Marketing Strategy of British Airways - Essay Example

Strategic Management in British Airways Introduction British Airways is the largest airway of the United Kingdom and is also considered one of the most prominent airlines of the world. It also operates the maximum number of flights across the Atlantic from Europe. With an outreach to over 130 countries and major cities like London, Paris, Frankfurt, Honk Kong, Singapore and Bangkok, it connects over 550 cities (Evans, et al, 2003). British Airways has a very long history because it began its operations in 1824 when five operates in the United Kingdom merged together and formed what was then known as Imperial Airways. British Airways operates from the two major airports of the United Kingdom, Heathrow and Gatwick. This airline services is also well known for the excellent service that it provides and the high quality of operations that it consistently maintains over the years. Over 35 million passengers travel with British Airways in a year (Evans et al, 2003). With a variety of options like business, first, premium and economy combined with a selection of entertainment options, it is one of the favorite airlines of flyers across the globe. The airline has the tagline “The Worlds Favorite Airline”. This study takes a detailed look at how strategic management works in British Airways and evaluates its performance. British Airways is a part of the aviation sector. The wide presence of numerous airline operators indicates that aviation is indeed a very competitive sector. With increase in global travel rates, aviation sector has now become more prominent than ever before. The increase in travel can be attributed to different reasons such as increase in business travelers across continents, travel for personal work as well as travel for tourism. Aviation industry has seen several revolutions in the past and one of the major ones was the introduction of low cost carriers (Thompson, 2001b). British airways also entered this foray by offering low cost services in selected sectors. However, by maintaining the high quality of its first class and business class service, the airline has been able to capture the elite audience also. In recent times, the high price of aviation turbine fuel has been a challenge that the entire aviation sector has been facing. Such a very high price of aviation fuel has had an impact on the pricing models of the aviation sector so that the profitability can be improved. Aviation is a broad sector that is a part of multiple diverse sectors under the purview of transportation. Within the transportation sector, one of the dimensions where aviation comes in is tourism. The tourism industry is one where a close interaction with other sectors is quite essential. Within this sector, tourism boards tour operators, hotels and accommodation, road and sea transport etc come together. With the increase in the number of tourists over the last decade, it has become important for the various segments operating in tandem. Also, the expectations from the tourists in this sector have also risen considerably. Marketing Strategy of British Airways For an aviation company of the size of British Airways, it is important to have a very strong and robust marketing strategy. This is much more critical in the light of increased competition in the aviation sector. The following section takes a deeper look at the marketing strategy of British Airways. To strengthen its core business of moving people, British Airways has come up with different marketing strategies (British Airways, 2010). There are five strategic goals of the organization. Strategic Goals 1. Be the airline of choice for long haul premium customers – The long haul premium customers have been identified as those ones that provide the highest profitability (British Airways. 2010). Hence, there would be a very high focus on identifying any changes in design, service or networks to become the preferred choice for this set of customers. The economy, short haul and cargo services would continue to operate and support their main service. 2. Deliver outstanding service for the customers - The customer facing staff at British Airways wants to capitalize on their exceptional customer care skills so that the customers across the different classes enjoy premium support (British Airways. 2010). Therefore, the company plans to invest in improvement of customer service such as service style training so that all the customers have a better experience. 3. Grow the presence in main cities across the globe - To provide better connectivity at a global level, British Airways aims to directly and indirectly expand partnership in the top tier cities (British Airways. 2010). There is a strong presence is in cities like London and New York, British Airways aims to expand to other global cities. 4. Continue and capitalize the leading position in London - London is the home city of British Airways and is the center of international air market (British Airways. 2010). To make sure that London continues to enjoy this position, British Airways would look at influencing government decisions and work with airport owners to support development of the infrastructure. 5. Meet the needs of the customers and improve profitability through new revenue models - For British Airways, the revenue streams are always core to the business (British Airways. 