essay Example

?Contemporary Issue in Marketing - Airline Industry on Service Quality and Relationship Marketing Table of Contents Contemporary Issue in Marketing -Airline Industry on Service Quality and Relationship Marketing 1 Table of Contents 2 Introduction 3 Importance of Service Quality in Airline Industry 4 Relationship Marketing in Airline Industry 6 The Cons of Relationship Marketing 12 Impact of Service Quality & Relationship Management on the UK Aviation Industry 13 Example of British Airways (Service Quality & Relationship Marketing Management) 15 Contemporary Marketing Issue in Airline Industry 19 Recommendation for Better Customer Management and Differentiating Service 21 Conclusion & Further Recommendation 24 References 25 Bibliography 32 Introduction Airline industry is one of the top developing industries in the world. Airline industry assists in the financial development of a country, helps in foreign business, supports the growth of tourism industry and thus, increases the international investment. Airline industry is a key economic strength of any country because airline industry has big impact on other industries such as manufacturing, finance and tourism. Presently, the worldwide airline industry comprises more than 23,000 aircrafts, offers service to more than 3700 airfields all over the world. In the year 2006, it had been calculated that approximately 28 million flights transported more than 2 billion passengers worldwide. For the last 20 years, the air travel had increased considerably by 5%. In the US, the aircraft industry contributes 8% of GDP (MIT, n.d.). According to IATA (International Air Transport Association) the forecasted global air journey increased almost 5% annually from the year 2000–2010. The most dynamic growth of aviation industry had been seen in Asia/Pacific region compared to Europe and North America. In Asia/Pacific region the aviation industry is increasing by almost 9% annually. In the 1990s, the aviation industry had suffered heavily due to economic recession and Gulf war. The member airline of IATA had experienced losses of almost 20.4 billion USD from the year 1990 to 1994. Subsequently, Aviation industry had realised the importance of service and customer relation and thus certain airlines had invested a lot to improve the quality of service offered to customer. Many new attractive strategies had been introduced to draw and retain customers (Standford University, 1999). Importance of Service Quality in Airline Industry In aviation industry the competition is strong and it is growing rapidly. The airline companies had realised the need for providing more attention towards customer in order to face the competition because customers are the primary element of every business. Good customer satisfaction can bring profitability to an airline company and it can be achieved by good service. An efficient service quality is characterised by good customer segmentation, tailored service, measuring the feedback of customer and measurement of company performance (Bozorgi, 2007). Customer satisfaction is the feeling or attitude towards a service. If a customer is satisfied about the service, in future the customer will engage in purchasing the service again. Thus, customer satisfaction and service quality is interrelated with each other. The reason for dissatisfaction in aviation industry can be caused by late departure of flight, reservation of ticket, poor catering service and bad attitude of air crew members towards customers (Bozorgi, 2007). In the year 1987 and 1988, the bad customer service had been recorded in the US aviation industry regarding flight problem, reservation problem, and refund of money, customer service, smoking activities, tourism issues and others. These factors have led to dissatisfaction of customers, and for that reason the customer complaints had grew over 500% in the year 1987 (Bozorgi, 2007). Perceptions of customers and service quality are useful in forecasting the effectiveness of a company. Many companies intend to employ customer service based on customer wants and preferences. Providing better service quality requires developing distinct connection between customer’s requirements with service provided by the company. Satisfying the increasing customer expectation is one of the major difficulties of aviation business. Customers have better understanding about service, and thus a company must improve the service by regular evaluation. Development of best service methods can improve the business performance and eventually the perception of customers can be evaluated. This can in turn excel the competitor. Customer expectation must be satisfied without damaging the profit margin, which can develop customer loyalty. By determining optimum level of service quality can fulfil customer expectation and it will help to avoid utilising unnecessary services. Regular feedback of customer is useful to determine the fundamental elements of successful service quality (Bozorgi, 2007). Service quality has become important for aviation companies to attain sustainable competitive benefit. Aviation companies are compelled to provide superior service in this current era to generate revenue in ever more competitive domestic and international market. There are several aspects of service quality such as safety, reliability, attitude, unity, condition, accessibility and training. The service quality comprises three scopes namely ‘physical quality’, ‘corporate quality’ and ‘interactive quality’. It is essential for a company to distinguish between service quality with the procedure of service delivery and effect of service and it should be evaluated by customer after the service is received. It is important for an organisation to identify the satisfied and dissatisfied customers (Swartz & Brown, 1989). Relationship Marketing in Airline Industry The customer relationship management has great importance for a company to gain competitive advantage. Good customer