Rolls-Royce Aviation and the Development of TotalCare - Case Study Example

CASE ANALYSIS 1. Introduction Rolls-Royce manufactures and markets airline engines amidst a very volatile and competitive industry. In order to gain market share, the company was forced to consider reducing the pricing on its airline engines due to the competitive environment and also due to the fact that this is a mature market. Without significant innovation, the life cycle of the products delivered by Rolls-Royce and competition is not enduring in such a mature market. Competition realised the need for innovation as well, however Rolls-Royce was delivered a new opportunity to be a compliant engine supplier to American Airlines, a customer which had developed new expectations for total engine service sales and maintenance. These new expectations included much more than the traditional 12-24 month aftermarket support, but included a total care sales philosophy which included engine management, engine monitoring and overhaul, as well as providing updates to existing technical manuals for the engine products. Over a period of just a few years, Rolls-Royce managed to be a compliant supplier to American Airlines and found significant business success and profitability in the process. However, Rolls-Royce maintained a strong thirst for extra profit and began to assume more risk than they originally thought they could handle. Such total care packages, as that of American Airlines, required significant internal investment into labour, facilities management and even technical support in order to provide this new extended service and maintenance contract philosophy. Realising that Rolls-Royce had found success, their largest competitors began to change their own business models to reflect similar total care packages to the B2B customers. This eroded the short-term competitive advantage which had been recently held by Rolls-Royce and threatened their market share. Added to this the costs of maintaining maintenance workshops, Rolls-Royce required a new competitive advantage in order to remain an engine sales leader in this airline industry. The issue Rolls-Royce has focused the majority of its efforts into innovating actual service delivery to its customers, but has failed to create a marketing strategy which appeals to the psychographic characteristics of its clients. The company does not understand how to utilise promotion effectively to make the sales agreements more of a client relationship which provides mutual value to both businesses. Thus, the business has lost its previous competitive edge. Justification for problem identification Because this market is so competitively-driven, with multiple competitors scrambling to alter their business models to adopt a more service-conscious TotalCare package, loss of competitive edge can be felt simply through competitive compliance to new aftermarket service agreements. Rolls-Royce identifies that there is a lack of consensus between customers about what it actually means to be a proper airline with the airline customers being defined in “very technical terms” with staff competence being the key to airline company success (Meldrum and Palmer, p.4). This makes the process of selling the products difficult as customer values and beliefs about their own business models represents a sales risk in trying to build a positive customer connection. Additionally, Rolls-Royce realises that there are opportunities for sales growth if they can only convince their airline customers of how Rolls-Royce can provide superior value to their customers. Rolls-Royce wishes to profit on more value-added services, as well as new monitoring systems to examine engine integrity, but has failed to come up with a strategy which would make these value-added services appear trustworthy and viable to the airline customers. This represents an inability to connect with the customers’ psychographic business beliefs and values in order to make it appear that Rolls-Royce can provide superior customer service over their largest competitors. Thus, positioning has become a serious issue for Rolls-Royce. Fluctuating airline customer values and beliefs represents one element of this mature and volatile market. This need to re-examine promotion and the positioning of Rolls-Royce is quite important as the company wishes to project itself as a value-providing company that is willing to, essentially, bend over backwards to meet with its customers demands for aftermarket service and engine monitoring/maintenance. However, there is no real evidence that Rolls-Royce understands its customers in relation to how the airlines desire, themselves, to be positioned on the consumer marketplace. It is further important to understand these deficiencies in promotion and brand positioning as they represent lower-cost methods to gain competitive advantage and also strengthen the strategic, long-term relationships with its many airline customers. 