marketing plan and supporting activities to gain and
TRANSCRIPT
Coursework Assignment 1
BSM822 Marketing Strategy
Marketing Plan and Supporting Activities to Gain and Sustain
Competitive Advantage for KLM
[1401575]
Robert Gordon University
Aberdeen Business School
9. January. 2017
Word count: 4983
Executive summary:
The airline industry has evidenced a significant growth. Since the 1980’s
the industry is growing 5% annually. However, this growth has also lead
to a high intensity of competition between airlines. Especially low-cost
carriers (LCC’s) are becoming popular among passengers.
The purpose of this report is to present a marketing plan for the launch of
a new long-haul low-cost service for KLM. The report seeks to present the
marketing elements that are associated with the new service by assessing
different fundamentals such as; the current market situation, the internal
environment of KLM, trends, buyer behaviour, the marketing mix and also
the implementation and control elements.
In order to present a solid plan that can be effective an extensive amount
of research has been done by the use of, books, websites, journals and
industry reports.
Findings indicate that there is an opportunity for KLM to launch the new
service since the demand for air travel is increasing especially LCC’s are
becoming a trend as budget-conscious passengers appear to a valuable
target market.
However, the process of the launch has to be carefully managed. Firstly,
the industry is regularly affected by external factors whereas KLM has
some weaknesses that need to be considered to mitigate risks.
Nevertheless, findings furthermore indicate that passengers are
influenced by price and route rather than the brand of the airline and it is,
therefore, crucial to consider the elements of the marketing mix as these
can make a difference. Lastly, the implementation and control process is
also significant for KLM to achieve the expected results.
Therefore, it has been recommended to assess the capabilities by assess
the value chain of KLM and also assess whether KLM has any valuable
resources that can be utilised within the process.
Table of Contents
List of Figures..........................................................................................i
List of Tables .......................................................................................... ii
1.0 Introduction ...................................................................................1
1.1 Background ......................................................................................1
1.2 Proposed service ...............................................................................2
2.0 Market Analysis ..............................................................................2
2.1 Market size .......................................................................................2
2.2 PESTEL Analysis................................................................................3
2.1.1 Political/Legal.................................................................................3
2.1.2 Economic ......................................................................................4
2.1.3 Social ...........................................................................................6
2.1.4 Technology/Environmental ...............................................................7
2.1.5 Remarks of the PESTEL ...................................................................7
2.2 SWOT Analysis ..................................................................................7
2.2.1 Strengths ......................................................................................7
2.2.2 Weakness ......................................................................................8
2.2.3 Opportunities .................................................................................9
2.2.4 Threats ....................................................................................... 10
2.3 Trends ............................................................................................ 10
2.4 Buyer behaviour ............................................................................. 11
2.5 Competitor analysis ........................................................................ 12
3.0 SMART Objectives ........................................................................ 13
3.1 Target audience .............................................................................. 13
3.1.1 Frequent flyers ............................................................................. 14
3.1.2 Business travellers ........................................................................ 14
3.1.3 Budget-Conscious travellers ........................................................... 15
3.2 Targeting strategy .......................................................................... 15
3.3 Positioning ..................................................................................... 16
3.3.1 Positioning statement .................................................................... 17
4.0 New Service Marketing Mix .......................................................... 18
4.1 Product .......................................................................................... 18
4.2 Price .............................................................................................. 19
4.3 Place ............................................................................................. 21
4.4 Promotion ...................................................................................... 21
4.4.1 Budget .................................................................................................................. 23
4.4.2 Marketing communication mix ........................................................................ 24
4.5 People......................................................................................... 25
4.6 Process ....................................................................................... 25
4.7 Psychical Evidence ...................................................................... 26
5.0 Implementation ........................................................................... 27
5.1 Mckinsey 7s Framework.................................................................. 27
5.1.1 Style........................................................................................... 27
5.1.2 Skills .......................................................................................... 27
5.1.3 Systems ...................................................................................... 28
5.1.4 Structure ..................................................................................... 28
5.1.5 Staff ........................................................................................... 28
5.1.6 Strategy ...................................................................................... 28
5.1.7 Shared values .............................................................................. 29
6.0 Control ........................................................................................... 29
6.1 Feedback ....................................................................................... 29
6.2 Sales Activity .................................................................................. 30
6.3 Meetings ........................................................................................ 30
7.0 Conclusion ...................................................................................... 30
8.0 Recommendations .......................................................................... 31
References ........................................................................................... 32
Bibliography ......................................................................................... 43
Appendix A – PESTEL Analysis KLM...................................................... 44
Appendix B - SWOT analysis KLM ......................................................... 45
Appendix C – Competitor analysis KLM ................................................ 46
i
List of Figures
Figure 1 - Annual growth airline industry (ICAO 2015; Author 2016). ...............3
Figure 2 - GDP growth rate Europe (Eurostat 2016; Author 2016). ...................6
Figure 3 - ASK per region (CAPA 2015). .......................................................8
Figure 4 - Financial performance of KLM .......................................................9
Figure 5- Maslow's hierarchy of needs (Maslow 1987). .................................. 12
Figure 6 - Strategic clock KLM (Carlisle and Faulkner 2005; Author 2016). ...... 17
ii
List of Tables
Table 1 - An overview of events affecting the airline industry over the years
(OAG 2011; Author 2016). .........................................................................5
Table 2 - Positioning statement ................................................................. 17
Table 3 - One way short-haul flight costs (Vlucht-vertraagd.nl 2011). ............. 21
Table 4 - Hierarchy-of-effects model (Kotler and Keller 2012; Author 2016). ... 23
Table 5 – Task-objective for KLM (Kotler and Keller 2012; Author 2016). ........ 24
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1.0 Introduction
The airline industry has evidenced a significant increase in competition.
