Relationship Marketing - Case Study Example

Relationship Marketing: Case Study of British Airways Table of Contents TASK ONE Introduction British Airways is the biggest airline in the UK operating international scheduled flights. The carrier serves over 300 destinations in the world the world and operates on the principle of flying at the most “convenient times and being in the best located airports in the world” (British Airways 2008). This makes it one of the world’s leading airlines venturing in international flights. British Airways uses Heathrow, London’s largest airport, as its prime location of business. Heathrow is one of the world’s premier airports, serving a significantly large geographical region with a reasonably high scale of point-to-point business. Products British Airways does not focus solely on passenger services. As a means of diversifying its product range, the airline offers worldwide cargo transport services. The cargo service is linked to the passenger service in that it is operated in conjunction with scheduled passenger flights. Therefore, passengers who want to move cargo do not have to experience delays in arrival of cargo due to inconvenient flight arrangements. Both passenger flights and cargo flights are synchronized for safety and convenience (in some cases one flight is used for both passengers and cargo) (British Airways 2008). Facilities British Airways runs one of the most extensive international scheduled flights in the world. This is achieved with the support of its codeshare and franchise partners. Along this line, the airline has a wide range of aircraft that offer diverse services to clients. Its fleet of 245 aircraft (as of the year 2008) comprises 57 Boeing 747s, 42 Boeing 777s, 33 Boeing 737s, 33 Airbus, 33 A319s, 25 Airbus A320s, 21 Boeing 767s, 13 Boeing 757s, 11 Airbus A321s, and 10 Avro RJ100s. The number of aircraft grew to 245 in 2007/2008 from 242 in the previous year (British Airways 2008). As an international airline, British Airways generates great economic value by meeting the demands for business travel and providing other incentives that complement travel. These include provision of arteries for investment and travel, as well as provision of leisure travel opportunities for families and individuals. This has seen an immense increment in the company’s revenue. In the year 2007/2008, the company earned over £8.7 billion as revenue, recording an increase of 3.1% relative to the preceding year (British Airways 2008). Of the revenue, passenger traffic accounted for the greatest share with 86.2 per cent (more than 33 million passengers), 7.0 per cent came from cargo services, and 6.8 per cent from other activities. This shows that the company’s focus on complementary activities in addition to passenger travel services is essential. In the same year, British airways transported 805 tonnes of cargo to various destinations in Europe as well as many other regions of the world (British Airways 2008). Developments In recent times, British Airways has been involved in a number of innovations to increase its efficiency through providing services that the add comfort to passenger travel. One innovative idea was the establishment of a new terminal referred to as Terminal 5 (T5) and its eventual opening on 27 March 2008 (Millward 2008). The £4.3 billion venture was expected to increase the efficiency of services at the airport and most importantly serve as a client motivator. However, the opening day was marked by chaos due to failure of several automated services (Robinson 2009). Consequently, there were longer queues than anticipated and cargo-handling services were interrupted for several days. The failure was an exemplar of how untested innovations can be an obstacle rather than an incentive to attracting and maintaining a customer base. Nevertheless, in the company’s annual report of 2007/2008, the group chairman admitted the year had been featured by many highlights (such as the increase in number of aircraft), and many lowlights (such as the failure of Terminal 5 on the opening day), some of which were of the company’s making while others were beyond the company’s control (for instance, the failure of Terminal 5 could be attributed to failure by the British Airway Authority to test its new infrastructure in advance) (Robinson 2009). Thus, the company still maintains a good image when it comes to relationship marketing orientation. In view of the performance of British Airways in recent times, this paper will evaluate the company’s aspects of relationship marketing. This will be followed by recommendations on how the strategies implemented by the company can be improved as well as the costs and benefits of those recommendations. Additionally, the paper will present a relationship marketing theory related to the performance of British airways. Current Relationship Marketing Orientation of British Airways Definition of relationship marketing Relationship marketing involves creating, developing and maintaining meaningful relational exchanges between an organization and its clients (Morgan & Hunt 1994). British Airways engages in relationship marketing as discussed in the following sections. Value addition to services With much focus on customer satisfaction through provision of services that augment travel which is the main business, British Airways offers incentives targeted at outsmarting other world class airlines. Some of the latest services include the introduction of Club World Cabin on the fleet of new Boeing 747 aircraft. the award winning service is also being introduced on the