relationship has positive effect on overall performance of a company. The relationship marketing and customer relationship management are related with each other. According to Gummesson, relationship marketing is founded on relationship, building interaction between customers, recognising the market situation and total management of network of any company. Relationship marketing in broader sense is the long-standing association with individual customer and developing a good relationship value between customer and company. The CRM is defined as general procedure of developing and maintaining beneficial customer relationship by providing superior service. Good relationship marketing can improve business aptitude, helps the company to make better decision, improve the relationship with customer, and offer good quality of customer service (Gummesson, 2002). The aviation industry is one of the major innovators of relationship marketing. Aviation industry has been used as positive benchmark for developments in relationship marketing and customer service. The main concern for aviation industry is to maintain the balance between demand & supply and offer superior service. After the World War II, the aviation industry had experienced remarkable boom for business purposes and travelling. The reason for success was adequate number of flights, good management of routes in key cities and modernisation in aviation system such as implementation of CRS (Computer Reservation System) technology. The American Airlines was first which had implemented CRS technology for better air fee management, seat assignments and ticket booking. This technology was useful to keep track of the requirements of aviation companies for their business (Smith & Et. Al., 2000). There was no limitation for aviation industry and thus airline companies declared many routes according to their choices and set the travelling cost which was the beginning of competition in aviation industry. Customers became important as airline companies developed new marketing strategies as a competitive tool. The concept of yield management had developed which helps to manage daily revenue flow and manage capability of any company. ‘Frequent Flyer Programme’ was introduced which improved the customer loyalty and product discrimination in different services of aviation. Besides other management techniques was developed in aviation companies, for example participative management in ‘People Express’, worker inventory ownership in the ‘United Airlines’, business philosophy techniques in ‘Southwest Airlines’, which had prompted new marketing innovations (Thurau & Hansen, 2000). The customer management in aviation industry has changed. It is no longer limited with mere transaction of money. The growing competition had changed the view to see the business and thus airline companies focused entirely on relationship management to maintain good relation with their current as well as future customers. With the assimilation of industry oriented aspects and service marketing concepts, the individualised relationship marketing had emerged. The relationship marketing had overcome the limitations of traditional marketing system. The traditional marketing system was based on generally business transaction, process and gaining new customers. It does not consider the facts such as developing good connection with existing customers. This was the vital force for introduction of relationship marketing (Barrington, 2011). The introduction of RDBMS, data warehousing techniques, internet integration and e-commerce had further amplified the use of relationship marketing. In relationship marketing the focus has changed from ‘utility–based marketing’ to ‘cross–function marketing’. The marketing function had also transformed from gaining new customer to providing emphasis to existing customer. This marketing technique characterises the combination of tailored products and services with individualised business communication approach (Payne, 1993). This signifies that in relationship marketing a company treats any customer as an individual entity. It is quite similar with ‘one–to–one marketing’ methods. In relationship marketing the transaction focused perspective had changed and companies had started interacting with their customers in strategic and operational level. In relationship marketing environment the customer perception about company’s service became major issue (Joseph, 2006). Relationship Marketing Diagram Source: (Thurau & Hansen, 2000). An airline company must meet the need of customers’ preferences in order to survive in today’s competitive market. The customer’s need from airline companies include the availability of location, convenient time–schedule, reliability, security and other factors which can guarantee superior travelling experience. Inability to provide these services can make survival difficult for any airline company (Michael & David, 2001). For example “People Express’ airline company had failed to offer the requisite services which were the primary reason for decline of that airline company. An airline company can loose vast number of customers if it cannot provide the adequate facilities. An airline should accomplish good status with regard to reliability benchmarking and competitive satisfaction (Hill & Jones, 2007). Traditionally it had been seen that the importance of extra services increases when the existing service becomes more similar and thus lose the competitive individuality. Whenever any new innovative services are introduced by an airline company the other companies quickly copy the idea of those particular services. The introduction of special services such as, when the serving of food was first introduced in aviation industry it was an innovative service idea. Soon it had become an essential part of all aviation industries globally and then was granted by every airline companies. The features such as in–plane entertainment, special high–class food and seat comforts