Understanding of Internal Factors Influencing Customer Behavior - Essay Example

___________ ____________ ____May 2006 Understanding of internal factors influencing behavior with application of theory in a given business situation and development marketing strategies Introduction Many companies are, as a matter of course, selling in different markets without even comprehending the existence of such markets. These companies have a fixated product-centric view of their entire business. If they make cars; they usually think that they are in the market for cars. And, adopting a very narrow and fixed perspective they tend to think that there is only one cars' market. However it is abundantly clear that customers' uses and expectations from cars' may vary from one customer type to another and each sold car may serve to fulfill different needs. This product-centric view of market segments has been long discarded as being inadequate for very logical and plausible reasons. For any given product or service, there are usually at least four or five different segments of prospective customers that may utilize that product to solve a particular problem or satisfy a specific need. Each one of these segments will have different needs and values. But companies with a product-centric view cannot even sight these differences not to approach the issue of comprehending them and using them to advantage in their marketing plans. They end up treating the various segments with a one-size-fits-all, generic solution. This fixated view is virtually a chink in the armor which competitors are waiting to pounce upon. In fact such an approach works to leave entry gates to the various segments wide open to the competitor. This competitor quietly enters in, reads the market segments and positions his products attributes and qualities with requisite differentiation to make up a most relevant product bundle to the most valuable segment and skim it merrily. Therefore it is a prudent marketing stance to examine in depth not only one's own products and services but also the market of users for such products and services. Who buys our products, for what reasons and puts them to what uses are three critical questions that must be asked to broaden marketing thought away from generic fixation. Market segmentation is an oft used marketing tool just to do this. This paper has chosen the airline travel as a generic service and Singapore Airlines (SIA) as the business which offers such a service.SIA consciously recognized a new market segment and strategically aligned its marketing plan to benefit from this segment. The events triggering recognition of new market segment are also covered in the following paragraphs. Information on Singapore Airlines (SIA) SIA is considered by those in the airline industry, its travelers as well as its competitors, as one of the very best airlines in the world. In the time period to which this marketing event belongs, SIA was arguably Singapore's and Asia's best-known company, and rated consistently as Asia's "most admired company" (Asian Business, 1997). It is reinforced by the fact that it has won numerous industry awards. Nast Traveller magazine celebrating the tenth anniversary of the readers' choice awards, presented it's first-ever Hall of Fame awards to four individuals one of them being the CEO of SIA for" a decade of outstanding leadership and for transforming the standards of in-flight service in the 1980s" (Straits Times, 1997). In 1997 SIA also won The World's Best Airline for the fourth year running in the Zagat Airline Survey. SIA has had a continuous profit track record since it took to the skies more than 25 years ago, a track record almost unheard of in the brutally cyclical airline industry (Asian Business Review, 1996). Its beaming, lithe flight stewardess, outfitted in tight batik sarong kebaya marketed as the Singapore Girl, is a globally popular international service icon. It not only serves as an effective unique selling proposition for the airlines but has also earned substantial legacy differentiation leverage over similar icons of competing airlines. Around the period early 1990s SIA perceived after a thorough SWOT analysis a new opportunity presented by the identification of a new market segment and SIA designed and implemented a niche differentiation marketing strategy efficiently and effectively as is explained below. Given the prevailing industry trend and market environment the segment recognition done by SIA was the most prudent marketing step and it carries full concurrence of the author and hence it is to be considered as author's market segmentation of SIA market as well. Target market segmentation In the decade of 1990s there was a marked turn around in the airline travel industry. Prior to the commencement of the decade beginning the year 1990 airline travel was considered to be more of a "transportation" industry akin to some kind of 'air taxi' facility more concerned with filling standard passenger seats and ferrying them across than with providing them ' a traveling experience'. The environmental studies (current situational analysis) revealed that a substantially large niche/segment of new breed of affluent and professional air travelers had emerged which could be targeted for air travel products quite non-standardized and substantially differentiated and almost customized. These included investment bankers, corporation lawyers, entrepreneurs, real-estate developers and entertainment moguls of today's business and professional elites who tended to be in constant and paced motion with little time to spare. With passing days this niche was growing in size. In other words there was a large potential to create MVA (As Michael Hammer puts it, "MVA (More Value-Added means that you give the customer more, perhaps far more, than you ever have before-(Hammer, 2001))for such niche segment and charge them appropriate premium to raise revenues and profits. Focused differentiation was the strategic need of the hour. Major global airlines were competing across countries for this meaty clientele. Predominant buyer behavior in this segment was classified as image run and primarily for sensual pleasures and for extensive problem solving. This segment also used low degrees of rationality in their purchase decisions. They also had high degrees of involvement with the purchase with an expectation of an "experience" out of airline travel. Evidently given their income and wealth statuses price was not a decisive factor in their purchases. Essentially to identify such a segment, demographic segmentation with particular reference to their occupations and incomes would have to be done. Within such identified segment further segmentation may be done on psychographic lines in particular classifying clients according to