Marketing Case Study WWW.MATTHEWKILLEEN.COM 17/03/2014

Other news outlets, including the SMH and ABC IMPORTANT NOTICE: This resource was created for presentation to peers in 03/2014 and has not been edited for a wider audience. Some elements are liable to be out of date and inaccurate. One should seek to keep up to date with the latest developments, consider using the following sources: www.ausbt.com.au www.asx.com.au www.qantasnewsroom.com.au IBISWorld and Factiva, which are accessible at ezproxy.sl.nsw.gov.au/login with a State Library of NSW membership Other news outlets, including the SMH and ABC Thanks for using this resource. Spelling mistake? Want something updated? Fundamentally disagree with me about something of no importance? Let me know here: www.matthewkilleen.com/contact/ 17/03/2014

purpose of the case study In the trials and the external HSC exam, at least one case study is needed for question 26 or 27 (20 marks). The range of questions is wide, but generally focus on Influences and Strategies. Examples include: Why are ethical behaviour and government regulation important in marketing? Assess strategies that management may use to respond to influences on marketing. How does an understanding of the influences on marketing contribute to business success? * Questions are often unpredictable and can at times be very specific 17/03/2014

Syllabus Requirements Role of Marketing Strategic role of marketing Interdependence with other functions Marketing Influences Factors influencing consumer choice Consumer law Ethics Marketing Processes Situational analysis Market research & objectives Identifying target markets Developing, implementing, monitoring & controlling strategy Marketing Strategies Segmentation, differentiation & positioning Product Price Promotion Places People, Processes & Physical Evidence E-Marketing Global Marketing 17/03/2014

Syllabus requirements The syllabus for marketing reads the following: The marking notes for the 2012 HSC question read: Students learn to investigate aspects of business using hypothetical situations and actual business case studies to: evaluate the marketing strategies for a good or service analyse a marketing plan for a business explain how globalisation has affected marketing management In the best responses, candidates demonstrated comprehensive knowledge and understanding relevant to the question, using relevant business case studies and contemporary issues, terminology and concepts. These responses were sustained, logical, cohesive and, although not required, often presented in the form of a business report. This slide does not suggest that you should present your Sect IV extended response as a business report. There is a time and a place for that – the Sect III question. The consensus among teachers is very much in favour of a traditional essay structure wherever possible. 17/03/2014

Essay marking criteria Marks Applies relevant case study/studies and contemporary business issues Presents a sustained, logical and cohesive response and communicates clearly using relevant business terminology and concepts 17 – 20 Uses relevant case study/studies and contemporary business issues Presents a logical and cohesive response using relevant terminology and concepts 13 – 16 May make reference to case study/studies and contemporary business issues Communicates using business terminology and concepts 9 – 12 17/03/2014

A brief introduction to Qantas 1920 : Qantas founded, making it the longest continually operating airline in the world 1947 : Federal Government purchases Qantas, it becomes Australia’s national overseas carrier 1992 : Qantas is privatised 1999 : Qantas joins OneWorld 2001 : September 11 and Ansett Collapse, Virgin Blue market share catapults 2004 : Qantas launches Jetstar 2009 : GFC, swine flu, and falls in profit 17/03/2014

Historical profits/share price 17/03/2014

Qantas today: brands 17/03/2014

Qantas today: fleet Qantas Domestic Qantas International Jetstar Airbus A330-200 Boeing 767 Boeing 737-800 Qantas International Airbus A380 Boeing 747 Airbus A330-300 Jetstar Airbus A320 Airbus A321 Airbus A330-200 Boeing 787 Qantas Link Bombardier Q400 17/03/2014