Due to the rising demand of low-cost carriers (LCC), other types of
airlines such as full-service carriers are under pressure (Borenstein 2011).
Also, KLM is experiencing difficulties to compete (Stothard 2014).
This report aims to present a marketing plan for KLM for the launch of a
new low-cost long-haul service. The report will focus on the development
of the service and the relevant marking concepts associated.
1.1 Background
KLM is the national carrier of the Netherlands and established on 7th
October 1919. In 1920 the airline operated its first flight between
Amsterdam and London, in the years thereafter the airline evidenced a
significant growth. Since 2004, KLM is part of the Air France-KLM group
as result of a merger between Air France and KLM (AirFranceKLM 2015).
The headquarters of the airline is based in Amstelveen, whereas the main
hub is Amsterdam from which the airline operates 71 direct flights to
Europe and 67 intercontinental flights with a fleet of 199 aircraft (KLM
2015). Furthermore, the core business is the transportation of passengers
with the offering of two products involving economy and the World
Business class (KLM 2015).
The mission of the airline is to retain market position by producing
innovative products for customers and providing a safe service whilst
focussing on sustainability (KLM 2015). In 2015, KLM registered a net
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profit of €118 million (CAPA 2016) and carried 28,5 million passengers
(KLM 2015).
1.2 Proposed service
The proposed service is the launch of a new low-cost long-haul service for
KLM with flights between The Netherlands, USA, North America, Middle
East and Africa with a high-quality service by utilising a modern fleet.
2.0 Market Analysis
2.1 Market size
The airline industry is significantly growing; its annual growth rate is 5%
since 1980 with the demand for business and leisure travel increasing
(Boeing 2015). In 2015 airlines combined carried 3.4 billion passengers
(World Bank 2015). However, growth is expected to increase to 6.7% in
2016 (IATA 2015). Nevertheless, LCC’s are gaining the most from this
growth as they are growing 10.3% annually (Boeing 2015).
However, the industry is linked to the global economy and this has an
impact on the size of the market (figure 1), Nevertheless, evidence
suggests that the size will increase as airlines will transport more
passengers in the future (ICAO 2015).
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Figure 1 - Annual growth airline industry (ICAO 2015; Author 2016).
2.2 PESTEL Analysis
The PESTEL framework (appendix A p. 44) can help to understand the key
drivers of change and indicate trends within the airline industry, by
signifying drivers of change and influences KLM has to deal with (Johnson
et al. 2014).
2.1.1 Political/Legal
Political and legal factors have a significant impact on the airline industry
since the industry is exposed to different rules and regulations (Johnson
et al. 2014). The main priority remains the safety of passengers (IATA
2016). Therefore, there is a high degree of interference by diverse
organisations on different layers. For example, local governments, the
International Air Travel Association (IATA) or the International Aviation
Civil Organisation (ICAO) are all responsible for making the industry safe
whilst efficient (IATA 2016; ICAO 2016).
-2%
0%
2%
4%
6%
8%
10%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Annual passenger increase - Airline industry
Annual passenger increase - Airline industry
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The main events that changed the airline industry are the deregulation
and the open skies agreement. Firstly, in 1993 the single market Act 1986
was introduced, resulting in an open market and deregulation of the
industry (Burghhouwt et al. 2015). Additionally, the open skies
agreement in 2007 allowed airlines to operate flights freely between the
USA and Europe (Mayor and Tol 2009). While it has allowed airlines to
move freely, it, however has also increased the level of competition.
It can be claimed that rules and regulations within the airline industry are
changing due to the interference of different governmental bodies and
therefore, the airline industry is a regulated industry. Nevertheless, it
seems that the trend is moving towards fewer regulations (Vasigh et al.
2014).
2.1.2 Economic
Holloway (2012) argues that the airline industry is an industry where at
one stage it benefits from significant growths and on the other hand,
experiences declining rates. The decline is, however, often caused by
external factors.
For instance, the 9/11 attacks caused a decline in the demand for air
travel due to safety concerns among passengers leading to an average
decrease of 3% (OAG 2011). Furthermore, data from IATA (2008)
suggests that international air transport evidenced a decreased of 9%
globally after the economic crisis of 2008, the worst performance of the
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industry since the 9/11 attacks (OAG 2011). Table 1 highlights the events
that have had an impact on the airline industry, including recovery period.
Table 1 - An overview of events affecting the airline industry over the years (OAG 2011; Author 2016).
