Essay: British Airways’ (BA) marketing strategy

Introduction

This report will critically analyse British Airways’ (BA) marketing strategy.

Situational Analysis

BA is the largest airline in the United Kingdom (UK). It has the main hub in Heathrow Airport in London and it flies internationally to more than 400 destinations in over 80 countries. The airline is a member of International Airline Group (IAG) which also owns Aer Lingus, Iberia and Vueling (BA Plc, 2017). BA follows a service differentiation strategy and distinguishes its services through an extensive emphasis on digitisation and information technology as well as high level of personalised services. The firm aims to become “the airline of choice with personalised service, exceptional reliability, a digital mind-set and unique British style” (Ibid).

2.1. Segmentation and targeting

Segmentation is where a company divides a large market into smaller distinct groups which are more effectively and efficiently reached with products and services that match their needs (Jobber et al., 2016).

There are four key areas in which a company can segment customers:

• Geographic: segmenting customers based on regions and population density
• Demographic: segmenting customers based on age, gender, income, generation and education
• Psychographic: segmenting customers on social status, lifestyle and personality
• Behavioural: segmenting customers on occasions, benefits sought, user status, usage rates, and loyalty status (Ibid).

The segmentation of BA can be seen in [Appendix X]. One of the key focuses of BA’s segmentation is behavioural, with a focus on buying on occasions and level of loyalty [see Appendix X]. For instance, emphasis on promotional and seasonal offers increases BA’s sales and enables customers to find the right offer for the a particular occasion.

The company prioritises premium customers traveling long distances, for either business or leisure purposes. The organisation considers long-haul customers to be their main target for a profitable future (BA Plc, 2017). Since the price of services are slightly higher than its competitors, BA targets mainly middle class and upper middle class professionals, most of whom are seeking comfort and convenience (BA, n.d).

An important differentiating factor in the airline industry is the service. BA targets its loyal customers by providing them with high standard service [see section product] each time. These brand loyal customers are easier to retain than to obtain new clients through customer relationship marketing (Berry, 2002).

BA also targets its customers based on their usage i.e. first time, regular, or heavy users. The airline mainly focuses on regular and heavy users, who are a reliable source of income for the company.

2.2.Positioning

Figure 1. Market positioning of BA and its competitors. Source: SkyScanner Ltd (n.d) , BA Plc (2017)

Positioning is a vital aspect for BA as it signifies how the company is perceived by the target market in contrast to its competitors (Kotler and Armstrong, 2010). BA is one of the market leaders in the UK and therefore is regarded as a prestigious airline in the country (BA Plc, 2017). BA’s competitive advantages are based on high standards of service with a focus on personalisation and digitalisation. Figure 1 compares BA’s positioning in the market compared to four other network airlines including AirFrance, Emirates, Singapore Airlines and Lufthansa and two low cost airlines (LLCs), Ryanair and EasyJet. The figure, based on price comparison and service offerings of these airlines, shows BA’s pricing level is relatively low in contrast to other network airlines. The airline currently is not in a healthy position in terms of its service, although it claims to position itself as one of the premium service providers in the market. One of the reasons could be the strategy of cutting cost to compete better against easyJet and Ryanair. Another factor could be the leadership of Álex Cruz, who was named BA’s CEO in 2016. Even though he was previously the chief executive of two LLCs, Vueling and Clickair, he lacks the experience required to lead a premium segmented airline such as BA.

2.3. SWOT analysis

2.3.1 Strengths

BA is one of the market leaders in the UK’s airline market. BA offers the highest number of seats from UK airports to international routes than any other airline. In 2016, BA achieved the Consumer Superbrands award for a third year in a row from Superbrands UK (BA Plc, 2017). Therefore, BA enjoys a strong image in the airline industry and according to Keller (1998), a brand with a positive image is more likely to successfully survive a brand crisis or downturn in the brand’s fortunes. Another strength of BA is its customer loyalty programme, ‘Executive Club’ Scheme. In 2016, the programme was recognised exceptional and was listed as the best in the airline industry according to Business Traveller Magazine (Otley, 2016).

2.3.2 Weaknesses

One of BA’s weaknesses is its overdependence on the UK domestic market. In 2016, domestic operations revenue contributed over 50 per cent of BA’s total revenue (BA Plc, 2017). This makes the airline extremely vulnerable to any possible changes that occur in the country. Also, this is not beneficial for a brand that claims a strong international prominence. BA should focus on expanding its global market, without losing the domestic competitiveness, to ensure the company’s future sustainability. The relationship between the airline and its worker’s union is in a negative condition due to continuous strikes as well as lack of reliability and trust of the workforce (Davis, 2017). All of which could make notable harms to the brand reputation and productivity. BA needs to treat employees and reward them fairly in order to prevent stalemates between the unions and the airline.