newly acquired Boeing 777 aircraft. The Club World Cabin service has already won many coveted awards and sets new platforms for comfort in the world’s air travel (British Airways 2008). As noted by Baker (2003), powerful brands are built on a low number of values. This is one of the ideas that have been expressed by British Airways in its provision of attractive packages in air transport services. The aviation industry is highly competitive particularly after the advent of low cost carriers in the market. Low cost carriers have penetrated many markets that were traditionally reserved for full service airlines such as British Airways (British Airways 2008). Baker (2003) notes that the reason why powerful brands are based on a low number of values is that it is certainly difficult for staff to remember a large number of values. This is because they may actually be unsure how to go about some situations, thereby leading to provision of inconsistent services. Additionally, a low number of values make it easy for customers to recognize the unique benefits being offered in a particular brand and therefore make quick decisions on choosing the value-added brand. British Airways has followed this principle by ensuring that specialized services are offered on particular aircraft while the rest continue offering the services for which it is well known. This is the reason why the airline has been able to retain and improve customer base in spite of the prevailing stiff competition and unpredictable market conditions. This is exemplified by the steady increase in the company’s revenue as shown in figure 1. Figure 1: British Airways revenue between 2003 and 2008 (revenue figures in £) Source: British Airways (2008). E-services On the ground, British Airways continues to improve accessibility to its services by venturing in some of the most modern and customer friendly services. The airline has greatly improved its online booking engine known as ba.com in that customers can not only buy tickets online, they can check-in online and communicate to company staff through email in 11 international languages. The online check-in system used by British Airways allows passengers to check in via other carriers in order to connect codeshare and chose the bags that they will be carrying to the airport (British Airways 2008). According to Doganis (2006), sales, ticketing and distribution of tickets is one of the prime areas that airlines focus on. Together, the three service areas account for between 15 and 20 percent of the costs incurred by most airlines. Yet how fast and reliably the services are offered to customers determines whether they are likely to become frequent customers or desist from using the airline’s services. Thus, as Doganis (2006) notes, a key aspect of success that airlines should focus on is to highly embrace e-commerce in terms of online sales and better use of automation for ticketing among other things. And in this, British Airways has mot been left behind. More innovations In addition to e-services, British Airways recently placed an order worth $8 billion of modern aircraft, which are tailor made matching customer suggestions (British Airways 2008). The ultra modern aircraft will go a long way in ensuring that British Airways keeps abreast with the rapidly changing in innovations in aviation while also attracting more customers and maintaining the current ones with a wide range of service packages. This in line with Doganis’ (2006) argument that in order for airlines to satisfy their customers, they must constantly perk up every feature of their service and product by targeting innovations that are popular among customers. This is the ultimate technique of increasing competition while increasing customer trust in any given airline. In addition to acquisition of modern aircraft, other improvements include Terminal 5, which has become popular for its efficiency in spite of the hitches experienced on the day it was opened. Maintaining good relationship marketing in spite of lowlights The anticipated hilarious opening of Terminal 5 at Heathrow Airport in 2008 turned out to be one of the nadirs experienced by British Airways in 2008. But according to McCucsker (2005), crises may act as turning points for organizations in that they present opportunities for them to improve their marketing strategies and be closer to the stakeholder groups. After the Terminal 5 mishap, British Airways came out as a company that cares about its customers as it corrected the errors and ensured that the terminal served the purpose for which it was designed. McCucsker (2005) notes further that crises expose areas of weakness within an organization, which may not have been noticed under normal conditions. After the low point, Terminal 5 now ranks as one of the best incentives at Heathrow Airport that is of great benefit to British Airways. Terminal 5 is a state of the art the terminal that has progressively improved check-in services at the airport, thus better customer perception of British Airways. The terminal contains a wide array of eating, drinking and relaxing facilities. It also has the world’s largest lounge complex. With the facility, British Airways has been able to build a strong marketing relationship and wide customer base. The galleries complex at Terminal 5 is most luxurious in the world and offers specialized services to what British Airways calls its “top tier passengers”. These are travellers of the premium class. This is in line still in line with Baker’s (2003) view that great brands are built on few values. It is also a fulfilment of Sorce’s (2002) point that loyal customers are less expensive to serve, are usually willing to pay extra for brand choices as compared to the non-loyal customers, and act as indirect marketers for an organization. Earlier relationship marketing strategies In the 1980s, the commonly used acronym of British Airways, BA, was construed to mean Bloody Awful because the company staff focused on satisfying their bosses rather than pleasing customers. Therefore, a new boss, Colin Marshall introduced practices that encouraged teamwork with focus on the customer (Heifetz & Laurie 1997). Among the changes implemented since the 1990s include creation of a “virtual airline” within British airways. This involves the company paying attention to its core competence (that is offering excellent travel services) while outsourcing non-core activities (see appendix). For instance, British Airways outsourced its ground transport services to Ryder in the 1990s. This in part contributed to the company’s present admirable image (Doganis 2006). Recommendations on how British airways should improve its relationship marketing activity From the analysis of the relationship marketing activities carried out by British Airways, it is evident that the company focuses on number of issues that strike a balance between achieving high productivity and maintaining a convivial relationship between it and the customers. The company’s strategies can be summarised into five main themes: Colleagues: the company engages in making the workplace a high performance environment in order to boost customer relations. Customers: the company’s focus is delivering consistent customer services through innovative packages. Partnerships: the company endeavours to build strong relationships with other organizations in order to specialize in services that reflect competence. Performance: the company’s mission is to build a performance-based culture in order to suffice the diverse needs of customers. Operational efficiency: British Airways targets new products and services through continuous improvement in both the long term and short term (Baker 2003; Doganis 2006; British Airways 2008). In spite of the above developments, British Airways still faces a number of challenges which if checked will add impetus to its success and customer relations. Brand reputation is probably one of the most important aspects of business that organizations possess. Thus, erosion of the brand name through a single event of multiple events could adversely affect customers’ perception of an organization. British Airways has experienced a number of low points including the Terminal 5 fiasco and the bad impression that was depicted to customers in the 1980s. Therefore, a point to be recommended for the company is that new products and services should be tested before being fully put into use. As British Airways invests in new fleets of modern aircraft, it should focus on making timely investments, that is innovations that have immediate impact on customer relations. It would be a misinformed decision for instance, to invest in expensive aircraft in the present time when most companies have been destabilised by the global economic recession and even British Airways was adversely affected1. In the same breath, the company should invest in activities that apply across a wide section of customers. In view of Terminal 5, which is a world-class terminal, the company should diversify the services offered at its lounges in order to create a platform of enjoyment to every customer. The current situation whereby Terminal 5 seems to be reserved for high-class customers British Airways seems to create a perception of discrimination among travellers. There is no doubt that British Airways’ operation chiefly as a full service airline locks out customers who would be interested in using the airline’s services but who are taken back by exorbitant costs. Many airlines that traditionally operated as full service carriers have realised the competition posed by low cost carriers and have started incorporating services characteristic of low cost carriers in their schedules. This is an idea that British Airways should consider implementing on a long-term basis. This does not mean doing away with full service operations, but incorporation of low cost services in some flights would definitely increase the market base of British Airways. The airline should also venture into new markets by opening new destinations and linking the airports that are already served by “joining the dots” within various networks. Doganis (2006) also points out that good customer relations practices by airlines should involve offering diverse low cost services routes that are traditionally reserved for full service airlines. Benefits and costs of the recommendations British Airways has definitely established itself as a strong brand. This is advantageous in that the airline is assured of having a reliable base of customers even when competition soars. It also means that the company is in a position to control the aviation market with a modicum of innovativeness to attract new customers while maintaining the loyal ones. On the other hand, having a good brand name has its costs given that the product must be perceived to be superior by a considerably large number of customers (Sorce 2002). This means that British Airways has to struggle in spite of difficult financial times to maintain its services. Other costs of having a powerful brand include the need to increase adoration (such as Terminal 5), creation of social networks (such as constant updating of British Airways’ web