2. Alternative strategies Trust has been identified as one primary issue which affects the nature by which Rolls-Royce is able to successfully market its engine products. Even though there are negotiated contract agreements in place, there is a need to convince its customers that value can be extracted from these maintenance/aftermarket contracts. The first alternative is to develop a customer relationship management philosophy which serves to reinforce and underscore Rolls-Royce’s commitment to value provision. Rolls-Royce is working to create the tangible staffing organisation and facilities development (workshops) to provide superior service and maintenance. Rolls-Royce should devote an external Relationship Manager to act as an on-site, real-time representative of Rolls-Royce who remains in constant contact with senior leadership and appropriate decision-makers at the company. It is apparent that most airline customers are seeking relationships with quality suppliers which are willing to not only back up their products, but also ensure that the long-term integrity and value of these products are represented. One marketing expert clearly offers, “even the word value can raise (buyer) suspicions...’value’ is the most overused and least believed statement in branding” (Bulik, 2009, p.2). Offering its largest and most profitable customers, such as American Airlines, access to a devoted, authorised representative would secure the perceptions of value and strengthen their B2B relationships. In terms of value, such a labour investment would develop competitive positioning for a company which, proverbially, walks the walk and talks the talk in terms of service, sales, and real-time response to airline issues. Another marketing professional offers that two of the most effective B2B marketing principles are to “spend more time with clients” and “track key decision-makers personally” (Benday, 2009, p.31). By devoting an authorised decision-maker to customer sites, in areas where support is deemed to be needed most, the beginning of a successful B2B customer service campaign can be launched and maintained. A secondary alternative is to create short-term strategic alliances with Rolls-Royce’s largest customers, through a dual branding campaign to reinforce Roll-Royce’s commitment to corporate social responsibility and also enhance the brand image of the clients as well. Currently, the airlines are driven by their internal competencies, in terms of pilot experience and engineering know-how, and use these to promote their businesses. The airline industry works on the consumer marketplace and a dual branding strategy, such as developing a promotion to illustrate the many benefits of partnerships with suppliers and customers, can enhance passenger ticket sales with the airline carrier. Television advertising on behalf of Rolls-Royce, a tactic to show suppliers their strong focus on regulatory and customer-generated contract compliance, would illustrate the customers’ brand logos or discuss how Rolls-Royce has partnered with the airlines to provide the safest, most reliable engines on the passenger market. If such a branding alliance found success by generating higher ticket sales at the airlines, future B2B marketing efforts can be aligned to provide value to the client and also ensure higher sales of Rolls-Royce engines to the now-more profitable airline customer. The dual branding strategic alliance will bring the extended promotional benefit to Rolls-Royce (in the minds of customers) and also reinforce to the consumer marketplace that when flying Rolls-Royce customer planes, the highest quality and technical expertise exists. Harrison (2009) suggests that in the B2B marketplace, if brands are able to boast its compliance and accreditations, such as ISO or other well-known agreements present in the airline industry, they deliver higher return on investment. This corporate social responsibility approach to promotion will only serve to strengthen existing client relationships as part of an overall positioning strategy to gain competitive edge. A third alternative for Rolls-Royce is strengthening its competitive position by capitalising on the stakeholders of the business, again as part of a total promotional package. Dearlove (2000) offers the importance of assessing the external environment as part of a total environmental analysis in order to build competitive strengths. Rolls-Royce is missing out on opportunities to utilise the strong, emotional relationships which exist with engineers and the lifestyle emotions created by years of experience in plane engineering workshops. The corporate social responsibility approach extends to internal stakeholders which is highly important to Rolls-Royce considering that psychological risks to internal engineers in outsourcing workshops. The case study did not provide evidence that Rolls-Royce’s largest competitors were exploring social advertising to position their businesses as leaders in corporate social responsibility. Various print and television advertisements which explore how Rolls-Royce remains committed to staff well-being and applauding their expertise in technical know-how and experience can further strengthen the brand image of Rolls-Royce. In the event that customer contracts demand the continuation of Rolls-Royce-owned workshops and maintenance centres, capitalising on brand image in this fashion can strengthen internal relationships and also project a positive, social image of Rolls-Royce to buying customers. Finally, Rolls-Royce describes its internal culture as “powered by the knowledge, experience and imagination of all our employees across the world. Our advantages are dependent on the contributions they make” (Annual Report, 2008, p.4). The airline companies, currently, remain focused on staff and engineer expertise when positioning their businesses as competent and Rolls-Royce maintains the opportunity to illustrate similar competency through advertisement promotions. Trust is an element which is missing in Rolls-Royce’s customer relationships and, by creating a marketing strategy which is in-line with current airline values and beliefs, it will further illustrate that Rolls-Royce is willing to adjust its image-related promotion to fit customer values. The end result will likely be even stronger relationships as part of a total repositioning strategy for Rolls-Royce. 