socioeconomic status, lifestyle or personality characteristics. Academic literature review Market segmentation is the division of a market into distinct groups of buyers who might require different products or marketing mixes (Kotler, 2003). While segmentation theory is rife with broad groupings of variables on which buyers segments can be identifies; a vibrant organization needs to delve deeper into buyer behavior. Buyer behavior can be comprehended substantially by theorizing and studying consumer behavior as a series of choices that is pervasive and inescapable, relentless, nested and interlocked,regularly elongated, and morally consequential. The complex process of decision making and choice has received attention in literature from various angles to examine above characteristics of consumer choices. For example, discussions of freedom and consumer behavior have been there for at least 15 years (e.g., Kozinets 2002; Thompson, Locander, and Pollio 1989). Also, the intermingling contributions of history and culture in consumer behavior have been lucidly analyzed (Arnould and Thompson 2005). More research efforts have looked for consumer choice across time and as a function of social interactions (Ariely and Levav 2000; Coulter et al. 2003; Ward and Reingen 1990 ;), in addition to the impact of consumer choice on matters of personal and social well being (e.g., Carmon et al. 2003). Perhaps more research efforts will be taken up with structured choice studies and discuss results in terms of the broadest implications for contemporary lifestyles and future generations, consumer hood, and the perennial pursuit of meaning and happiness's is in people processing services. Subsequent to comprehension of the buyer motivations on suggested theoretical line an organization has to look inwards to know its own business and market position. This is essential to assess if the organization has wherewithal to deliver what buyers want. Airlines industry firms are essentially people processing insdutries.These services require the customer's presence while the service is being provided. Typically such services are directed or applied to people and so their presence is mandatory. To use, enjoy and buy these services customers must be prepared to spend time co-operating with the service operation (Lovelock, Vandermerwe & Lewis, 1996). As SIA has little domestic operations it is primarily dependent on international air travelers marketing's must, therefore, adopt international marketing concepts in its segmentation strategy. Javalgi et al., have identified a spectrum of services e.g. consulting, education, entertainment, finance, travel facilitation, data processing and communication which can be more easily delivered electronically to global markets over the internet (Javalgi, Martin & Todd, 2004). A recent Irish study found that travel agents have lost eighty percent of their point to point airline bookings as customers do it themselves through airline websites (Daly, 2004). Is it any wonder that academics conclude that technology is perhaps the single most influential force behind the globalization of services (Fisk, Grove & John, 2004). Riddle(1996) constructed a matrix to classify various services considering the mobility of both customers and the servuction system (Langeard & Eiglier, 1987).SIA as a people processing industry would be placed in cell D of this matrix wherein both customers and the their service dispensing systems are mobile. This clear identification of market position would help SIA in devising segmentation strategy within an overall marketing plan as its position vis a vis buyers becomes clear. After ascertaining exact position in the market it is time for the organization to go in for a SWOT analysis. The SWOT analysis in fact envelops market segments analysis and fitting strategy formulation. The essence of strategy formulation is coping with competition. A much focused study of the competition within the SWOT would help identify the clientele the competition is targeting. In order to develop an edge over competitors, companies in general need to create a sustainable competitive advantage, based on increased operational effectiveness and adequate strategic positioning [Porter 1996]. Stephen Haines' Centre for Strategic Management has built a new strategic planning system based on systems thinking and calls it the 21st Century Yearly Strategic Management System and Cycle. This system moves beyond planning into implementation. It includes a Plan-to Plan phase and a Plan-to-Implement phase. The steps include team building and leadership skill building as part of the planning. It also includes a parallel process whereby all key stakeholders are involved based on the premise that 'People support what they help create'. This process starts with a Futuristic Environmental Scan and defines the ideal vision in terms of mission, values and end outcomes that the organization wishes to set for itself. Only after the statement of such Ideal Future a Current State assessment based on SWOT(Strengths, Weaknesses, Opportunities and Threats) is taken up to identify the gaps and make strategies to close the gap(s).As a result of their clients adopting this model it was found that clients began developing competitive edge and the organization was much clearer on what their competitive "positioning" in market place was and found themselves moving positively in that direction, to the delight of their customers(Haines,2004).Thus this process leans directly into the process of competitive strategy making as it includes environmental scan both-present and future and enables movement in the desired direction. However this system's parallel process is a very critical aspect and strategic management literature has a common view that good strategies grow out of ideas that have been floating around the firm, and initiatives that have been taken by all sorts of people in the firm. This resource must be drawn upon as frequently as required even in competitive strategy making. Thus a company's competitive strategy would concern primarily with its actions and plans for competing successfully - its specific and focused efforts to please clients(market segments), its offensive and defensive maneuvers to counter similar efforts of rivals, its responses to prevailing market conditions, and its initiatives to strengthen and improve its market position. Applicability of concepts to market situation The airline travel industry due primarily to the unique characteristics of services (i.e., intangibility, inseparability, lack of inventory, etc.) should be considered a model of a mature service sector. Such mature service markets are generally subject to dynamic strategic moves from various market participants quite unparalleled to traditional product or goods markets. To