Qantas today: market share 17/03/2014 IBISWorld, Q4 2013 figures

Strategic role of marketing Prior to privatisation in 1995, Qantas marketing strategy was vastly different from that required of a contemporary carrier. Today, it is through marketing that Qantas may enhance its revenue streams and increase the market’s awareness of its products. Through increases in market share, Qantas seeks long- run profit maximisation. The marketing strategy must be based upon a thorough analysis of the ways and means of addressing target markets and customers. The key decision upon which the entire marketing strategy can stand or fall is the market segmentation: which segments of the market are being targeted and how the marketing mix and the good/service offering is to be positioned for each segment. 17/03/2014

Interdependence of marketing Marketing & Operations Both must be aware and in constant communication with regards to product features and characteristics. It is the responsibility of operations to produce a product that meets the consumer’s needs (including service, on time performance, safety. comfort), and it is the role of marketing to inform operations of what constitutes the needs of the customers. Marketing & Finance The finance function is responsible for providing marketing with the information and funds needed for viable decision-making. Finance determines the means and capabilities of the marketing department through the allocation of a budget. Marketing & Human Resources Marketing relies on the HR function to hire, train and develop employees who work in the field of selling or otherwise promoting the business, in order to successfully connect the business with its target market. 17/03/2014

Influences: CONSUMER CHOICE Psychological influences Motivation – when someone purchases a seat on a QF flight, they expect more than the most basic transfer from one place to another. QF plans its strategy to appeal to the emotional reactions of the customer (affective engineering) Perceptions & attitudes – the customer perception of the Qantas product can be influenced by the nature of promotion, pricing and in flight experience. Qantas is traditionally perceived as a mid-range full service airline that is distinctly Australian. Personality & self-image – The concept of ‘you are what you buy’ has increased in importance in other industries, but is less prevalent in Qantas Lifestyle – One’s tastes and preferences may see them always fly with one airline over another 17/03/2014

Influences: CONSUMER CHOICE Sociocultural influences Qantas must be sensitive to the reigning aspects and dimensions of culture: shared values, beliefs, religion, language, laws, rituals, attitudes of mind, traditions, and customs. Qantas demonstrates adherence to these prevailing influences through it’s willingness to provide specialist service for those of different cultures through its in flight service (e.g. Halal meals, different language announcements & safety warnings, etc.) Economic influences With seat sales directly linked to discretionary income spent on travel, encouraging target consumers to spend a greater percentage of their discretionary income on travel is a target of Qantas marketing. 17/03/2014

Influences: CONSUMER CHOICE Government influences The government influences consumer choice through their policies, which may attract, deter, or prevent consumers from flying with Qantas. Generally these are indirect (e.g. carbon tax, GST) While not related to consumer choice, Qantas is an exceptional case in terms of government influences due to its unique status as Australia’s flag carrier – it is governed by the Qantas Sale Act (1992). It’s provisions are as follows: Any single foreign investor is limited to a 25% stake in Qantas Foreign airlines can hold no more than 35% of Qantas shares in total Total foreign ownership of Qantas is capped at 49% 17/03/2014

Influences: Consumer LAW Consumer law aims to achieve consumer protection, and prevent unfavourable market outcomes by promoting effective competition. The ACCC enforces laws in relation to fair competition, deceptive and misleading conduct, price discrimination, and consumer guarantees. Contemporary Business Issue: Predatory Pricing (SMH, Dec 13) The ACCC continues to investigate the way Qantas has added extra capacity on air routes as part of its strategy to maintain market share Companies are allowed to sell goods or services below cost price but businesses with substantial market share must not "use this power for the purpose of eliminating or substantially damaging a competitor”. The head of Qantas's domestic business, Lyell Strambi, had previously warned he would add two planes for each one added by Virgin. Qantas is considering referring Virgin to the Anti-Dumping Commission to highlight what is believes is predatory behaviour by its rival. 17/03/2014

Influences: ethics In it’s marketing, Qantas aims to present the brand in an ethical manner, and through it’s system of checks and balances, rarely does Qantas find itself in situations of negative publicity due to its marketing. When Qantas is criticised for their ethics in marketing – it is much less to do with truth, accuracy and good taste, so much as it is engaging in fair competition. QF has been accused of misuse of market power: §46 of the ACL prohibits corporations with a substantial degree of market power from taking advantage of that power to damage other competitors, prevent entry, or to deter another from engaging in competitive conduct In the past (pre-2007), Qantas was fined millions by the ACCC after colluding with other airlines to fix fuel charges 17/03/2014