3. Recommendations When examining the four alternatives designed to build a better customer service-focused relationship with Rolls-Royce’s largest customers, costs of such promotions or alliances must be considered. Rolls-Royce is not fully capitalising on its opportunities to strengthen relationships and more strongly reinforce the company’s commitment to providing service contract value and other value-added services. With trust being one of the largest issues affecting future sales (such as with Rolls-Royce’s spare part sales), dual branding strategies will project this commitment much more than a negotiated service contract would. Therefore, when articulating possible alternatives, the focus must be on mutual value in all business transactions and service agreements. With this in mind, the most viable marketing alternative for Rolls-Royce is to consider the short-term strategic alliance with its largest airline customers, as part of a dual branding strategy designed to provide superior value to both Rolls-Royce and its clients. If targeted properly, dual branding campaigns can bring significant return on the investment (Kurtz, 2007). The airline companies are largely driven to profit by consumer revenue (per-ticket sales) and would benefit from advertising which depicts the B2B relationship between Rolls-Royce and its customers and also project the image of safety, dedication and expertise to consumers who might be concerned about the viability of airline travel. It was also identified that many airlines and their suppliers were hit with lowered profitability after 9/11/2001. Because of this, a somewhat radical repositioning of Rolls-Royce as an ethical and social organisation will appeal to the client’s customer values and concerns and also bring much more publicity to Rolls-Royce and its customers. Implementing this new dual branding strategy would require coordination with senior decision-makers at both companies, as well as extensive discussions with both marketing divisions, to come up with a promotional campaign which gives both brands (and their associated logos) higher visibility in both the B2B market and the consumer market. Consumer values are related to safety and quality, as are the values of the airlines that focus on competency in service delivery, therefore Rolls-Royce need only reinforce their commitment as an expert supplier with a strong focus on assisting customers to be the best they can be in their respective airline markets. This would be inexpensive promotion and would serve to give Rolls-Royce customers yet another reason to trust their supplier and realise how dedicated the business really is in assisting customers to find success in their different markets. Relevance of recommendation There is clearly a disconnect between fully understanding client values, speaking of the promise of service delivery, and then actually creating a positive perception about Rolls-Royce’s commitment to satisfying client needs. Trust is missing as part of this relationship, therefore Rolls-Royce is unable to successfully promote its other value-added services and parts sales which generate the highest profitability. Because Rolls-Royce wishes to consistently hold onto its competitive advantage, amidst a competitive environment where competition is consistently adapting to counter Rolls-Royce marketing moves, a new and innovative method of positioning the business is the most relevant solution. Promotion is the most important element of the marketing mix which requires re-examination by the company. Dual branding promotions are most relevant, additionally, because both the supplier (Rolls-Royce) and its customers are experiencing declines in sales. In this industry, if the airline customer is experiencing diminished sales volumes from their consumer markets, long-term orders for Rolls-Royce engines will also likely decline. This also illustrates that Rolls-Royce is largely dependent on the airline customers’ successes in their consumer markets as part of a strategic, external analysis of forces which impact business successes. Such a dual branding campaign was chosen as the most relevant recommended marketing strategy as adjusting other aspects of the marketing mix would mean adopting too much risk for Rolls-Royce. For example, slashing engine prices would only further erode profitability at a time where costs are currently unpredictable for Rolls-Royce in most areas of service delivery and product sales (Meldrum and Palmer). Using pricing reductions as a competitive tool simply is not an option if Rolls-Royce wishes to expand its profit margin. Further, because the