The gross domestic product (GDP) is a useful tool to analyse trends within
the airline industry. The GDP refers to the value of all the goods and
services produced in a one-year time frame within a domestic economy
containing elements such as; spending, export and government spending
(Hollensen 2011). Figure 2, demonstrates the GDP growth of Europe since
KLM is located within Europe this can be helpful. In 2009 and 2012 the
industry experienced negative growth rates of -4.4% and -0.5%
Event Year Event scale Recovery Period
WTC Attack US September 2001 High 12-36 months
First SARS alerts Hong-
Kong
March 2003 Medium 3-12 months
SARS China January 2005 Medium 3-12 months
Earthquake China May 2008 Low Up to 3 months
Banking Crisis 2008 High 12-36 months
Swine Flu Mexico April 2009 Low Up to 3 months
Volcanic Ash Iceland April 2010 Low Up to 3 months
Quake, Tsunami and
nuclear plant explosion
Japan
March 2011 Low Up to 3 months
Hurricane Sandy USA October 2012 Low Up to 3 months
Flight MH370 lost March 2014 Low Up to 3 months
Flight MH17 shot down July 2014 Low Up to 3 months
Ebola 2014 Low Up to 3 months
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respectively. It could be claimed that when there is a positive growth rate
the demand for air travel will increase whereas a negative growth rate will
lead to a decrease in demand (Suryani et al. 2010).
Figure 2 - GDP growth rate Europe (Eurostat 2016; Author 2016).
2.1.3 Social
Newer generations are likely to spend more on travel as opposed to older
generations (Barton et al. 2013). Besides, the demand for LCC’s is
increasing while passengers are demanding good quality service at the
same time (Borenstein 2011).
For airlines, these changes are essential to target passengers as it
requires them to understand the different demands across business or
economy class by recognising different preferences among passengers
(Akartunali et al. 2013; Johnson et al. 2014). However, external factors
influence the demand for air travel since patterns change (section 2.1.2).
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GDP growth europe
GDP growth europe
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2.1.4 Technology/Environmental
Applying technology assists airlines with gaining competitive advantage,
as it helps to reduce operational costs. Within the airline industry,
technology is applied to reduce high fuel consumption, since new types of
aircraft consume less fuel (Brueckner and Pai 2007).
Additionally, due to the high fuel consumption and political pressure, the
environment is an important aspect (Gegg, Budd and Ison 2014). The
industry aims to reduce Co2 emission, therefore, a recent strategy has
been introduced to reduce 25% of fuel consumption and Co2 emission
(IATA 2016).
2.1.5 Remarks of the PESTEL
The key drivers of change are the external forces. Despite being
uncontrollable it could be argued that KLM must pay attention to them
when making strategic decisions. For example, events that influence the
industry occur regularly and therefore, KLM must be aware of them and
aim to reduce the risk.
2.2 SWOT Analysis
A SWOT analysis (Appendix B p. 45) can help KLM to identify positive and
negative factors and be able to build a strategy to launch the new service
(Gao and Peng 2011).
2.2.1 Strengths
In contrast to the other two large airlines from Europe; Lufthansa and
International Airlines group (IAG), KLM has a balanced network. Figure 3
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demonstrates the available seat kilometres (ASK) per region. The ASK is
used to measure the flights carrying capacity (CAPA 2013). It can be
evidenced that the ASK for Europe, Asia Pacific and North-America is
22%. Whereas Latin America is 17% and Africa 13%. Moreover, other
airlines are dependent on European and North-American passengers
(CAPA 2015). It could be claimed that having a balanced network can be
valuable in targeting passengers across different regions, by identifying
areas that transport the most passengers (Kotler and Armstrong 2014).
Figure 3 - ASK per region (CAPA 2015).
2.2.2 Weakness
The financial position of the airline is a weakness (figure 4). KLM has only
managed twice in the last ten years to make a profit (CAPA 2015) due to
the impact of external factors (section 2.2).
Furthermore, KLM reduced its debt from €6.5 billion in December 2011 to
€4.3 billion in 2015. Despite being capable of reducing debts, it can be
argued that KLM is limited in terms of spending on future projects
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(Hottentrott & Peters 2012). Nevertheless, KLM has a budget of €2.2
million to invest which seems sufficient to launch a new service,
considering the fact that it has already resources available (CAPA 2015
*2011 accounting year changed (Euro in million).
Figure 4 - Financial performance of KLM
2.2.3 Opportunities
Millennials will spend more on travel while expecting better service
(section 2.1.3). KLM’s long-term strategy includes the replacement of its
fleet, with newer aircraft (CAPA 2015). Not only will this result in more
efficiency (Section 2.1.4), but it will also provide the opportunity to
enhance customers experience.
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Additionally, there is also an opportunity to enter the LCC market due to
the fact competition by LCC’s is increasing, it could be claimed that there
is demand for LCC’s (Borenstein 2011).
2.2.4 Threats
A significant threat is the competition from LCC’s and the competition by
Gulf carriers on long-haul and short-haul flights. While LCC’s are offering
cheaper prices, Gulf carriers offer better service, this, however, makes it
challenging to attract passengers (Stothard 2014) as they may fly with
competitors or are loyal to them (Solomon et al. 2012).
Similarly, unions are a threat for KLM as they attempt to influence
decisions that seem to disadvantage staff. This has often resulted in
strikes and resistance by staff (KLM 2016).