Processes: swot analysis Strengths Strong dominance in domestic market with 71% market share The multi-brand strategy has allowed the group to position Qantas as ‘best for business and premium travel’, while allowing Jetstar to offer consistently low fares Additionally, QF retains 84% of the corporate travel market and was the best major airline for OTP in 2013 Alliances with Emirates and the OneWorld Group This allows Qantas to market flights that are operated by other airlines – including MH, QR, LAN, CX One of the strongest customer loyalty schemes in the world, worth up to $2.5 billion and with 9.8 million members Qantas points are Australia’s de facto second currency, and the QFF scheme is effectively a closed economy over which the airline has total control to print money and name the exchange rate. Iconic brand with strong global recognition and an excellent record for safety 17/03/2014

Processes: swot analysis Weaknesses Current profitability crisis due to competition and high costs Industrial relations disputes, strong and belligerent unions Highest labour cost ratio of the world top 10 airlines Any attempt at ‘rightsizing’ or offshoring criticised by unions, media, government Complex fleet structure leads to increased costs Lack of parliamentary support to lift the Qantas Sale Act The Government largely supports the removal of limitations, but the Greens and other parties have blocked moves in the Senate Neglect of Qantas’ international markets impacts net profit, load factor & revenues have declined 17/03/2014

Processes: swot analysis Opportunities ASEAN Open Skies Agreement to come into effect in 2015 This will see increased liberalisation in Indonesia, Singapore, Malaysia, Thailand, etc. Joint venture opportunities in Asia e.g. the proposed ultra premium Asian airline with MH ‘RedQ’ Further expansion of the Frequent Flyer Program, with the Qantas Cash and Acquire schemes Relationship with Tourism Australia QF is the major supporter of tourism in Australia – Qantas and Jetstar passengers spent more than $28 billion as tourists in 2013. This relationship allows unique opportunities and benefits for Qantas New fleet – B787s, A380s and A330s are to increase fuel efficiency in the future 17/03/2014

Processes: swot analysis Threats Capacity oversupply exasperating weak underlying demand Virgin has increased capacity by over 40% since 2009, Qantas has aimed to defend its position without growing at the same pace as competitors Competition continues to increase with new entrants in the international market Volatile fuel costs and falls in the Australian dollar Jetstar faces regulatory issues and competition in Asia LCCs have established strong market positions and continue to grow. AirAsia, Tiger Airways Singapore, Scoot and Lion Air are major competitors to Jetstar in the low-cost market. 17/03/2014

Processes: Product life CYCLE Asian offshoots Jetstar Qantas

Processes: Research & objectives Market research at Qantas involves mostly primary data – surveys, questionnaires, focus groups and interviews A major advantage that Qantas has in market research is its direct access to customers – Qantas has historically not spent a great deal on market research as much of its market is already relatively communicative There is also the possibility of data-mining through the Frequent flyer programme, a possibility that might bring in significant revenue, but also raises ethical issues concerning Current Qantas objectives are found in Annual reports, and in half-yearly results. They focus on the transformation of Qantas to a more competitive and adaptable business. 17/03/2014

segmentation Segmentation across the airline market has offered the following distinct advantages: It makes marketers think of the customer ahead of the product In researching customers' needs at a granular level, it brought a better dialogue with customers It opened up new segments of markets that were previously unexplored by the mass marketers looking to serve the producer interest (e.g. QantasLink) It ushered in a new era of competition that did not always mean that the largest producer would dominate the market (because now smaller competitors could be dominant in a number of segments) The content on this slide is derived from A Dictionary of Marketing Doyle, Charles. "market segmentation." A Dictionary of Marketing. : Oxford University Press, 2011. Oxford Reference. 2011. <http://www.oxfordreference.com.ezproxy.sl.nsw.gov.au/view/10.1093/acref/9780199590230.001.0001/acref-9780199590230-e-1104>. 17/03/2014