site) and the airline’s willingness to expend more resources in order to create a customer village within business (Sorce 2002). Whereas investment in ultra modern aircraft presents British Airways with an opportunity to be closer to customers and know the kind of facilities they expect, it also presents a challenge in terms of where to invest, why the investment should be done, and its benefits. At this time when recession has hit many countries, British Airways may have to strain as it strives to maintain good customer relations through services that are above par. If British Airways ventures more in low cost services, it is likely to capture a section of the low cost carrier market. This is because it will be able to offer a wider product range unlike the current services that target only a particular section of the market. But such a move is also likely to erode the company’s brand in that some customers (particularly the loyal ones, will be convinced to regard British Airways as any other low cost carrier that aims at making profit rather than providing comfortable transport. Relevance of relationship marketing theory In order to understand relationship marketing, there is need to distinguish between discrete transactions (which are characterized by beginnings, short durations and sharp endings) and relational exchange in which previous agreements form the basis of a longer current strategy and therefore reflects an ongoing process (Morgan & Hunt 1994). The relational exchange theory involves the relationships between a given organization and all other parties that contribute to the organization’s well being. Thus, an organization has to form a number of partnerships to achieve it mission. These include supplier partnerships, lateral partnerships, buyer partnerships and internal partnerships (Morgan & Hunt 1994). Within the partnerships, there are relations between an organization and various players. For instance, British Airways has to deal with various players such as suppliers of aircraft and various services, competitors in aviation, intermediate and ultimate customers as earlier discussed, employees and so on. These relationships form the basis of the commitment trust theory of relationship marketing whose model is shown in figure 2 and 3. The various relationships between various market players and the organization in various partnerships is shown by the numbers 1 to 10 (figure 2). Although adequate conceptualization of relationship marketing requires a definition that would encompass all types of relational exchanges, present definitions cover some forms but not others. For instance, Morgan and Hunt (1994) present some definitions of relationship marketing based on a number of authors’ descriptions as (1) based on the services marketing area, “relationship marketing involves attracting, maintaining- and in large organizations (such as British Airways), enhancing customer relationships. The second definition put forward by Morgan and Hunt (1994) is that relationship marketing entails attracting, developing, and retaining customer relationships. Although the definitions have some slight variations, the core value of relationship marketing is creating a strong relationship between an organization and its customers as highlighted by British Airways’ case. Figure 2: Relational exchanges in relationship marketing Source: (Peck, Christopher & Payne 1999) Figure 3: The original commitment-trust model Source: Holdford & White (1997) Regardless of how competitive a particular organization may be, it is always built on a foundation of common interests and mutually agreed-upon principles. And since competition takes place in a society rather than a jungle, it serves and depends on the common principles and interests (Morgan & Hunt 1994). This is the reason why British Airways has to diversify its services, increase technology and so on just to attract and maintain the customer community. The company has had to use the services of other carriers and players in the aviation industry to increase specialization hence better service quality. The strategies used by British Airways have shown that the dictum “everyone for himself” does not hold in business as noted by Morgan and Hunt (1994). Relationship marketing encompasses all the aforementioned groups. Task Two Aspects of the commitment-trust theory of relationship marketing Commitment and trust are fundamental aspects of the relationship between an organization and its customers as well as other players in various industries. Morgan and Hunt (1994) and Porter (2008) note that commitment and trust are vital for marketers as they encourage them to (1) aim at preserving investments in relationships by cooperating to a larger extent with their exchange partners, (2) stand firm against short term alternatives while preferring the anticipated long term returns and benefits of staying with extant partners, and (3) view potentially high risk moves as being practical due to a common opinion that the partners will not act opportunistically. Point (1) above has been exemplified by British Airways through its commitment to service delivery by cooperating with other partners in activities such as outsourcing of non-core services. Point (2) is probably what British Airways has embraced in order to continue operating as a premium service provider in spite of the growing competition and tough economic times. Additionally, point (3) has been depicted by British Airways through its endeavour to build a strong brand though innovations in spite of the prevailing unconducive business environment. In