2.3 Trends
Flying low-cost has become a trend over the last few years. Due to the
rise of LCC’s passengers have more choice between airlines. On the other
hand, airlines have used information from passengers better as part of
the flying cheap strategy to attract more passengers by reducing prices
(Thomas 2011). However, it seems that passenger expectations have
increased due to the fact their experiences when buying products, for
instance, have improved and therefore, they expect better service (PWC
2015).
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2.4 Buyer behaviour
Buying behaviour involves a study of what, when, where and how many
times people buy a good or service (Kotler and Keller 2012). Human
needs are ranked from most to least important and people satisfy the
most important needs before satisfying the other needs (Maslow 1954)
Therefore, buyer behaviour can help to understand what motivates
passengers (figure 5).
For passengers the most influential needs are the price with the best
route, hence the brand of the airline is less relevant, moreover,
passengers focus on luxuries such as extra legroom or in-flight
entertainment once basic needs are satisfied (Rose et al. 2005; Warburg,
Bhat and Adler 2006).
It could be argued that self-esteem motivates passengers as opposed to
other factors as the needs of passengers reflect status and therefore, the
products offered by airlines are key in attracting passengers. On the other
hand, the first three needs (psychological needs, safety needs and social
needs) can be considered as less relevant as it can be said that the
purchase of a ticket is motivated by factors that cause satisfaction, rather
than completely based on needs (Herzberg 1966; Kotler and Keller 2012).
In this case, price and route are satisfiers that lead to purchase.
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Figure 5- Maslow's hierarchy of needs (Maslow 1987).
2.5 Competitor analysis
Appendix C p. 46 highlights the competitors for KLM. Despite a difference
in service offered, the fact that the competition within the airline industry
is high suggests that airlines are aiming at the same type of passengers
(Johnson et al. 2014).
The fact that Lufthansa, British airways, Emirates and Qatar airways are
more concentrating on luxury passengers they are the competitors to
avoid. It can be said that if they launch a low-cost service it can affect
their brand image (Dall’Olmo et al. 2014). Conversely, KLM does not offer
a first class product (KLM 2016), therefore, it might be said that the
airline is not focussed on luxury travel and it has less impact on the brand
image (Pina et al. 2010).
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Since Easyjet and Ryanair are focussed on low-cost travel they are the
future competitors, this due to the fact they have the resources and the
ability to respond rapidly as opposed to luxury focussed airlines (Kotler
and Keller 2012).
3.0 SMART Objectives
The marketing objectives for the first year of the new service are as follows:
1. To raise brand awareness among air travellers by achieving an
average load factor of 50% - 60% depended on the season and
routes within the first year of operations.
2. Increase European market share to 5% of the new service within
the first year of operations.
3. Inform target audience about service quality and the competitive
advantage by using diverse communication tools leading to an
increase in sales of 10% within the first three months of operations
4. Increase sales by another 10% after 9 months of operation by
launching a loyalty membership program.
5. To deliver high-quality service within the low-cost segment by being
among the top 10 low-cost airlines mentioned in market surveys in
a one-year time frame.
3.1 Target audience
Segmentation and targeting helps to find and define the user whereas
positioning refers to the positioning the product in the mind of the
consumer (Ries and Trout 1982; Kotler and Armstrong 2014).
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Due to changing demands of passengers, it is challenging to customise
products based on class seating since there is a lack of motivation and
needs it could, therefore, be argued that it depends on the behaviour of
passengers (Teichert et al. 2008) such as occasions, user or loyalty
status, that defines the target market (Cross et al. 2015; Kotler and
Armstrong 2014).
3.1.1 Frequent flyers
This are passengers that fly regularly and have different motives such as
business or holidays. However, they are loyal to a specific airline due to
the opportunity to collect frequent flyer miles in exchange for free flights
in the future (Etemad-Sajadi et al. 2016). Therefore, airlines are able to
discourage them from switching, whereas, in addition, they are also less
price sensitive and therefore, challenging to attract (Liu 2007; Sayman
and Stephan 2014).
3.1.2 Business travellers
Business travellers also fly frequently but expectations are based on
scheduling convenience (Martinez-Garcia et al. 2012). There is, however,
a difference between the type of business travellers, as self-employed
business travellers are flying less in business class and it can be claimed
that they are price sensitive (Mason 2005). While, when companies
purchase tickets on behalf of employees for business purposes, they are
less price sensitive and thus easier to convince (Vlachos and Lin 2014).
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3.1.3 Budget-Conscious travellers
Budget-conscious passengers are infrequent travellers and as a result,
have limited knowledge about the brand of the airline and therefore, use
price as satisfaction (Akartunali et al. 2013). This confirms why LCC’s are
attractive (Borenstein 2011). However, a drawback of price sensitive
passengers is that they perceive airlines as equal and select the cheapest
option (Brueckner et al. 2013).
3.2 Targeting strategy
Budget-conscious passengers are the most appropriate target market for
KLM. The fact that LCC’s are growing suggests that this segment is
growing (Borenstein 2011) and therefore, is in the growth stage of the
product lifecycle (PLC) (Trott 2012). Despite increased competition most
LCC’s are operating short-haul routes whereas this service will focus on
long-haul routes (Dobruszkes 2013).