2010). Therefore, the strategy would be to increase this with the help of providing ancillary services which offer great value to the customers and hence, reinforce the brands. To achieve this, the aim is to develop new products and services that can capitalize on the existing assets of the organization. Steps to Achieve the Strategy To achieve the strategy, the focus is on 5 different aspects that are Colleagues, Customer, Performance, Excellence and Partnership. Through better engagement and internal relationships, better working environment is to be achieved so that employees work together more effectively. By delivering outstanding customer service and exceeding their expectations, customer satisfaction would be improved (Street, 2000). It is achieved by redefining the first class service and improving customer interaction through ba.com. By monitoring the opportunities, financial performance is expected to be enhanced. This will be done through better anticipation, improving structural base and growing mileage, holiday businesses and development of non-air partnership. By achieving excellence, through continuous improvements in operational performance, British Airways hopes to bring continuous improvement that would keep both the customers as well as the stakeholders happy (Klemm and Parkinson, 2001). Another key factor that would help this aviation company achieve their strategy is through Partnerships. Through aviation and non-aviation partnerships, British Airways hopes to achieve extend connections improve flight schedules, enhance benefits, provide better customer care and introduce better disruption management plans Strategic Approach British Airways has adopted a strategy of differentiation. Differentiation is a strategy in situations where the target customer has very specific demands and needs and where they are not very sensitive about the pricing (Besanko et al, 2001). In most cases, the market is saturated and the organization has unique resources that can satisfy the specific demands of the customer. With British Airways, it is clear that it uses the strategy of differentiation because of the high focus on the demands of their premium customers. They have discovered how the premium customers are the key to their business and hence, it is profitable to cater to their specific demands, in an environment where there is high competition. There is no focus on any measures to reduce costs, but the focus is instead to provide the best possible and the most comfortable experience for their customers. Hence, British Airways does not look at the approach of cost leadership when it comes to the strategy. While there is focus on cost rationalization, the top priority is to excel at providing the best possible support premium customers by being unique through the strategy of differentiation. For example, partnering with many different airlines to improve the network, working on improving the infrastructure of the terminals and improving the customer service are some ways through which they hope to achieve success within the strategy of differentiation. Marketing Mix The marketing mix of product, people, price and promotion adopted by British Airways is very specific, especially because they have achieved the key step of finding out their main audience (Johnson and Scholes, 2002). The key service is to satisfy their premium customers. However, they also would continue to improve their economy and cargo services to be a good ancillary system that supports the main objective. Their target audience is mainly business class and first class flyers as well as the frequent flyers. The pricing model of British Airways depends on the segment of audience that they target. Even though they have some focus on low cost service in certain segment, largely, the pricing model is based on the affordability of the premium customers who are willing to shell in more money in return of better service. With the emergence of many transatlantic services such as Lufthansa and Emirates, British Airways has a higher competition to battle (Thompson, 2001a). Hence promotion is essential. Through effective advertising and public relations, British Airways hopes to get more attention. In addition, their tagline of being ‘The World’s Favorite Airline’ serves as a good promotional tactic to their promotional plans. Hence, through a balanced marketing mix, British Airways hope to achieve their strategic goals. Environmental Analysis As the strategic approach of British Airways is now clear, it is necessary to conduct an environmental analysis through various approaches to see how the strategy fits in different scenarios. PESTLE Analysis PESTLE analysis stands for the analysis of the Political, Economic, Social, Technological, Legal and Environmental factors that will come into play during the process of strategic management (Gelliespie, 2007). Here is a PESTLE analysis of strategy adopted by British Airways Political – The political policy has a big influence on the aviation industry and flying regulations work around the policy of the government. In the case of British Airways, their approach to expand their reach needs governmental approval. Similarly, their plan to provide special facilities at the terminals in Heathrow also revolves around the policy of the government. Economic – Economic factors has a direct influence on the price and the profitability factors. For example in the case of British Airways, a difficult economy can bring about challenges related to profitability. Increased cost of aviation fuel and reduction in number of flyers due to recessions are some economic challenges. However, a favorable economy can in turn boost the profitability. Social – Social factors with regards to British Airways depend upon the level of acceptability that customers may have towards them. Therefore, factors such as non discrimination, equality and considerate service may come into play when it comes to the level of service provided by them. Technological – Improvement in technology can indeed bring about a revolution for the airlines. Improvement in their flight planning, aiming at global expansions would require technological advancements to take them to the next level. Legal – Legal regulations in flying could prove to be restrictions to the business strategy of expansion of the flights. However liberalization of the legal issues can prove to be a facilitator to their strategy. Environmental – During the modern era, sustainability holds the key in running large operations such as that of British Airways. Hence, better environmental friendliness and awareness about pollution and steps can benefit the strategy. 