had improved the intensity of customer satisfaction and thus led to customer loyalty. Many airline companies were unable to provide these services and thus it became competitive advantage for airline industry (Bel, 2005). In the year 1990, the advertising campaign had further emphasised the services of airline industry and presently almost all major airline companies possess similar service and the scope of achieving competitive advantage. These additional services have become quite common for every airline companies in order to survive and nowadays these services no longer secure customer loyalty and long–term customer preferences (Thurau & Hansen, 2000). . In this competitive era the major airline companies had focused on individualisation and brand reputation because the services became similar to differentiate with one another. The high customer attention can only be gained by providing customised services and proper branding instruments (Benner, 2009). The value Pyramid in Airline Marketing Source: (Thurau & Hansen, 2000). Above figure describes that in present aviation industry, providing high class value scheme services to every customer is not beneficial and wise decision for airline companies. The high value services must be delivered to particular customer segment which can increase the financial importance of those customers. The basic services must be available for every customer segment and the additional services must be provided to premium customer segments that are ready to pay high price for it. Thus, the customised services can only be available for valuable customers of the company. Through relationship marketing system an aviation company can identify the aspects which can be affordable by customers. The relationship marketing is able to find out appropriate value for services to match the requirements of specific customer segments (Thurau & Hansen, 2000). The aviation companies had understood the long–term value of good customer relationship in the organisation. Thus, airline companies follow fragmented method in the form of customised direct marketing, customer database management, enhanced customer service, customer loyalty card plan and telemarketing (Foss & Stone, 2001). The major airline companies had adopted quickly the relationship marketing methods, for example in the year 1990 the ‘British Airways’ and ‘American Airlines’ had started the relationship marketing by segmenting the target customers. In the year 1995, ‘United Airlines’ had initiated Customer Satisfaction Policy; in 1997 the ‘Lufthansa’ company had launched Target Customer Management. Many small aviation companies also have developed different relationship management approaches to retain and attract customers (Thurau & Hansen, 2000). To become successful in relationship marketing, an aviation company must find out suitable offer for appropriate customer segments. Many action ambitious aviation companies do not consider the above aspects and implement offer to the customers quickly without proper strategy. This can provide faster results but in future those companies fail to benefit from long term return of relationship marketing. In aviation services the customer segmentation is based on cost of airline services, the purpose of travelling and regularity of travelling (Foundation for Organizational Research & Education, 2008). The Cons of Relationship Marketing Though relationship marketing is beneficial for aviation companies but it can also cause harm to aviation industry. In relationship building the aviation companies must take care so that they do not hurt loyal customers. Loyal customers might feel bad if a company doesn’t treat them as worthy customer in front of other customers. Many software companies such as SAP, Sibel and Oracle provide CRM solution to organisation but that software does not provide complete solution about customer management. The assurance of CRM is quite attractive and interesting for any aviation company, however at times it can be incapable to provide guaranteed CRM solution. Thus, CRM is important for aviation companies but there is uncertainty of return on investment. The relationship marketing is based on retaining and maintaining good relationship with existing customers but at times it is necessary to magnetise new customer which is another pitfall of relationship marketing in aviation industry (Ramkumar & Saravanan, 2007). Impact of Service Quality & Relationship Management on the UK Aviation Industry Airline industry is one of the major industries of the UK which contributes about 1.4% of total GDP. The flights of the UK carried about 2.1 million tones of goods and 160 passengers annually in the year 1998. The total cost of the UK airline industry was ?10.2 billion in the year 1998. The airline industry is the major provider of revenue in the UK (Jowett & Hopkins, 1999). The airline industry of the UK provides variety of services to the customers, for example it provides holiday tour for several destination of the world with inexpensive cost. The demand for this facility had increased considerably because customers can enjoy this service with cheap cost and the aeroplanes are also available. This offer had attracted many foreign customers to enjoy the leisure time and cultural activities in the UK. In the year 1998, the people of the UK had purchased this service and enjoyed 311/2 million holidays in foreign countries. The number was much higher than 1997. This marketing technique had helped many customers to enjoy visiting foreign countries and experience broad range of different cultures. The airline industries of the UK had also helped major international sporting events and improve their branding image. For good customer service many people are eager to pay more for an UK flight than the actual cost. The demand for air travel in the UK had increased considerably in 25 years period from 1975 to 2000. The number of customers had risen by 280% from the year 1975 and quantity of