In contrast to the other identified segments, budget-conscious passengers
meet the objectives of the service. Therefore, the most suitable strategy
is differentiated marketing. According to Schlegelmilch (2016),
differentiated marketing consists of a company offering more brands
within their portfolio whilst targeting different segments. While it might be
argued that a concentrated strategy would be appropriate, the current
segments of KLM involve frequent and business passengers already.
Besides, this service will focus on budget-conscious passengers
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specifically with the purpose to offer better and attractive products in
contrast to the competition (Porter 1980).
3.3 Positioning
Positioning aims to make products visible, create recognition and provide
value (Ostaseviciute and Sliburtye 2008). (Figure 6) illustrates the current
position of KLM in contrast to competitors (Bowman and Faulkner 1997)
and suggests other positions available while helping to focus on
passengers instead of costs (Johnson et al. 2014).
It could be claimed that KLM is located at position 1 which is
differentiation, this position consists of the passengers receiving high-
quality products at which the high price meets the quality (Shakshsir
2014). However, positioning can be achieved by differentiating attributes
(Kapferer 2012). One of the attributes of differentiation for the new
service is based on price quality, therefore, in terms of positioning KLM
must shift to hybrid. The hybrid strategy offers consumers with high
added value for a lower price in contrast to competitors. Therefore, the
unique value proposition is more for less (Shakshsir 2014).
It could be said that the hybrid strategy is an opportunity to differentiate
as opposed to competitors and to gain competitive advantage (Porter
1980; Chan and Mauborgne 2005).
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Figure 6 - Strategic clock KLM (Carlisle and Faulkner 2005; Author 2016).
3.3.1 Positioning statement
A positioning statement summarises the positioning strategy by
communicating the value to the consumer (Barton 2015). Table 2
presents the positioning statement for the new service.
“To travellers who are budget conscious, KLM is the airline that
provides your long journey with additional value than any other airline
because it offers the lowest prices with a customer oriented approach”
Table 2 - Positioning statement
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4.0 New Service Marketing Mix
4.1 Product
The service will involve cheap long-haul flights, aiming to satisfy
passengers by providing customer focused service where possible such as
before and during the flight.
However, in contrast to products, services have different characteristics
(Trott 2012). Firstly, services are intangible, it is impossible to feel, touch
or taste the service. Likewise, services are heterogeneous and depend on
human interaction. Additionally, services are produced and consumed
simultaneous and as a result, depend on the interaction between
consumers and providers. Lastly, services are perishable which indicates
that it is impossible to save, store, resell or return a service (Trott 2012).
Therefore, to develop the service, the characteristics are crucial as it can
be claimed that during the development stage of the new product
development process (NPD) this is challenging as opposed to a product
due to differences, hence involvement of the users is crucial for a service
to be successful (Gremyr et al. 2010). Therefore, for the development of
the service, passengers should be involved in gaining ideas by market
research, as co-creators, during the development process and the testing
stage (Nambisian (2002). However, this is not sufficient unless it is
understood how passengers evaluate services.
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Parasuraman et al. (1985) suggest that consumers judge services based
on 5 aspects; reliability, responsiveness, assurance, empathy and
tangibles.
In terms of reliability, KLM must ensure that it delivers the promised
value, and is capable of handling problems of passengers. When it comes
to responsiveness, information towards passengers is crucial at every
stage of the process. Additionally, KLM must be prepared to respond to
the requests of passengers. Even so, assurance is also key, staff should
be able to let customers feel safe and must have the ability to answer
questions. Empathy for this service will include dealing in a caring manner
and understand passenger needs.
Lastly, in terms of tangibles staff has to have a professional appearance.
While aircraft should be well maintained.
4.2 Price
Pricing depends on diverse factors, for instance, market or environmental
factors (Hollesen 2011). It may be argued that due to flying being a
service and perishable (Guo et al. 2013) the pricing strategy for airlines
depends on the availability of seats, demand, competitors and operational
costs (Li et al. 2014).
The airline industry is as an oligopolistic industry (Cento 2009) as it is
dominated by a few airlines (Dunne et al. 2013). Despite a significant
level of competition, it can be said that competition depends on the
routes, as large airlines have close competitors but besides there are also
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smaller airlines operating similar routes (Gailey et al. 2012). Hence,
pricing is influenced by uncertain external factors that are difficult to
predict. Table 3 provides the costs involved for short-haul flights however,
different factors such as demand or fuel are challenging to predict (Button
2009). For example, prices on routes with high demand are increased
whereas, on routes with low demand prices are decreased, thus prices are
elastic (Granados, Gupta and Kauffman 2012).
Therefore, the best possible pricing strategy is discriminatory pricing as
passengers will be charged differently for the same service (Dai, Liu and
Serfes 2014). The service should charge a minimum of €350 for a return
ticket and price adjusted based on demand. However, it will be crucial to
create perceived value during the buyer process to convince passengers
(Beneke et al. 2013).
Estimated costs per passenger
(one way, short distance)
Aircraft costs/lease €20.00
Fuel €8.20
Air traffic control fees €2.69
Crew €1.64
Catering €1.67
Airport security fees €12.94
Handling charges €14.94
Parking fees €0.67
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Table 3 - One way short-haul flight costs (Vlucht-vertraagd.nl 2011).