5 Forces of Porter The five forces of Porter are useful in understanding business strategy development as it helps in determining the competitive intensity of a particular market (Porter, 1980). Here is an analysis based on the 5 forces that were given by Porter. 1. The threat of new entramts – Aviation industry has a very high level of competition and British Airways stands out because of the exceptional service that provides to its premium customers. Hence, it is essential to raise the bar of service and quality constantly because any disruption in that can easily pave the entry of a new competitor with better services. 2. Threat of substitute product or service – With aviation, there are not many feasible threats of substitute product or service. Even though there are other options like cruise or ships the level of convenience that flights offer is unparalleled. Hence, British Airways does not have to worry about any threat of alternative product. 3. The bargaining power of the customers – With premium customers, there is not much pressure of the bargaining power of the customers because the priority is on the quality of service and value based offerings. However, with the introduction of low cost airlines the bargaining power of the economy fliers has increased simply because they have different options to look at. 4. The bargaining power of the suppliers – This is one of the major threats that are faced by the aviation industry, especially because of the very high prices of aviation fuel. Hence, British Airways has to face the additional challenge of negotiating with the suppliers to ensure profitability. 5. The intensity of competitive rivalry – It is always necessary to make sure that there is a sustainable competitive advantage through continuous innovation so that British Airways can reduce the intensity of competition in the world of aviation. SWOT Analysis SWOT Analysis basically means Strength, Weaknesses, Opportunities and Threats (Hill and Westbrook, 1997). It is always useful to do a SWOT analysis about the strategy of the organization to identify these variables at an early stage. With British Airways the key strength includes meeting the demands of premium customers and the strong base of loyal customers that they have developed over the years. Excellent customer strength and a strong fleet of aircraft with good connectivity is also another strength. Main weaknesses of the British Airways include a very high dependence on the premium customers and dependence on factors such as suppliers’ demands. Aviation industry is also extremely dependent on the external economy for determining their profitability. Opportunities that lie in front of British Airways are vast. To maintain a strong customer base, it can expand its services to many global hubs. Additionally, it can also focus on strengthening the customer base in the UK by providing additional facilities at the existing services and improving the quality of it service. By exploring the potential of the ancillary services, they can strengthen their outreach to other customer segments apart from the premium sector. The major threat is a volatile economic environment that can take things beyond the control of the airline. The threat of other competitors entering the aviation sector to offer better services when compared to British Airways also always looms large. Discussions Application of the strategy and its effectiveness British Airways adopted numerous different methods to implement its strategy and to ensure that it can meet its vision on a continuous basis. The key to achieving higher profitability was through satisfying the premium customers and for that, excellent service to these customers was critical. Hence, a lot of focus was given to creating a solid workforce and encouraging better work standards among colleagues. During the big recession of 2008-2009, the success of the organization was attributed to the huge commitment as well as voluntary work offered by their staff (RightNow, n.d). Steps were taken to improve the employee engagement. The organization continued to invest in talent management and encourage the development of front line leaders who can lead by example. In order to increase motivation, the organization also introduced customer centric outlook into the rewards program and the use of performance based pay. The second step in implantation was to have good customer focus. To improve better facilities, new fleet of Airbus 380 and Boeing 787 has been introduced (BBC, 2007). The facilities at Terminal 5 of Heathrow have been improved and the website ba.com has been developed further so that customers can easily interact with the organization (Pitfield and Heinz, 2011). While this strategy is solid, additional elements such as steps to refine customer service and offer personalized service also can be considered. Increasingly, newer strategies were also implemented to improve the financial performance of the organization (Doganis, 2006). Even though a cost leadership model was not introduced, steps were taken to keep the controllable costs at a flat rate along with the improvement of business conditions. To improve revenues, new slots were identified, holiday business was improved and partnerships began. New flights