segmentation Psychographic segmentation Behavioural segmentation Segmentation of the market by cultural attitude, lifestyle, and psychological type. Psychographic variables may include activities, interests, attitudes, preferences and values. Psychographic variables are very qualitative and subjective – it is simpler for Qantas to target them, but more difficult for data to be gathered. Behavioural segmentation Segmentation on the basis of the customer’s attitudes towards, relationship with, and usage of the product. This includes the following types of segmentation: Brand loyalty segmentation – based upon the loyalty that consumers have for one brand over another Usage level segmentation – clusters those groups who are light, medium, or heavy users; business/tourism, FF status Benefit segmentation – segmentation of customers who prefer a similar type of benefit. e.g. some prefer the newest innovations; yet others prefer predictability and safety 17/03/2014

Differentiation Qantas aims to achieve differentiation from competitors (namely Virgin) in the following ways Higher quality and features appealing to business/corporate consumers Superior customer service, including the whole process from pre- flight > in-flight > post-flight The expertise or culture of the organisation (trading off of “Australianness”) and the reputation and strength of the brand as an icon Frequency, safety and predictability making it the conservative choice Jetstar differentiates itself in the following ways Higher perceived value than its competitors Lower cost, the choice for tourists and leisure 17/03/2014

positioning This is a perceptual map, and only considers position in an approximate manner across three areas (size of circle is very roughly representative of the size of the fleet). Qantas Group highlighted in red, airlines with an alliance are in green. 17/03/2014

Strategies: the 4 P’s Product Price Place Promotion Direct & indirect distribution methods Advertising Relationship marketing Public relations Dynamic pricing for Qantas Penetration pricing for Jetstar Price promotions Product features Product benefits The brand Product Price Place Promotion 17/03/2014

Product Any product must be considered in terms of features and benefits Features are product characteristics that deliver satisfaction, such as capability, utility, functionality, etc. Benefits describe the value to the buyer of the product that they would not have in the absence of the product – they are typically intangible and measured by emotion As an airline, Qantas’ core feature is the fundamental movement of the passenger from one place to another. Customers choose Qantas for the benefits much more than this simple feature. In considering Product features & benefits, we must look at The core product – the aircraft and seats Supplementary product – food, drinks, connectivity, etc. Loyalty offerings – lounges, QFF The brand 17/03/2014

Product – The aircraft Qantas operates 11 aircraft types across its three brands, which reduces the potential for economies of scale and increased efficiency. In light of this a major fleet overhaul is under way to rationalise the fleet to far fewer aircraft types. Average fleet age of 7.8 years, which is relatively average (Virgin Australia: 4.5 years; Singapore Airlines: 7.4 years; Emirates: 6.3 years) Pictured are the 4 types that will form the mainstay of the Qantas fleet after fleet renewal/rationalisiation, the A380, B747, A330, B737.

Product – Seats

Product – Seats

Supplementary products The two primary supplementary products for Qantas are in-flight entertainment and meals. Both of these are included in the fare on Qantas flights, but are generators of ancillary revenue for Jetstar Qantas is attempting innovation in in-flight entertainment by offering passengers in all classes on B717 and B767 flights iPads to use for the duration of the flight, with access to films and TV programmes

Product - Loyalty Qantas has the largest amount of airport lounges in Australia, with 25 domestic lounges, and 20 international lounges The QFF scheme has five tiers – Bronze, Silver, Gold, Platinum, and Platinum One. With each comes unique benefits – such as extra baggage allowances in Silver, worldwide lounge access with Gold, and upgrades where possible for Platinum The QFF scheme goes beyond merely flying, with Qantas partnering with Woolworths, Optus, and many financial institutions Qantas is continually extending its loyalty programme, with the Qantas Cash scheme being introduced late 2013, and the Acquire scheme forthcoming 17/03/2014