4.3 Place
Place is the location where the passenger can purchase the ticket (Gordon
2012). Considering the operational costs for third parties when it comes
to selling tickets (Ng 2015), tickets should be sold exclusively online
through the website (Shon, Chen and Chang 2003). Moreover, it could be
argued that the process of booking might be easier as opposed to booking
with a travel agency as the involvement of an intermediary leads to
inefficiency (Chaffey 2015).
However, in contrast to competitor’s distribution channels, selling tickets
will be challenging. Therefore, additional value must be created by the
effective use of attributes such as search engines and a website that is
user-friendly and using additional channels such as social media for direct
selling (Mangold and Faulds 2009).
4.4 Promotion
The purpose of promotion is to inform, persuade or remind consumers
about the product by using different tools (Hollesen 2011; Kotler and
Keller 2012). The aim of communication for KLM is to create awareness
(Table 4). Therefore, the objective of the message is to obtain new
passengers by creating awareness among air travellers and make them
Landing rights €3.80
Noise tax €2.00
Total €68.55
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aware of KLM’s new service while increasing awareness among budget
conscious travellers (Kotler and Keller 2012).
To select the right communication tools a message has to be developed
that is easily understood by budget conscious travellers (Keller 2016)
which aimed at information appeal. According to Kotler and Keller (2012),
information appeal is based on the benefits of a service. Therefore, the
message aims to focus on the relation between service quality and price.
It will be communicated by integrated communication channels (Kotler
and Keller 2012) since it is more effective as opposed to personal
communication or mass communication channels (Batra and Keller 2016).
Awareness Make budget travellers aware of the
new service and achieve an average
load factor between 50 – 60 within
the first year depended on the route
and season.
Knowledge Target audience has no or limited
knowledge about the new service,
KLM must identify the amount of
people with minimum knowledge and
create band knowledge.
Liking Target audience is familiar with KLM,
identify how they feel about the
brand, in case it is unfavourable
identify the reason and communicate
the new quality.
Preference Target audience is aware of the
service but does not prefer it. KLM
must build consumer preferences.
1401575 – Marketing strategy Page 23
Conviction Target audience may like the new
service but is not convinced to buy it.
KLM must convince people to choose
them.
Purchase Convince the target audience to
purchase tickets by offering a low
price
Table 4 - Hierarchy-of-effects model (Kotler and Keller 2012; Author 2016).
4.4.1 Budget
The budgeting technique applied to determine communication tools is the
objective-and-task method (table 5) as this technique develops budgets based
on specific objectives and the costs associated to perform them (Petit and
Mcenaliy 1985; Kotler and Keller 2012).
Establish the amount of
passengers’ yearly
Current yearly passenger average of
KLM is 20 million (KLM 2016),
therefore, the target is to attract at
least 5% which is 1 million passengers
a year.
Determine the percentage of
passengers that should be
reached
The aim is to reach 80% by
advertising (800.000 people).
Determine the amount of
passengers that should be
persuaded to fly with the new
airline.
Expected that 25% of people that are
aware of the airline (200.000), will fly
once with 20%, 40.000 becoming
loyal
Determine advertising
impressions associated to 1%
trial rate.
It is estimated that 50 advertising
exposures will lead to 10% of trial
rate.
Consider the amount of gross
rating points (GRP) that have to
be acquired.
20 exposures to 80% of the target
market = 1600 (GRP).
1401575 – Marketing strategy Page 24
Table 5 – Objective-task-method for KLM (Kotler and Keller 2012; Author 2016).
4.4.2 Marketing communication mix
The availability of media is diverse in countries (Hollensen 2014). It can
be argued that therefore, marketing budget should be allocated across
different modes of communications (Kotler and Keller 2012).
Advertising can help KLM to create awareness (Barroso and Llobet 2012).
Radio and TV have a strong effect to create awareness due to its
expressiveness and pervasiveness as opposed to printed advertising and
therefore are appropriate, moreover, it also reaches a wider target
audience (Batra and Keller 2016).
It could be argued that social media is also suitable as it allows online
conversations such as chats via forums or social media websites (Chaffey
2015; Hollensen 2014). This provides an opportunity to exchange a two-
way dialogue between passengers and KLM (Mangold and Faulds 2009).
Moreover, it is valuable for word-of-mouth marketing (Kotler and Keller
2012). Despite being less effective as opposed to traditional advertising, it
attracts new customers (Batra and Keller 2016).
Additionally, personal e-mails are three times more effective and
therefore, should be used to persuade people (Li and Kannan 2014).
Establish budget based on GRP
average
The average price of a GRP is
estimated at €3000 therefore, the
budget is estimated to €4,800.000
(€3000 x 1600).
1401575 – Marketing strategy Page 25
However, the timing of the message is significant, therefore, campaigns
must be launched prior to holiday seasons to increase effectiveness
(Hollensen 2014).
4.5 People
The staff is crucial as they will deliver the service on behave of KLM (Goi
2015). KLM’s current staff base is well educated and trained as they are a
4-star airline (Skytrax 2016).
It can be said that training of staff is important since staff must be
passenger oriented to retain passengers (Huang and Sarigollu 2014).