costs of maintaining its engines, as part of the service contract, is not consistent due to fluctuating service intervals needed on already-sold engines, altering pricing as a competitive tool represents a risk. Rolls-Royce has currently used cost-cutting efforts to boost profitability by changing the nature of how workshops are organised and staffed as well as reducing the volume of suppliers to save costs on distribution and logistics. Thus, in terms of distribution, the business is already focused on maximising expertise and location to ensure that the business does not take a profit loss on their extended service contracts (the TotalCare package). This is yet another rationale for why repositioning of the business, through dual branding campaigns, can provide the most long-term benefit and strengthen customer relationships in the process. The dual branding strategies will bring more positive publicity to both firms and also strengthen brand image for both customers in both the B2B market and the consumer markets which Rolls-Royce airline customers service. If the promotional campaign developed is rememberable and logos are utilised effectively in print or televised advertisements, consumer connection with these different brand images can build more brand insistence or brand loyalty in consumer markets. If these dual branding strategies bring higher per-ticket revenue increases to the client, this creates the incentive for Rolls-Royce’s customers to select this progressive and innovative promotion-focused business to sell and service their engines. No other competitor, based on the case study, has been providing or considering dual branding strategic alliances, thus Rolls-Royce can maintain relationship-based competitive advantage for years to come. Competitive advantage consistently gets eroded from Rolls-Royce due to the fact that competitors have flexible business models which allow them to create more service-focused client contracts. Each time Rolls-Royce adjusts their marketing focus to include better aftermarket service and maintenance promises, competitors quickly adopt these behaviours and try to outperform Rolls-Royce by appealing to clients with the same service-minded philosophy. By presenting potential sales successes for such dual branding alliances in promotion to its customers, Rolls-Royce will only reinforce its dedication to the value of these client relationships in areas much further beyond just sales and service. The dual branding strategy can also be developed to illustrate certain competitor failures in the airline market and the steps which Rolls-Royce has taken to outperform these business errors to make airline travel more efficient and safe with a focus on consumer protection. Research into the statistics of competitor engine design or engine defects could further be listed in these dual branding, business repositioning campaigns and be promoted in the print and on-air advertisements. This would also reinforce the various safety and innovation records held by Rolls-Royce to consistently reinforce the company’s strengths over that of competitor engines. Reinforcing this same message to clients will only serve to create a positive connection with the Rolls-Royce brand and remind clients of why Rolls-Royce engines are capable of providing superior long-term value. Conclusion Despite the technical problems with creating a more flexible and compliant business model to meet competitor demands, Rolls-Royce’s largest deficiencies lie in its marketing strategy related to promotion. There is a lack of knowledge about what customers actually demand in their service relationships with suppliers as well as what would drive more trust in the value-focused relationship. Rolls-Royce requires a repositioning strategy which focuses not on competence and expertise necessarily, but on the value which the company provides in each engine to not only their customers but the consumers who fly on their serviced airline partners. Creating such a win-win marketing scenario will illustrate dedication, commitment, and innovation toward profitability and as a focus to assist in helping clients maintain positive reputations on their respective consumer markets. From a budget perspective, this recommended dual branding alternative maintains the opportunity to provide the most value both short- and long-term and as a means to outperform competitive actions. References Annual Report. (2008). Rolls-Royce Plc Annual Report. http://www.rolls-royce.com/images/2008%20PLC%20Annual%20Report_tcm92-11543.pdf. (accessed 25 August 2009). Benady, David. (2009). Top 10 tips for successful B2B marketing. Marketing, London. 24 Jun, pp.30-32. Bulik, Beth Snyder. (2009). How your value message can be heard above the din. Advertising Age, Chicago. 80(12), pp.1-3. www.proquest.com. (accessed 24 August 2009). Dearlove, Des. (2000). The Ultimate Book of Business Thinking: Harnessing the Power of the World’s Greatest Business Ideas. Oxford: Capstone Publishing Ltd. Harrison, Matthew. (2009). Only fools rush in. Marketing, London. 17 Jun, p.7. Kurtz, David. (2007). Contemporary Marketing. 12th ed. Australia: Thomson South-Western Publications. Meldrum, M. and Palmer, R. (2005). Rolls-Royce Aviation and the Development of ‘TotalCare’. Case Study – Cranfield School of Management. Read More