2.3.3 Opportunities

BA’s focus on international expansion to gain market share and reduce reliance on the UK market will not only strengthen the company, but also help BA ensure a sustainable future. The carrier could also gain benefits from developing strategic cooperation with other businesses in the airline and catering industry, as well as strengthening integration between IAG’s operating airlines. Heathrow’s third runway expansion will help reduce constrained capacity of the airport (Gov.uk, 2016) and the enlargement of Heathrow post-Brexit will let BA operate more direct international flights, up to 40 new cities including Wuhan, Osaka and Quito (Johnson, 2016). The implementation of innovation and digital approach of the new CEO can also bring many advantages to the airline (IATA, 2017).

2.3.4 Threats

Terrorism threat level in the UK is severe and this can prevent many customers from flying to the country due to fear (Gov.uk, n.d). Digital disruption which causes delays, extreme congestion, cancellation is another serious problem that BA is currently facing. In May 2017, BA suffered from a massive IT failure when the airlines servers at the data centres were damaged, resulting in a power outage. This incident affected more than 1000 flights and the airline is most likely to face £100 million compensation (Butler, 2017). Therefore, it is crucial for BA to invest in the latest technological developments that can help eliminate digital disruption in the future.

Marketing Mix

The marketing mix is the blend of tactical marketing tools used to obtain a response in the target market [khan 2014]. The marketing mix includes the four Ps: Product, Place, Promotion and Price [Ibid]. BA targets customers via its distribution channels, the variety of products available and their competitive pricing structures, allowing the retention of loyal and premium customers. Hence, this section will critically analyse BA’s product, price and place elements.

3.1. Product (Eve)

BA focuses on two types of products for its customers: short haul and long haul flights. The detailed analysis for these products is explained below.

3.1.1. Short Haul

As deregulations helped new entrants emerge within the UK and European Aviation market, BA has had to adapt to its LCCs competition. To compete with LCCs, in September 2016 the company announced that they would no longer offer free snacks and refreshments on its short haul flights but instead would implement the ‘Buy-On-Board’ model (Otley, 2017). BA partnered with Marks & Spencer, another quintessentially British company, to provide the selection of snacks and sandwiches, which launched in January 2017. The move from an all-inclusive ticket to ‘just flight’ was fuelled by an increase in customer demand for lower prices. However, this move was challenged by BA’s customer who felt the brand was not living up to its standards and customer’s expectations (Paton, 2017) Therefore, this could lead to a decrease in customer retention and brand reputation as customers have gained more power through the increased choices and the development of fare comparison websites (see Porter’s Five Forces Figure X).

3.1.2. Long Haul

As part of BA’s key emphasis on its premium customers, BA partnered with The White Company, another British luxury lifestyle brand, to provide luxury bedding and amenity kits in Club World (see Appendix X) across the long haul network in 2018 (Turner, 2017). This partnership is part of a £400 million customer investment plan for its Premium Customers to regenerate BA’s premium brand image in term of food quality and presentation (Otley, 2017).

The airline installed WiFi on aircrafts and increased the amount of passengers a cabin can hold by upgrading the interior of 18 Boeing 747 aircraft. Additionally, BA continues to modernise the premium customer lounges at significant airports, such as First lounge at Heathrow, London Gatwick and Dubai. Over the last years, BA invested around £88 million in lounges (BA Plc, 2017). This could be a result of the higher demand of digitalised services due to increased customer expectations [see PESTLE Figure X] and high competitive rivalry [see 5Porter’s] ensuring BA’s retention of high number of long haul customers maintaining continued profitability.

REF :

• Otley, T. (2017) ‘British Airways promotes £400 million investment in lounges and food’ [Online] Available at: https://www.businesstraveller.com/airlines/british-airways/2017/04/05/british-airways-promotes-400-million-investment-lounges-food/ Accessed 03/11/2017
• Turner, S. (2017) ‘A First Look At British Airways’ New Club World Offering’ [Online] Available at: https://www.forbes.com/sites/sarahturner/2017/11/03/a-first-look-at-british-airways-new-club-world-offering/#6592295687a7 Accessed 03/11/2017
• Paton, G. (2017) BA ‘degrading its elite brand’ to compete with budget rivals [Online] Available at: https://www.thetimes.co.uk/article/ba-degrading-its-elite-brand-to-compete-with-budget-rivals-x8f9gkbp9

3.2. Price

BA uses a customer Value-based pricing strategy for its flight services. The strategy uses buyer’s perception of value, not the seller’s cost, as the key to setting the price. This strategy is increasingly being recognised as the most effective type of pricing strategy for increased profitability and sustained success (Hinterhuber, 2008).