short, commitment and trust have enabled British Airways to inculcate cooperative behaviours that are conducive for the success of relationship marketing. Frameworks of the theory The relationship commitment theory is based on key aspect of commitment and trust. According to Gordon (2005), commitment can be likened to a marriage relationship in which the partners devote each other’s time for their partners. Thus, commitment in relationship marketing regards an exchange in which the partners in business admire their relationship so much that they that believe that the relationship is worth maintaining at whatever cost (Kaufmann 1988). From the above perspective, Morgan and Hunt (1994) define commitment to a relationship as an enduring desire to maintain a worthwhile relationship. Further, the desire to maintain the relationship is driven by the fact that each committed partner is willing to maintain the relationship indefinitely. Hence, commitment is a core value in relationship marketing. Although Morgan and Hunt (1994) note that commitment is a relatively new phenomenon in discussions involving relationship marketing, the term has become synonymous with inter-organizational relationships. Eckerson (2005) notes that commitment is central in distinguishing social exchange from economic exchange. The author adds that the differentiation of various types of relationships is pegged on the mutual trust and commitment on the part of the individuals (or organizations) involved in establishing and maintaining the relationships. Commitment is also the essence of buyer and seller relationships. There is no doubt that the close ties between buyers and sellers in which the buyers become loyal customers to a given organization are developed through commitment. Such customers usually trust a given brand regardless of the changes that occur in its price or other minor attributes. This can be said of the customers of British Airways who go for premium travel services irrespective of season and those who use the luxurious facilities at Terminal 5. On the other hand, trust is inculcated when each of the partners in a relationship has confidence in the other partner's integrity and reliability. Morgan and Hunt (1994) define trust as an individual's willingness to rely on a partner in whom one has confidence in any given relationship. Real trust is developed when the partners in a relationship know that one partner is trustworthy and they are willing to rely on them. Combining the two phenomena, trust is a precursor to commitment (Lewis 2001; Hoeffler & Keller 2002). Criticisms of the theory and how the theory could be developed Whereas the commitment-trust theory emphasizes the relationship between two individuals, it does not highlight the nature of relationship that can occur where multiple partners are involved. For instance, while the success of an organization such as British Airways is based on the company’s relationship with customers, other players such as suppliers and aviation authorities are equally important. According to Coens and Jenkins (2000), since an organization is a system, it cannot be significantly improved by simply focusing on individuals. Yet, commitment and trust are mostly based on personal decisions (Kaufmann 1988, Brugha 2005). The commitment-trust theory therefore fails to address the concept of organizational responsibility with regard to developing commitment and trust. In addition, Coens and Jenkins (2000) note that the choices of responsibility and commitment must be left to individuals if an organization expects them to be effective and meaningful. This means that an organization needs to create an environment of openness in order to foster trust and commitment, which will ultimately be translated to other partners such as customers. An important point put forward by Coens and Jenkins (2000) and Brugha (2005) is that organizations can only survive if they are free evolving systems. In view of the commitment trust theory, it is expected that should commitment and trust grow over time, which means that customers have be repeat users of a particular organization’s products or services (Tung 2001). Nevertheless, in the current market where competition is very stiff, it is unlikely that customers will stick to one organization on using their services or products for the first time. Thus, they are likely to sample many products from various companies, and this will affect their commitment and trust in any organization. The commitment-trust theory therefore seems to be more applicable in an imperfect market as opposed to a perfect market. The commitment trust theory also fails to address SWOT and PESTEL issues in marketing The commitment-trust theory could be improved by ensuring that commitment and trust are emphasized at organization level rather than among individuals. The scope of the theory should also be widened to reflect that fact that commitment and trust between organizations and customers are developed through innovations and rigorous marketing activities. 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Sorce, P 2002, Relationship marketing strategy, Printing Industry Centre at RIT, Rochester, New York. Tung, L 2001, The Role of Trust in Business-to-Business Electronic Commerce in Singapore, e-Everything: e-Commerce, e-Government, e-Household, e-Democracy, 14th Bled Electronic Commerce Conference Bled, Slovenia, June 25 – 26, Available from http://ecom.fov.unimb.si/proceedings.nsf/0/952aaa8396ba2706c1256e9f002e7daa/$FILE/02_Tung.pdf (17 August 2009). Appendix Virtual airline model Source: Doganis (2006) Read More