Nonetheless, there is scope for improvement in areas such as enthusiasm
and attitudes toward customer, interaction with customers, friendliness
and hospitality and lastly quality consistency among staff as these score 3
stars on average, while it should be aimed to score 4 stars (Skytrax
2016). Excellent customer experience will lead to positive word of mouth
whereas word of mouth can also be improved by the airline choosing staff
that reflects the brand image, and it can be ensured that employees are
motivated and service quality is consistent (Hartline and Jones 1996;
Sweeney et al. 2014).
4.6 Process
The process of the service refers to the activities, mechanisms and
procedures by which passengers will acquire the service (Rafiq and
Ahmed 1995; Kotler and Armstrong 2014). The process should be simple,
from the time the passenger books until their flight’s depart and arrive.
1401575 – Marketing strategy Page 26
This, for instance, will require a strong booking system that will deliver
passengers with their required service that passengers pay for. These
systems involve online channels such as social media, online information
through the website, but also the IT infrastructure and scheduling
systems. Besides, one of the most used inventory systems used in the
airline industry is Amadeus, this will allow KLM to manage flights and
helps to sell tickets based on the right price and demand (Amadeaus
2016).
4.7 Psychical Evidence
Due to the fact the airline offers a service, the psychical elements are
significant to impress passengers (Hollensen 2014). It could be claimed
that KLM must use its current logo since it is easy to recognise and
remember. Additionally, the airline uses blue colour and therefore, it is
easy to recognise since staff uniforms and aircraft have the same colours
and it seems to create a positive atmosphere that can contribute to the
new service (Kotler and Armstrong 2014)
Moreover, the layout of the cabin has to be convenient for instance by the
use of convenient seats or more legroom, moreover, aircraft should be
well maintained in order to provide customers, the best overall
experience. This process should make sure that the passenger is provided
with additional value to enhance their experience.
1401575 – Marketing strategy Page 27
5.0 Implementation
Implementation can be defined as transforming marketing strategies and
plans into actions to accomplish the strategic marketing objectives (Kotler
and Armstrong 2014), strong implementation can assist KLM in being
successful (Banoma 1985).
5.1 Mckinsey 7s Framework
Mckinsey 7s framework can assist KLM in achieving an effective
implementation since all the factors are interrelated (Bryan 2008).
5.1.1 Style
Style is the culture within the organisation and the way tasks are
completed (Bryan 2008). The leadership style during the process is crucial
since only 30% of the companies are successful when it comes to change
(Keller and Aiken 2009). The most suitable leadership style for KLM is
transformational leadership since it aims at changing employees and
seeks to enhance performance (Northouse 2013). However, management
must make sure to have the trust of employees and therefore, they must
implement an open door policy in which employees can approach
management (Kotter 1995).
5.1.2 Skills
The skill sets of organisations determine how KLM works (Bryan 2008). It
could be said that an effective training program is required for a high-
quality service, therefore an annual assessment must be performed to see
whether training meets the standard (Johnson et al. 2014).
1401575 – Marketing strategy Page 28
5.1.3 Systems
Proper procedures and systems are essential for the way the KLM works
(Bryan 2008). It could be said that customer relationship management
systems are crucial as this can help KLM to gather data regarding
passengers (Chaffey 2015), moreover, Amadeus is also an important
system as it indicates demand (Amadeus 2016). Lastly, selection of
people should be based on strong selection criteria and only people
capable of providing the promised service must be hired (section 4.5).
5.1.4 Structure
KLM has an executive team in which each department is under the
responsibility of one person (KLM 2016). However, for the new service,
the organisation has to appoint someone who is responsible for low-cost
flight operations as this would be more suitable to make sure employees
are not confused on who has authority (Bryan 2008).
5.1.5 Staff
Incentive schemes should be introduced to motivate staff and conversely,
regular staff meetings with staff that does not perform should also be
held (Bryan 2008).
5.1.6 Strategy
The strategy is to gain competitive advantage. Nonetheless, the strategy
has to meet the mission of the organisation (Kanagal 2016). Therefore,
KLM has to ensure that enough money, sufficient aircraft and the right
people are available (Kotler and Armstrong 2014).
1401575 – Marketing strategy Page 29
5.1.7 Shared values
KLM must assess the current organisational culture and identify whether
everyone has the same vision and is trying best to achieve the values
(Bryan 2008). The current environment within the company is weak due
to the uncertainty among employees (section 2.2.2). It could be claimed
that this must be fixed to share the same vision.
6.0 Control
The control process refers to controls applied to evaluate the marketing
strategies and plans and take corrective actions where required (Kotler
and Armstrong 2014).
6.1 Feedback
The control process should involve different indicators. Firstly, it is
significant to ask feedback from passengers that have used the service to
measure quality, this can be achieved by asking them to fill in a
questionnaire (Johnson et al. 2014), this can help highlight common
problems experienced and fix them.
Additionally, the airline should use market share as a control tool,
however, it should set milestones to reach 2,5% of its market share at
the half way stage of the marketing plan as this can indicate KLM’s
position and whether corrective actions are required (Lynch 2012).
1401575 – Marketing strategy Page 30
6.2 Sales Activity
Measuring sales activity, on the other hand, is also significant, therefore,
sales targets must be established and compared against actual sales
figures to identify whether the promotion strategy is effective (Dyson
2010).