BA considers its service to be premium for every passenger and the airline revises its pricing regularly to ensure that it meets the budget and requirements of all passengers. Through a multiple pricing level strategy i.e. Economy, Premium Economy, Business and First Class, [link to Appendix- product table] BA caters to different customer needs. Despite competition from the various LCCs, BA still manages to establish itself as a flexible company. The ‘Executive Club’ scheme enables users to collect AVIOS and TIER points through the number of miles they fly (BA, n.d). This allows them to get access to special offers such as exclusive discounts, priority boarding and international lounge access. The scheme ensures that the customers are loyal to the company even if other airlines offer a better price for the same journey (Brassington et al., 2006).

References

• Hinterhuber, A (2008) ‘Customer value‐based pricing strategies: why companies resist’, Journal of Business Strategy, 29 (4), pp.41-50, https://doi.org/10.1108/02756660810887079
• Brassington, F and Pettitt, S (2006). Principles of Marketing. 4th ed. Essex: Pearson Education Limited. 761

3.3. Place

Place refers to “the location where are product of service can be purchased” (Gordon, 2012) including physical locations as well as digital and can be direct or indirect (Khan, 2014). Distribution channels have two major functions, that is to provide information to potential buyers and enabling buyers to complete the purchase (Qin et al., 2017). BA utilises multiple distribution channels to reach their consumers, including, the BA website, travel agents, social media, third party websites and BA’s mobile app. These channels allow customers to efficiently and effectively identify information about the airline, prices, travel destinations and services available. Therefore, these platforms have the potential to increase customer engagement and the likelihood of a customer purchasing a service.

BA is a part of the Global Distribution System (GDS) which allows travel agents to compare prices of flights between companies across multiple flight paths and therefore get the best options for their customers (Thakran and Verma, 2013). However, this system meant that companies relied heavily on travel agents so had to provide the lowest rates (Ibid). Nowadays, companies including BA utilise GDS alongside other distribution channels such as company websites, to provide as many options and purchase pathways for the customer as possible to increase conversion.

Having previously mentioned in the Section 2.2, BA has many competitors in their domestic, European and International flights. These competitors all have their own distribution channels, including their own company websites, social media and travel agents, as well as being part of the GDS. This creates direct competition, challenging BA on price, service, route and destination availability. Therefore, BA has to effectively utilise popular distribution channels to maintain customer engagement (CE) and brand loyalty. This can be seen in the company’s strong social media presence where they run campaigns and interact with potential consumers. CE is thought to be critical in “generating enhanced corporate performance, including increased sales” (Brodie et al., 2011), hence utilising popular distribution channels to increase CE is vital for the success of BA.

References:

• Thakran, K and Verma, R (2013) ‘The Emergence of Hybrid Online Distribution Channels in Travel, Tourism and Hospitality’ Cornell Hospitality Quarterly, 54(3), pp. 240-247
• Khan, T (2014 ‘The Concept of ‘Marketing Mix’ and its Elements’ International Journal of Information, Business Management, 6(2), pp. 95-107
• Gordon, R (2012) ‘Re-thinking and re-tooling the social marketing mix’ Australasian Marketing Journal, 20, pp. 122-126
• Brodie, R et al., (2011) ‘Customer Engagement: Conceptual Domain, Fundamental Propositions and Implications for Research’ Journal of Service Research, 14(3), pp. 252-271
• Qin et al., (2017) ‘Mobile App Introduction and and Shareholder Returns’ Journal of Hospitality and Tourism Management 31, pp. 173-180

4. Recommendations

• Innovative strategy to gain competitive advantage (enhance in-flight entertainment services, new flight destinations)
• Prevent digital disruption
• Improve relationship with employee to avoid strikes
• Improve relationship with customers (focus on customer feedback in order to better understand consumer behaviour)
• Expand its global market to reduce dependency on the domestic market
• Focus on being an environmentally-friendly organization as consumers are more environmentally focused now (thus BA can stay competitive)

5. Conclusion

(Draft)

• Leading the premium brand, providing the highest number of destinations that it travels.
• Digitised services for millennials.
• Rising competition from LCC airlines, forced to cut cost though
• Short haul flights doesn’t have a premium feel.