goods had increased by 210% within same time phase. The number of customers in 1998 was double than in 1975. Customers for the UK flights had shown tremendous growth which is accounted as 4% per year and had been expected that the number of customers will exceed 310 million by 2015. The airline industry of the UK had adopted many innovative strategies. For example, the introduction of Electronic Ticketing system in the year 1997 had allowed British Airways to become more competitive by providing superior quality of service to the customers. British Airways had also initiated Customer Loyalty Scheme for making loyal customer (Jowett & Hopkins, 1999). Air Traffic of the UK from 1975 to 1996 Source: (Jowett & Hopkins, 1999). Example of British Airways (Service Quality & Relationship Marketing Management) British Airways is one of the biggest global airlines which carry travellers around the world. In the year 1996, British Airways had focused its marketing strategy towards interactive technology such as internet. With the help of ‘Interactive Channel Management’ British Airways had recognised the importance of relationship marketing and good service (Lsoft, n.d.). The main objective of relationship marketing of British Airways is to differentiate their service from other aviation companies. British Airways focused on providing services such as frequent availability of aeroplane, high return on business customers and it didn’t provide too much emphasis on distance (Peck, 1999). British Airways was founded by merger and acquisition of BEA and BOAC (The BA Source, 2011). In the year 1982, the British Airways had suffered huge losses because of insufficient management techniques. The heavy financial loss and huge job cuts were the driving force to change their management practice. Further the introduction of ‘Airline Competition Policy’ in the year 1984 had created difficulties for British Airways because the policy had initiated more intense competition in aviation industry. The crisis of British Airways was fuelled by bombing in Tripoli in the year 1986 (Peck, 1999). After British Airways was privatised in the year 1987 the company had became much concerned about customer relationship. It had organised training for employees to increase the awareness about maintaining relationship in the highly competitive market of aviation business. Through this training programme the company was able to indentify the strong points and limitations (Scribd, 2011). In the year 1987, British Airways had developed the brand by improving the room space, flight seats, superior quality meal and service. The cost of these changes was almost ?20 million. Through these modifications, British Airways happened to be stronger in international competition. It also arranged advertising campaign to promote the brand at a cost of ?11 million. The attempt was successful and soon British Airways became popular and started their operation in countries such as Australia and Singapore. In order to know the impact of customer regarding these modifications in services and facilities British Airways had formed a group and met almost 150000 customers annually to get their feedback. To counter the competition of North American course British Airways had reduced the flight charge from the US to London by nearly 33% in the year 1991. Consequently, American Airlines, one of the biggest rivals of British Airways had also introduced the biggest flight promotion of that time. British Airways had realised the need for an innovative solution. Thus, the company had offered the customers free flight for 50000 seats on 23rd April 1991 for those customers who had already grasped seat for that day. The promotion had resulted in almost ?10 million advance booking for that day. This promotional offer had encouraged the travelling sector (Peck, 1999). Profits of British Airways from the year 1983 – 1995 Source: (Scribd, 2011). It can be seen that British Airways had developed outstandingly from the year 1983–1997. Every financial year British Airways spend money for purchasing tools for their flights which can improve the performance. For expanding the international association British Airways had developed good bond with Air France in the year 1992. Considerably other competitors also developed relationship with other airline companies. For example, United Airlines, another biggest rival of British Airways had formed union with Lufthansa in the year 1993 (FundingUniverse, 2005) For improving the relationship marketing British Airways had modified the offer for customer to increase their loyalty towards the company. It had introduced rewards for premium customers in the form of free travel. This promotion had provided huge advantage to British Airways but in 1993 the promotion became obsolete as many other airline companies stared providing this kind of offer. For frequent customers the company has introduced ‘Gold Card’ which can help to foresee their preferences. British Airways changed their strategy from handling customer objection to recovering their drawbacks in services. The motive for this alteration is to retain existing customers and ensure proper services for them in future. The employees of British Airways also provided proper training to manage dissatisfied or disappointed customers by proper customer handling techniques so that relationship does not hamper (Peck, 1999). For proper customer management British Airways had spent ?4.5 million and implemented CARESS system. It is a ‘Computer Imaging System’ which helps to present ‘real time’ clarification of any difficulties of any customer. British Airways believes that good relationship with customers can result in good relationship with individual people (Chan, 2000). In the year 2000, British Airways had implemented LISTSERV technology which helps to maintain better customer communication. This technology provides large distribution in lucrative way. This system had facilitated the relationship marketing by