Grow a business: United Airlines Essay

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Grow a business: United Airlines

Introduction

Today we live in a global community as global citizens where we have become increasingly conscious about sharing the planet with people from other cultures and backgrounds.

Not only can we use information technologies to e-mail, phone or fax friends, family and colleagues in other parts of the world, we can also use reliable and regular travel links to visit them, covering vast distances in a matter of hours.

Whereas in the past travelling by air was, for many people, an experience more often than not associated with an annual family holiday, today air travel has become a way of life both for business and leisure.

This case study focuses upon how United Airlines uses customers’ motivations for different types of services to segment the market and improve its competitiveness.

In a service-based industry, customers and the services they require are at the centre of any marketing strategy.

Besides offering convenient scheduling throughout its domestic and international routes, United seeks to attract high-yield customers and to earn their preference and loyalty.

It has to compete with a range of other carriers across all routes and must decide how it is going to compete.

For example, more frequent services, more destinations, more comfortable seating, superior food, lower prices etc.

Managers at United Airlines constantly monitor competitor activity in order to maintain its market position whether through prices, schedules or route networks.

Although airline travel experienced consistent growth since 1991, its business environment is susceptible to shock events.

National governments, which may limit access to certain routes i.e. between Denver and Heathrow, where the Bermuda 2 agreement between the USA and the UK limits the number of carriers.

With the help of questionnaires, United Airlines classifies its customers by their motivations. For example, some customers choose United Airlines because of price, while others choose the airline because of schedules, frequent flyer programmes or other forms of service.

For United Airlines, successful segmentation enables targeting to take place.

Learning outcomes:

As a result of carefully reading this case study, students should be able to:

-provide a brief understanding of the notion of global citizenship

-learn about the importance of customer service in targeting customers within a service-based industry

-understand the principles and practices of market segmentation as well as the operation of a segmentation base

-relate process and practices of segmentation to a large service-based business

 understand the service life-cycle.

Today we live in a global community as global citizens where we have become increasingly conscious about sharing the planet with people from other  cultures and backgrounds. In this global community where so many technologies are shared, distances and time barriers have shrunk. Not only can we use information technologies to e-mail, phone or fax friends, family and colleagues in other parts of the world, we can also use reliable and regular travel links to visit them, covering vast distances in a matter of hours.

Whereas in the past travelling by air was, for many people, an experience more often than not associated with an annual family holiday, today air travel has become a way of life both for business and leisure. One frequently quoted estimate is that demand for air travel will double in the next 20 years. As a result more and more people do not just need regular air travel, but also the type of travel that meets their particular needs best. For example, unlike the manufacture of tangible goods such as shampoo or bread that have clear uses, providing travel opportunities is more sophisticated as it involves providing customer service to match the expectations of travel users.

This case study focuses upon how United Airlines uses customers’ motivations for different types of services to segment the market and improve its competitiveness.

United Airlines was formed in 1927 from four airlines – Boeing Airplane Company National Air Transport, Varney and Pacific Air Transport. From its roots as a USA domestic carrier, United Airlines expanded into international routes to become the world’s second largest air carrier. With hubs in Chicago, Denver, Los Angeles, San Francisco, Washington D.C. and key international gateways in Tokyo, London, Frankfurt, Miami and Toronto, United flies to 117 destinations in 26 countries. These schedules are obviously subject to change. United employs more than 80,000 people worldwide and carries more than 210,000 passengers every day. Its customers have access to more than 729 destinations around the world through Star Alliance, the leading global airline network.

By offering a range of customer-focused products and services, United has become an industry innovator. In a service-based industry, customers and the services they require are at the centre of any marketing strategy .Besides offering convenient scheduling throughout its domestic and international routes, United seeks to attract high-yield customers and to earn their preference and loyalty. It does this by providing a comprehensive network and an attractive frequent-flyer programme with enhanced product/service offerings. A company’s marketing environment can be complex.

It includes opportunities that could enhance a business as well as threats from outside the organisation that affect the ability of managers to develop and maintain relationships with customers. United Airlines operates in a competitive market place.It has to compete with a range of other carriers across all routes and must decide how it is going to compete. For example, more frequent services, more destinations, more comfortable seating, superior food, lower prices etc.

To compete successfully, United Airlines must provide its customers with greater value and satisfaction than its competitors. This involves finding out what aspects of service most matter to customers and then positioning.its services strongly in those service aspects. Managers at United Airlines constantly monitor competitor activity in order to maintain its market position, whether through prices, schedules or route networks.

Although airline travel experienced consistent growth since 1991, its business environment is susceptible to shock events. The events of 11 September 2001 led to a decline in air travel for both business and pleasure. This decline is likely to be temporary, but it has had a huge impact upon airlines like United. Major airlines carry huge fixed costs. Faced with excess capacity, they have had to respond quickly in order to remain profitable.

Airline operations are also affected by a number of regulatory bodies such as:

* Aviation authorities that monitor maintenance, safety and standards.

* The Air Transport Users Council, which promotes the wider interests of passengers.