Product - The brand The relationship between consumer and brand is often emotional rather than rational. The brand is often something that lives as a perception in the mind of the beholder. Branding facilitates memory recall, thus contributing to preferred selection and improving customer loyalty. In the past, Qantas has largely traded off its unique status as a uniquely Australian airline – with the slogan of ‘The Spirit of Australia’ and the iconic I Still Call Australia Home campaign. However, recent debacles (e.g. the 2011 grounding, union conflicts) and the increasingly competitive market have forced Qantas to realign its brand. This included The ‘You’re the reason we fly” campaign The new uniform The Emirates alliance The brand still enjoys much public esteem and has a somewhat mythical or legendary status, some analysts suggest that the decline and revival of Qantas will contribute to the mythology of the brand. 17/03/2014

Price Pricing strategies for Qantas are best described as dynamic pricing. This primarily involves analysing market factors, including supply, demand, and price elasticity, in order to set the price at the highest price which consumers will pay given the market situation. In many ways, this is an extension of the market-based pricing method, but it also involves some elements of competition-based pricing. Jetstar utilises penetration pricing, but primarily as parts of sales promotions rather than ongoing penetration 17/03/2014

Price – Sydney : melbourne Fare Price Conditions Economy – Online fare Off peak $29 No meals, baggage, IFE, no change or cancel, early morning or late night Economy – Online fare Peak $75 - $105 No meals, baggage, IFE, no change or cancel Economy – Max $299 Fully refundable, no IFE Fare Price Conditions Economy – Online fare Off Peak $89 No change or cancel Economy – Online fare Peak $145 Economy – Flexible $305 Rebook free, but no cancel Economy – Fully Flexible $556 Fully refundable Business – Fully Flexible Off Peak $499 Business – Fully Flexible Peak $685 Key point here: Qantas uses multi-brand and multi-fare strategy to capture customers across various price points. IFE = in flight entertainment 17/03/2014

Promotion - advertising Qantas has historically spent millions on iconic advertising campaigns – the most significant campaign being the 2004 ‘I still call Australia Home’ ad. The latest advertisement of this nature is the You’re the Reason We Fly campaign in 2013, which was aimed at repositioning the brand beyond it’s Australian roots – www.bit.ly/1fM2Ul1 (1:30) The proliferation of new media channels, together with the rise of the internet, has made large scale advertising less effective. Qantas largely focuses on other types of promotion. 17/03/2014

Promotion - public relations Qantas promotion today is much more granular and targeted at promoting the product rather than advertising the brand. Public relations While Qantas is largely a victim of negative PR, Qantas maintains the following systems as part of its PR strategy: Anticipating, analysing and interpreting public opinion, attitudes and issues that might impact the future strategy of Qantas, and implementing strategies to influence or change these attitudes and behaviours Media relations: working with communications media in seeking positive publicity, and responding to issues in the interest of the firm Community relations: facilitating active participation within a community, including sponsorship of events such as Ellen DeGeneres’ trip to Australia 17/03/2014

Promotion – other aspects Relationship marketing with the QFF scheme This allows Qantas to meet customers' needs on a continuous and repeating basis by developing a long-term, one to one relationship with individual customers There is maximum emphasis on customer commitment, contact, keeping promises, giving rewards, and building trust Customer lifetime value is extremely high in the airline business, especially amongst corporate customers Anecdotally, it is often said in the airline industry that 80% of the company’s profits come from the most loyal 20% of customers Marketing via social media Qantas has a modest social media presence with 116,000 followers on Twitter, and 465,000 likes on Facebook. By contrast, Qatar Air (a comparably sized partner airline in the Middle East) has 3.8 million likes on Facebook Qantas has suffered social media PR disasters, and their social media team is notoriously poor in response to negative stories. 80/20 Pareto principle is an anecdotal rule of thumb, be careful when using. 17/03/2014