6.3 Meetings
Lastly, management of each department must meet every two months to
discuss the activities, sales and areas of improvement. A useful tool that
can be applied market-based scorecard this can help to provide a
balanced view of financial and non-financial elements indicating areas that
can be improved where new opportunities arise (Kaplan and Norton
1996).
7.0 Conclusion
All things considered, there is a high intensity of competition in the airline
industry. The expected growth and increasing presence of LCC’s suggest
that there is an opportunity for KLM to launch a new low-cost long-haul
service for budget conscious travellers. It could be claimed that KLM can
increase its current position. Nevertheless, the success of the service
depends on various elements that must be managed carefully such as the
price, quality, communication tools but also the implementation and
control process is significant while on the other hand, internal and
external forces should be taken into account when introducing the new
service to mitigate risk.
1401575 – Marketing strategy Page 31
8.0 Recommendations
It can be recommended to assess current capabilities by evaluating the
internal environment by the use of the value chain analysis to see
whether these are sufficient. Additionally, a VRIO analysis can help to
identify whether the airline has competitive resources that can be utilised.
1401575 – Marketing strategy Page 32
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1401575 – Marketing strategy Page 44
Appendix A – PESTEL Analysis KLM
Political/Legal Social
• Deregulation
• Open Skies
• Safety
• Shifts in travel preferences among
generations.
Economic
• Terrorists attacks
• Disasters
• GDP growth
• Oil prices
Technological/Environmental
• Bio Fuel
• Reducing of fuel consumption
1401575 – Marketing strategy Page 45
Appendix B - SWOT analysis KLM
Strengths Weakness
• Balanced network
• Two airports among world’s best
airports
• Relatively known brand (ranked 24th
among top 100 airlines).
• Different partners
• Difficulties in retaining profits
• Debt
Opportunities Threats
• Increase/Start LCC operations.
• Working more together with
different SkyTeam partners by Joint
ventures.
• Enhance customer experience and
gain efficiency by induction of new
aircrafts
• Competition
• Changing consumer demands
• Brand loyalty among consumers
• Internal conflicts
• Uncertain oil prices
1401575 – Marketing strategy Page 46
Appendix C – Competitor
analysis KLM
Competitor Lufthansa British Airways (IAG) Ryanair Easyjet Emirates Qatar Airways
Objectives Become the leading
aviation company
globally (Lufthansa
2016).
• Become the
most admired
airline.
• Invest in
product
improvement
• Grow presence
in key global
cities (BA
2015).
Become Europe’s
biggest scheduled
airline (Ryanair
2016).
Deliver market
leading innovative
customer service
(Easyjet 2016).
N/A Being Excellent in
everything they do
(Qatar airways
2016).
Strengths • Owns strong
brands such
as Swiss and
Austrian.
• Financially
strong.
• Owns strong
brands with
strong strategy
and
characteristic
such as Iberia
and Vueling.
• Iberia is strong
in the LCC
Segment
• Low Fares
• Largest
short-haul
carrier within
Europe
• Low-Fares
• Strong
European
network
(growing)
• Strong-brand
• Strong brand
• Young fleet
age
• Backed by
government
• 5-star airline
• Strong brand
• Significant
growing
network
Weakness Slow response in the
LCC segment.
Small Asian market. Weak Brand
perception by
customers.
Profits depend on
seasons
Limited market
growth due to high
competition.
Limited market
growth due to high
competition.
1401575 – Marketing strategy Page 47
Price High end High end Cheap Cheap High end High end
Product Luxury air travel Luxury air travel Low-cost air travel Low-cost air travel Luxury air travel Luxury air travel
Place • Based in
Cologne,
Germany
• online
• travel
agencies.
• Flight
comparison
websites
• Based in
Harmondsworth,
UK
• Online sales
• travel agencies.
• Flight
comparison
websites
• Based in
Dublin,
Ireland
• Online sales
• Operations
mainly from
second-tier
airports
• Based in
Luton, UK
• Online sales
• Travel agents
• Flight
comparison
websites
• Based in
Dubai
• Online sales
• Travel agents
• Flight
comparison
websites
• Based in
Qatar
• Online sales
• Travel agents
• Flight
comparison
websites
People Well skilled and
educated
Well skilled and
educated
Skilled and
educated
Well Skilled and
educated
Highly skilled,
trained and educated
Highly skilled,
trained and educated
Promotions • Social media
• Direct
Marketing
• Advertisement
• Sports
sponsorships
• Flyers and
brochures
• Events
• Loyalty
programs
• Website
•
• Social media
• Direct Marketing
• Advertisement
• sponsorships
• Flyers and
brochures
• Events
• Loyalty
programs
• Website
• Social media
• Employee
controversies
• Social media
• Direct
marketing
• Advertisement
• Social media
• Direct
Marketing
• Advertisement
• sponsorships
• Flyers and
brochures
• Events
• Loyalty
programs
• Flight
comparison
websites
• Website
• Celebrities
• Social media
• Direct
Marketing
• Advertisement
• sponsorships
• Flyers and
brochures
• Events
• Loyalty
programs
• Flight
comparison
websites
• Website
• Celebrities