such as Boeing 777-3000 ERs were introduced to the fleet. Additional steps were also taken to ensure excellence in the aviation sector. Some measures included steps for introduction of the satellite terminal 5C and improving the service in North Terminal of Gatwick. Airmanship programs were introduced across baggage security for better ground safety. Here, excellence was introduced in facilities. However facilities need to be introduced in terms of operations also because factors like on-time performance, smooth connectivity to different locations and aircraft safety also play a good role in making the service excellent. Effective partnerships have been introduced to provide a comprehensive service to the customers of British Airways. In 2010, British Airways began partnership with American Airlines in the US Kingfisher Airlines from India and Russian Airlines S7 so that British Airways is able to improve its position global (Rowley, 2010). This is a very effective method of expansion of service. Evaluation of the Organizations Performance With the implementation of strategy, the next step is to evaluate the performance of the organization and British Airways looked at its performance in detail. To understand the level of employee satisfaction, they conducted the several feedback surveys such as the all-employee confidential Speak Up! Survey that was conducted by a third party. In this survey, colleague engagement index was also measured (British Airways. 2010).). The detailed results of these are not available to people who are not employees, but it is clear that employee motivation and satisfaction are factors that are considered to be important by British Airways. Customer surveys are also important to British Airways to evaluate their performance. It has a comprehensive monthly survey programs in which more than 36000 customers participate every month. As British Airways operates in the aviation sector, a huge basis of its performance depends on the customers and what they think of their service. This survey aims to measure customer recommendation. The last survey that was done during 2010 revealed that the customer recommendation percentage was 63%, slightly lesser than the estimated target of 65%. (British Airways. 2010) The reasons for not achieving this target are under investigation. Many innovations and investment decision are made based on the result of this survey. The performance of the organization was measured in terms of the operating costs of the airline. Extremely tough economic conditions had increased the operating costs without resulting in profitability. In 2008-2009, the company suffered a huge loss of 1 billion pounds, but even then the operating loss was flat against the rate of operations during the previous year. Therefore, measures such as better Terminal experiences for premium customers and more customer interaction with the help of the website ba.com are now been considered by the organization so that there is improvement in the financial performance (Loop11, 2010). To monitor excellence, the airlines monitor the statistics of the on-time performance. Departure schedules and the actual departure times are evaluated in a continuous manner to see how the performance gets affected. Punctuality during departure is considered to be one of the key factors that determine the customer satisfaction. Over the years the departure punctuality has been improving considerably with it reaching 59% during 2009-2010 (British Airways. 2010). However, there is much better scope to improve the performance as any delays due to operational reasons can be worked upon and improved. Apart from the factors beyond human control such as adverse climatic conditions, there should be a higher aim for the punctuality. It is difficult to measure if a particular partnership has been effective or not during a short period of time. Apart from partnering with the various airlines such as Kingfisher to offer a much more solid network of flights, British Airways has also introduced several programs such as One Destination that improve the energy efficiency and reduction in carbon emissions. They also track the milestones that have been achieved because of the partnership with American Airlines. Conclusion Overall, it is clear that British Airways has created a long term strategic plan that would be able to expand their profitability and build a strong customer base that is loyal. The future of British Airways looks robust and there is a solid foundation that has been laid for the future years on which new innovations and plans can be built upon. At present, the main goal of this aviation company should be to identify certain key elements from the strategy and then focus on those in an aggressive manner. For example, looking at the option of expanding to a particular location across Atlantic can make British Airways the primary airline that provides connectivity of that particular region with Europe. If such a plan is decided, additional efforts and implementation should be carried out in an aggressive manner before the level of competition gets much higher than before. Hence, prioritizing certain key steps and identifying key results should be the next main step for the organization. The evaluation also shows that this aviation company has been performing well, even after coming out of the economic recession and is all set to move ahead to a profitable future. Refernces BBC News., 2007. BA opts for A380 and Dreamliner URL: http://news.bbc.co.uk/1/hi/business/7015621.stm [Accessed Nov 23, 2011] Besanko, D., D. Dranove, M. Shanley., 2001. Exploiting a Cost Advantage and Coping with a Cost Disadvantage. Management Science. 47(2), 221-235. British Airways. 2010. 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