Promotion – social media flaws Contemporary Business Issue: Social media and PR Disasters: The #QantasLuxury debacle (2011) Shortly after the industrial relations disaster that saw the entire airline grounded, and with the crisis still unresolved, Qantas’ social media team posted the following: Ever wanted to experience Qantas first class luxury? You could win a First Class gift pack with our famous QF PJs. To enter tell us ‘What is your dream luxury inflight experience’. Include #QantasLuxury This is an example of where the marketing department was out of touch with the remainder of the company. Of course, the responses from the public created a social media disaster, a sample of these include: #virginluxury – getting an exit row #tigerluxury – getting a biscuit #qantasluxury – getting a pilot, engineers, and baggage handlers #QantasLuxury is a massive executive bonus while your workers starve and your former customers choke While it may seem like a minor issue, the timing, the use of the hashtag, and the nature of the prize gave the competition 114,000 mentions, 88% of which were unfavourable. 17/03/2014

Place – distribution channels Qantas sells the majority of its tickets directly through it’s website – the Qantas website is ranked 76 in Australia, the Virgin Australia site is ranked 159 Telephone and airport ticket sales have declined in importance, but Qantas still retains these option primarily for premium customers Travel agents remain important for international flights – for this reason Qantas owns the Qantas Holidays wholesaler, and maintains good relationships with Flight Centre and other competitors An important part of Qantas’ distribution is its central reservations system. It uses the Amadeus system (designed by Lufthansa in Germany), whereas Virgin uses the cheaper Sabre system (designed in the US). 17/03/2014

processes Qantas has pioneered next-generation check-in, which allows a faster and simpler process on domestic flights. Check in can be done at the airport, on any computer, or on a mobile phone For QFF members, the process is as simple as scanning one’s QFF card at the check in. The card then becomes one’s boarding pass, and that is all that is required to board a domestic flight Customers still have the capability to check in with staff free of charge 17/03/2014

People & physical evidence For any airline, the capabilities of staff are integral to the customer perception of service features and benefits Qantas’ new uniform – introduced late 2013, is an important case in the importance of physical evidence in a service based business. The uniform attracted both praise and criticism from customers and staff Comments on the internet were negative – “Where's class and sophistication? Looks like a cross between an AFL jersey and a dress.” Female staff have complained about the impracticality of the dresses 17/03/2014

E-marketing 17/03/2014

Benefits of e-marketing Reach: truly global reach for the lowest possible price of all types of marketing Interactivity: the internet can facilitate conversations, especially through social media, and allow the display of information in new means Immediacy: information (and possibly, a seat purchase) is only a matter of clicks away, and can occur anywhere with the use of a mobile phone or iPad Demographics and targeting: metadata and the use of search suggestions can allow targeting of a particular demographic segment 17/03/2014

Global marketing Global Branding Standardisation Customisation Qantas uses the same brand and logo internationally, trading off its strong image for safety and uniquely Australian service. This is also cost effective due to economies of scale, and It provides a universal, worldwide image with strong recall Standardisation Qantas does not take a standardised approach to marketing, however there are some elements of the Qantas product that have been changed to standardise them with their alliances An example is the OneWorld alliance and status matching Customisation The customised approach recognises that changes in the marketing mix are essential to best suit the needs of customers in different regions This is demonstrated in Qantas’ Asian offshoots, including Jetstar Japan, Jetstar Pacific, and the proposed premium Asian airline 17/03/2014

Additional information To do especially well in the essay, you must remain up to date with the most current issues facing Qantas. This may include: Trends in Qantas’ share price/revenue/profits New strategies employed by Qantas The responses by Virgin Australia The Qantas case study textbook was out of date as soon as it was printed Useful websites: www.qantasnewsroom.com.au - official updates www.theconversation.com/topics/qantas - analysis www.ausbt.com.au - commentary 17/03/2014