offering customised promotion to customers (Koller & Et. Al., n.d.). Nominal Profit Graph of British Airways before and after privatisation Source: (Scribd, 2011). Contemporary Marketing Issue in Airline Industry The aviation industry had faced challenging issues in marketing. The global economic recession, incessant reduction in return, increase in employee and insurance cost had affected the aviation industry. The aviation industry in the year 2001 had faced losses of about 12 billion USD globally. The productivity of aviation industry had decreased considerably from the year 1997 to 2001 (Boland & Et. Al., 2002). Economic Outcome of Worldwide Airline Industry from 1997 – 2001 Source: (Boland & Et. Al., 2002). The appearance of cheap travelling in the US and European aviation industry had created competitive environment for international airline industry. The cheap travelling had attracted many customers. The operational competence had become main concern of airline industry to survive and maintain the profit. The importance of cost effective strategy had been quite essential for aviation industry to achieve competitive advantage in long run. After the terrorist assault of 11th September 2001, the operational, safety and security issues became more important for airline industry. Aviation industry had understood the value of CRM for managing customer more efficiently. CRM can provide aviation companies durable competitive advantage (Tarokh & Majidi, n.d.). Recommendation for Better Customer Management and Differentiating Service In order to facilitate differentiation, aviation companies must need to identify the customers with regard to their value and preferences because the values differ from customer to customer and certain customer is worthy to receive better attention. For successful differentiation efficient target customer segmentation must be done. By evaluating customers a company can find out which customers are important and must retain them. The data about customers can help aviation companies to make investment decisions and accurate estimation of return on investment (Eten, 2010). There are many aviation companies that segment their target customer according to demographic characteristics and regularity of travelling. These methods have limitation as they do not provide the accurate target customer. The demographic segmentation is inadequate because travelling by flight is determined mainly by profession of customer rather then demography of customer. The segmentation based on regularity of travelling also does not provide accurate result every time. For example one of the biggest US airline companies had found that promotional discount given on regular customers is less beneficial than customers who are not regular but purchase first– class seat (Boland & Et. Al., 2002). The value–based customer segmentation can provide aviation companies to handle the customer as a property or asset. This type of segmentation strategy can develop customer group by the financial worth and regularity of travelling (Pigues & Alderman, 2010). High Value Based Customer Segmentation Low High Regularity of Travelling Source: (Boland & Et. Al., 2002). Aviation companies must understand the motivators of every segment. Many customers prefer flexibility in travelling while others can prefer convenience travelling. Through proper understanding of customer preferences, aviation companies can customise and improve the service. It will help companies to make pricing decision for each segment such as minimising the travelling cost of regional customers, developing proper distribution channel for domestic young customers and ultimately promoting the brand name. Developing in-depth understanding of the liking and satisfaction of every customer segment helps aviation companies to evaluate any customer related program before implementing them and makes it successful. By implementing good CRM technology aviation companies can record the feedback of customer from each segment. This helps to understand the habit and desires of every segment. The self service system can help aviation industry to minimise the expenses of customer service. Aviation industry must implement the self service system for less worthy customer which can minimise the cost of service and also improve the competence of customer service. The self service system must decrease the waiting time for response and increase better control of customer’s travelling experience. It can increase the customer satisfaction. Recognising the need of shareholders is also important as much as knowing customer’s need. Aviation companies must accept or reject any investment by measuring the profitability of expected return of the investment (International Business Machines Corporation, 2008). Conclusion & Further Recommendation Presently, the airline industry is experiencing strong challenges compared to other industries. There has been commotion in many airline companies and current financial condition, increasing competition had broadened the need for good relationship management and service quality. Nowadays customers prefer high quality service, timely and regular departure, as well as inexpensive tickets without much delay in service. Thus, aviation companies have no other alternative but to discard the traditional marketing system and follow differentiation strategy. Aviation companies must categorise their customers according to their contribution to the company and develop competitive strategy for them. They must alter from attracting new customer to retaining and maintaining good relationship with existing customer. Aviation companies can use the porter’s cost leadership as well as differentiation strategy. It will be profitable for airline companies whose flights run in similar routes. Various CRM applications can help to measure worthiness of customers which is extremely important in today’s economic and market condition. 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