APPENDIX

SWOT Analysis

Strengths

• Strong brand image
• Market leadership in the UK
• High level of service digitalisation and effective integration of IT and internet
• Profit rise as a result of cost-cutting strategy
• Robust loyalty scheme and high customer retention
• The economies of scale due to large size allowing the company to enjoy reduced costs of operations
• Current partnerships with American Express, Mark and Spencer, The White Company, Qatar Airways, One World etc.

Weaknesses

• Overdependence on the UK market
• Low return on invested capital (ROIC)
• Constrained capacity of Heathrow airport
• Negative reviews and feedbacks from customers as a result of cutting cost to compete better against easyJet and Ryanair (removal of free on-board meals)
• New CEO lacks experience in leading a premium segmented airline

Opportunities

• Formation of strategic cooperation with other businesses in airline and catering industries
• International market expansion
• Integration between IAG’s operating airlines
• Low fuel prices and interest rates
• Opening new runway in Heathrow
• Innovation and digital approach of the new CEO

Threats

• Further intensification of competition
• Terrorist attacks
• Service disruptions due to employee strikes
• Brexit uncertainty (legal and political issues)
• Digital disruption

Environmental concerns

• Data protection

PESTLE Analysis

References :

• Engel, P. (2017) ‘Bombers can still buy tickets’: Increased security measures likely aren’t enough to prevent attacks at airports’. [online] Business Insider. Available at: http://uk.businessinsider.com/istanbul-airport-attack-security-2016-6?r=US&IR=T Accessed [Accessed 02 Nov. 2017].
• Bearne, S. (2016). ‘How technology has transformed the travel industry’ [online] the Guardian. Available at: https://www.theguardian.com/media-network/2016/feb/29/technology-internet-transformed-travel-industry-airbnb [Accessed 2 Nov. 2017].
• Erkelens, C., Briggs, P., Phippard, S., Bostrom, T., Bell, J., (2017) ‘How will Brexit affect the airline industry from a regulatory perspective?’ [online] Available at: https://www.twobirds.com/en/news/articles/2016/uk/how-will-brexit-affect-the-airline-industry-from-a-regulatory-perspective [Accessed 02 Nov. 2017].
• BA PLC (2011) ‘British Airways 2009/10 Annual Report and Accounts’ [online] Available at: https://www.britishairways.com/cms/global/microsites/ba_reports0910/our_business/markets4.html [Accessed 10 Nov. 2017].
• Rapolu, B. (2016). ‘BA wifi announcement great step forward for aviation’ [online] Available at: https://buyingbusinesstravel.com/feature/1325712-ba-wifi-announcement-great-step-forward-aviation [Accessed 2 Nov. 2017].
• Burghouwt, G., de Wit, J., van der Bruggen, J. (2006) The impact of ageing on aviation [online] Available at: http://www.airneth.nl/uploads/media/Airneth_Report_3.pdf [Accessed 2 Nov. 2017].
• Davies, J. (2016). ‘Gen Y Me: Why it Pays to Personalise for Millennials’. [online] Digitalmarketingmagazine.co.uk. Available at: http://digitalmarketingmagazine.co.uk/digital-marketing-news/gen-y-me-why-it-pays-to-personalise-for-millennials/3671 [Accessed 2 Nov. 2017].
• Gottlieb, J. and Connington, J. (2017). ‘Mapped: how the pound has fared against currencies around the world since Brexit’. [online] The Telegraph. Available at: http://www.telegraph.co.uk/money/consumer-affairs/mapped-pound-has-fared-against-currencies-around-world-since/ [Accessed 02 Nov. 2017].
• Kell, G. (2014). ‘Five trends that show corporate responsibility is here to stay’ [online] the Guardian. Available at: https://www.theguardian.com/sustainable-business/blog/five-trends-corporate-social-responsbility-global-movement [Accessed 2 Nov. 2017].
• Milman, O. (2016). ‘First deal to curb aviation emissions agreed in landmark UN accord’ [online] the Guardian. Available at: https://www.theguardian.com/environment/2016/oct/06/aviation-emissions-agreement-united-nations [Accessed 2 Nov. 2017].
• Moreno, H. (2017). How Unified Technology Platforms Can Improve Airline Operations [online] Available at: https://www.forbes.com/sites/forbesinsights/2017/04/13/how-unified-technology-platforms-can-improve-airline-operations/#596ef4d953b5 [Accessed 2 Nov. 2017].
• Parker, A. (2012). ‘BA’s new fleet carries long-haul expense’. [online] Available at: https://www.ft.com/content/ab468d16-3e43-11e2-829d-00144feabdc0 [Accessed 02 Nov. 2017].
• Shearman, S. (2017). ‘Why airlines need a handle on social media to build their brand’. [online] Available at: https://www.ft.com/content/45459474-46dd-11e7-8d27-59b4dd6296b8 [Accessed 2 Nov. 2017].
• Florida Tech Online. (2017).’ Mobile Technology in Aviation Transforming Passenger Experience – Florida Tech Online’ [online] Available at: https://www.floridatechonline.com/blog/aviation-management/mobile-technology-in-aviation-transforming-passenger-experience/ [Accessed 02 Nov. 2017].
• European Aviation Environmental Report. (2016). [online] Available at: https://ec.europa.eu/transport/sites/transport/files/european-aviation-environmental-report-2016-72dpi.pdf [Accessed 02 Nov. 2017].