effectively mount competition in the industry, airline companies have experimented and tested various differentiation strategies to cover off and on board services, revenue yield techniques, operational efficiencies, and rationalizing labor force while maintaining labor relations. Yet, despite these Herculean attempts at differentiation most consumer studies, for instance those relating to major US airlines, have shown that consumer perception of airline travel in terms of service quality is more or less similar with little variation. This has the implication that passengers see "switching costs" as meager between various airlines and can shift loyalty rather easily. A constituency of such customers can obviously make airline travel industry highly competitive and subject to intense price competition, particularly in slack demand seasons. This was the case particularly prior to the decade commencing 1990 and explain the over-reliance on price competition and cost reductions as natural developments of a mature industry's. While most airlines were rushing to get things leaner and meaner across the board, SIA was also doing the same but in a slightly different way. It had read the complex consumer choice process and had chosen and moderated its lean orientations. SIA in contrast to other airlines had focused its cost saving efforts at the business unit level. Business units, including those involved in aircraft maintenance, catering and security, for example, were run and managed as subsidiaries. Part of the rationale was that it would be easier to manage and control costs this way. This had in fact resulted in better cost savings and greater profitability for SIA .Some of its database and processing functions were also, as in Cathay Pacific's case, outsourced and relocated out of expensive Singapore to very much cheaper Mumbai in India and Beijing in China. Interestingly as far as wage and staff costs are concerned, SIA was an industry exception. SIA adopts a most rigorous quality control system and process for staff recruitment and selection, as well as rigorous training and service policy. In fact SIA has one flight attendant for every 22 seats, the highest in the world, which is well above the industry average. Cabin crew are recruited young (must be under 26) and are employed on a five-year contract. Thus cost cutting of SIA was mostly inward looking and strategic it had done a total homework in understanding its own market standing and internal operations. Cost cutting at SIA had bypassed customer entirely. SIA had unambiguously understood that it was a people processing company. Its several tripartite agreements to land and use airports within many jurisdictions revealed that it had the object of making its servuction as strategically mobile as possible. It was one of the first airlines to take up the futuristic environmental scan, though not specifically termed so, which enabled it to identify the premium market segment as detailed above. SIA evaluated the needs of this new emerging segment and aligned its marketing strategy accordingly. The adopted marketing strategy was a contrast to the selective and strategic cost cutting strategy that it had been following thus far. Recommendations for marketing strategy The new strategy which came under recommendation was based on the fact that a low-cost strategy can work well over a differentiation strategy when buyers are more or less satisfied with a standard product and do not see extra product attributes as worth paying additional premium. As Michael Hammer puts it, "MVA (More Value-Added) means that you give the customer more, perhaps far more, than you ever have before. It goes beyond simplifying your customers' interactions with you to delivering solutions to your customers' problems, of which your products and services in their native forms are but small pieces... You can visualize the principle of MVA as a ladder with your product at the bottom and the solution to your customer's problems at the top. The more help you provide your customers to fill that gap, the more value you add to them, which, of course, differentiates you from your competitors who are still scrambling around at the bottom of the ladder. Also, it is to your advantage to control as much of the ladder as you can - customers will be less likely to abandon you in favor of someone else, lower down the ladder, who offers less value. At the same time, your opportunity for margin and profit increase"(Hammer, 2001).MVA is the enhancement in product attributes as is being discussed above. Varying service attributes and dimensions to match the expectations of the new market segment implied that SIA was now consciously following focused differentiation marketing strategy for this segment of the market. As is often said in marketing theory that "the largest segment is not the most profitable segment necessarily"; it was true in case of this well stocked segment.SIA took up several initiative with in the umbrella of its focused differentiation policy to substantial success. Its differentiation strategy began with the immense popularity of The Singapore Girl marketing icon. This icon evoked an awareness of warm Asian hospitality and courtesy's backed this up with its very efficient service standards and already had a winning combination on hand. However it ventured into a fairly elaborate differentiation strategy to address the changed needs of new clientele. This differentiation took the form of: the introduction of gourmet cuisine in-flight dining with vastly improved servings for economy class passengers as well, hiring top of the line culinary experts' panel to train chefs and execute quality checks with a future vision to make its in-flight food an industry benchmark, multi million dollar cabin revamp with first-class cabins coming with an ambience of a mini-suite in a luxurious hotel and details covering the entire distance from custom-built seats to cashmere blankets, launch of its Frequent Flyer Programme(FFP), KrisFlyer, as the bulk of SIA clientele are non-Singaporeans specific trainings were organized for SIA crews to enable them to be conversant with and make announcements in the languages of the countries to which they flew, a valet and porter service for passengers on ground zero, special lounge for its passengers at Changi airport, only steps away from immigration, wider and more reclining seats for business class passengers on the house champagne for economy class passengers-an industry first, The above quoted were the few attributes touched upon in niche differentiation introduced by SIA and they were consciously built on the premise to exclude cost cutting strategy and focus on improving service so as to quench all new segment clientele needs. 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