* National governments, which may limit access to certain routes i.e. between Denver and Heathrow, where the Bermuda 2 agreement between the USA and the UK limits the number of carriers.

* Office of Fair Trading, which investigates the desirability of potential links between airlines. e.g. between bmi and United Airlines.

Within markets, not all customers are the same – they have different tastes and want different things. As a result, particular markets can usually be further divided into discrete segments.Each group consists of people with similar needs and requirements. The organisation then develops strategies that are closely aimed at satisfying each customer group. This process is known as market segmentation.

Through segmentation, United Airlines can identify market opportunities and meet it’s marketing objective.Segmentation gives an airline a better understanding of its customers, the services they require, where and when they want those services and how they would prefer to pay for them.

United Airlines segments its market so that it can:

* identify consumer needs and the proportion of customers who have those needs

* develop products and prices to meet these needs

* target communications at customers within each segment

* allocate funds to support and develop each market opportunity.

Market segmentation therefore enables United Airlines to maximise the efficiency of its marketing efforts by moving the company to use a different strategy for each market segment.

Segmentation involves dividing up a whole market so that products and services can then be developed for each part of the market. Some companies divide up a market geographically, while others divide markets according to demographic details such as age, gender or occupation. The criteria used to divide the market is known as the marketing base..

United Airlines uses a form of psychographic segmentation to divide up the market for its services. This involves identifying the social class, lifestyles, opinions, interests, behaviour and attitudes of customers. Modern communication systems play a major part in this information-gathering exercise. With the help of questionnaires, United Airlines classifies its customers by their motivations. For example, some customers choose United Airlines because of price, while others choose the airline because of schedules, frequent flyer programmes or other forms of service.

For United Airlines, successful segmentation enables targeting to take place. Targeting provides the focus for the activities of the business.

It enables promotions and services to be aimed only at those who are most likely to respond positively to them. Passengers are communicated with through email which is becoming a focus for closely target marketing.

The United Airlines business model can be compared to the classic 80:20 rule in Pareto’s Analysis. Based on experience of the airline industry, the model assumes that, for airlines offering a high level of service, 80of profit comes from 20of customers. The profit-generating customers are the ones who are prepared to pay a premium price for a premium service. They are the ones that the airline most needs to attract.

There are clear differences between domestic segments and global segments. For example, international segments might differ by hours rather than minutes in the US, and the cost of domestic travel is also significantly lower. In global segments United Airlines identified nine motivational segment profiles. These are:

* Global executives: face frequent business travel and enjoy it because of the high level of service.

* Schedule optimizers: must reach their destination by a certain time and select their flights accordingly.

* Corporate troopers: use an airline and a class of travel that has been chosen for them by their company

* Mile accumulators: go out of their way to take flights that will build up their air miles entitlement.

* Reluctant travellers: do not enjoy travel and look for services that will make the experience bearable e.g. special privileges and frequent flyer programmes.

* Tour takers: want everything arranged for them.

* Quality vacationers: treat the travel as part of the holiday experience and so fly with carriers that provide superior services.

* Travel seekers: love to travel and seek out new experiences. They want travel to be comfortable.

* Frugal flyers: seek out the lowest cost carriers, but still expect their flight experience to be a good one.

Having identified these segments, United Airlines had to decide on which ones to concentrate. One key factor was the potential of each sector to generate not only revenue but also profit. In some segments, such as global executives, the customer profile was clear-cut regarding who they were and what they required so compiling a package of services for them was comparatively straightforward. However, some segments were less responsive to key benefits and it proved harder to identify precisely what they were most looking for.

With global executives as the target segments the airline also developed packages for schedule optimizers, mile accumulators, travel seekers, corporate troopers and quality vacationers.

Meeting customer needs

In an industry in which the service provided is a major form of competition, the most successful airlines will be those who most accurately identify what different segments of their customer base want and are willing to pay for, and then provide it, usually within one aircraft. The end product is complex.

For example, United Economy International provides services such as multi-course meals based upon consultation with celebrity chefs, brands name beverages, multi-lingual flight attendants, Mileage Plus¨ programmes and entertainment systems. The services offered by United Business International and United First International include built-in entertainment centres and a greater amount of private space.

In general, depending on the size of the company market position service providers can modify their offer more quickly than manufacturers can alter their products. United Airlines’ ability to fine-tune its services rapidly in response to changing customer needs enables it to retain its market position. Growth strategies also depend on a capacity for ‘rapid response’.

Service adjustments may involve, for example:

* expanding the range of services for some segments

* modifying how a service is delivered

* re-repositioning services in chosen segments

* differentiating services even further from those of competitors

* finding untapped markets for services.

Like the product life cycle the service life-cycle needs constant injections of life to extend the growth phase and increase the profitability of the organization.

Conclusion

United Airlines recognizes that airlines need to be able to respond rapidly to changing customer requirements in what is a complex service industry. The company understands the role of technology in enabling it to amass the data it requires about customer requirements. In a heavily regulated and increasingly competitive market place with good prospects for long term growth, United Airlines successfully uses market segmentation to target distinct customer groups from whom growth opportunities can be developed

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  • Date: 24 July 2016

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