Porter’s Five Forces

Competitive Rivalry

The competition can be divided into two categories: long haul and short haul flights.

• For long haul flights, prices are very similar among most airlines. There is a lot of competition among long haul airlines, as the one that provides better services in the same price range will be the better choice among customers. Hence lot of competition in international flights.
• Competition for short haul flights is on the rise. In order to compete with airlines such as EasyJet and RyanAir, BA has cut off free meals from their short haul flights in order to make the travel prices cheaper (The Economist, 2017).

Hence, the competitive rivalry is very high on both short haul and long haul flights.

Threat of new Entrants

• Huge investments required to be part of the airline industry i.e. price of Boeing aircrafts very high (Statista, 2017).
• Very high maintenance costs of aircrafts.
• Lack of access to distribution channels i.e. difficult to find free slots in major international airports such as Heathrow/ JFK airport.
• Very little product differentiation, hence difficult to maintain the competitive edge.

Hence, difficult for new entrants to enter the market. Likely to face retaliation. Low threat.

Threat of Substitutes

• Threat of substitute forms of transport could be train, bus, taxi, ship and all other modes of transport. Euro Train and potential future technology such as HyperLoop.
• Dependent on how customer sees the value of the transport.
• For low prices, ordinary transport maybe be a better choice.
• However, if customers are looking for convenient, long haul, time saving means of transport there is a high probability of choosing BA.

There is a low to moderate threat of substitutes.

Buyer power

• Customers have greater choices in terms of choosing the airlines to travel.
• The cost of travel is a big factor, and now that passengers are more aware of their options, they can easily switch to another airline through price comparison websites i.e. SkyScanner, which offers more services for the same price.
• However, customers still have to choose between a certain selection of airlines for longhaul travel and BA has reputable standard for such flights.
• BA covers a large number of destinations, so broader choices to travel to certain places.
• Highest number of seats from UK airports to international destinations.
• BA Executive club ensures people are loyal to the company, as they get rewards based on the miles they travel.

Hence, the buyer power of BA is moderate to high.

The Power of Suppliers

• BA obtains its aviation fuel and plane from other companies. (Civil Aviation Authority, 2017)
• Boeing and Airbus are their top suppliers for planes.
• Plane and suppliers have substantial power, as if they increase their prices, BA will be forced to buy their products even through a loss.
• BA therefore needs to maintain a good relationship with their suppliers.

Hence, the suppliers power of BA is very high.

References

• The Economist (2017). British Airways is turning into a no-frills airline. [Online] The Economist. Available at: https://www.economist.com/news/britain/21719832-although-airline-facing-plenty-criticism-its-strategy-looks-sound-british-airways.[Accessed 14th Nov 2017].
• Statista (2017). Average prices for Boeing aircraft as of February 2017, by type (in million U.S. dollars). [Online] Statista. Available at: https://www.statista.com/statistics/273941/prices-of-boeing-aircraft-by-type/ [Accessed 14 Nov. 2017].
• Civil Aviation Authority (2017). Costs of aircraft fuel and oil for major United Kingdom (UK) airlines in 2013/2014 (in 1,000 GBP). [Online] Statista. Available at: https://www.statista.com/statistics/304771/costs-of-aircraft-fuel-and-oil-for-major-united-kingdom-uk-airlines/ [Accessed 14 Nov. 2017]

2017-11-17-1510932042

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