Analysis of British Airways Marketing Environment Assignment

Analysis of British Airways Marketing Environment Assignment Words: 4399

1. 0Executive Summary 2. 0Background and Introduction 3. 0External Analysis 3. 1Macro Environmental analysis 3. 1. 1Political and Legal Factors 3. 1. 2Economic Factors 3. 1. 3Social Factors 3. 1. 4Technological Factors 3. 1. 5Environmental Factors 3. 2Micro Environmental Analysis 3. 2. 1Industry Analysis 3. 2. 2Market Analysis 3. 2. 3Competitor Analysis 3. 2. 4Customer Analysis 3. 2. 5Stakeholder Analysis 4. 0Internal Analysis 4. 1Resource Analysis 4. 2Marketing Audit 4. 2. 1Marketing Strategies Audit 4. 2. 2Marketing Structure Audit 4. 2. Marketing Systems Audit 4. 2. 4Marketing Function Audit 4. 2. 5Marketing Productivity Audit 4. 3Innovation Audit 4. 4Other Auditing Tools 4. 5SWOT Analysis 5. 0Conclusion 6. 0Bibliography 7. 0Appendices This report identifies through research, the impact that marketing environmental issues have on British Airways. It clearly outlines the macro and micro environmental factors and internal factors that the new Chief Executive, Willie Walsh, has to consider in order for him to successfully drive the company forward and receive a 10% operating margin.

British Airways (BA) is the UK’s largest international scheduled airline, operating international and domestic scheduled and charter air services for the carriage of passengers, freight and mail and the provision of ancillary services. The airline flies to over 550 destinations globally and is considered to be a leader in the industry. In order to profitably satisfy customer needs, an organisation must understand its external and internal situation including the customer, the market and its own capabilities. Furthermore, it needs to understand and adapt to the dynamic and uncontrollable factors of the environment in which it operates.

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A marketing audit is in a number of ways the true starting point for the strategic marketing planning process, and is therefore, as Kotler (1999)has suggested ‘a comprehensive systematic, independent and periodic examination of a company’s-or business unit’s-marketing environment objectives, strategies and activities with a view to determining problem areas and opportunities. An analysis of the three key perspectives of a marketing audit; the ‘macro-environment,’ the ‘micro-environment’ and the ‘internal environment will be carried out for BA. 005 saw a new Chief Executive being appointed in BA; Willie Walsh, former head of Aer Lingus. The man with an excellent reputation for driving down costs has stressed his determination to realise his predecessors, Sir Rod Eddington’s, goal of a 10% operating margin. The marketing environment is ever changing and therefore it is essential that a structured, detailed and continuous analysis of the principal dimensions of the environment is made. 3. 1. 1 Political and Legal Factors The start of the millennium is turning out to be some of the most difficult times that the airline industry has ever faced.

The events of terrorism attacks in September 11, 2001 in New York and July 7, 2005 in London along with the wars in Iraq have no doubt caused an unprecedented crisis and political instability. The events have caused the introduction of new security regulations from the EU and US that come into effect in summer 2006 and a fall in customer travelling confidence. Governments have controlled where airlines can fly, and aspects of their product planning and pricing policies. In recent years, substantial regulatory reform has taken place, giving carriers more opportunity and increasing the market competition.

Deregulated companies like BA require systems that enable decisions to be made quickly Open skies is an agreement which changes the regulatory landscapes significantly (appendix 1). A significant legal factor affecting BA is the power of trade Unions. BA has suffered many strike actions (August 2004 and August 2005) and is aware of the implications that the trade unions can cause. Legal regulations on employee rights, customer rights and an upsurge in environmental and ecological issues are more factors that BA must consider. 3. 1. 2 Economic Factors

The demand for air travel is characterised by a very high income elasticity. Therefore, as the world economy grows, so the demand for air travel can be expected to increase too. The political situation in Iraq has helped to drive oil prices to a record high and for BA, the oil price rise might add ? 100 million to their costs. In response, the cost of fuel surcharges is always at risk (appendix 2). BA is in the business of transporting people to and from worldwide destinations for both business and pleasure. If the international economy slows down, business trades less and fewer business people will use planes.

Equally, people may choose less ‘exciting’ holidays. 3. 1. 3 Social Factors The social and cultural influences on business vary from country to country however it is important that such factors are considered and include demographic and cultural aspects. These factors affect customer needs and the size of potential markets. Demographic changes have resulted in the development of the ‘grey’ market who are spending more on leisure and travelling. Lifestyles , tastes and fashions are all changing; customers require opportunities to visit new and interesting, often long-haul, destinations. . 1. 4 Technological Factors Technology is vital for competitive advantage, and is a major driver of globalisation. A key issue will be the extent to which technological advancements can offset upward pressures on prices and costs. Online sales are regarded highly important by BA and they are placing considerable faith in its website presence to boost online-sales which will reduce customer traffic via BA’s call centres. E-Tickets are now the standard ticket format used by BA, making flight ticketing more straightforward, flexible and secure (appendix 3).

BA is focused on improving its customer service in line with modern technology and has opened its first drive-through, offer Wireless LAN systems and communicate through modern SMS texting. A significant long-term threat is the effect of video-conferencing on the demand for air transport and they may have to accept telecommunications companies as formidable competitors for their business customers. 3. 1. 5 Environmental Factors Sir Rod Eddington, former Chief Executive of BA stated ‘The whole aviation industry must accept global warming as a reality, and galvanise its efforts to limit generation of greenhouse gases. (www. sbac. co. uk) Global Warming also affects the demand for airline travel as warmer UK summers may result in more people spending their holidays in the UK. There is also a threat of a pollution tax being imposed on airlines from the government (Adam and Gow, 2005). This environment influences the organization directly. It includes suppliers that deal directly or indirectly, consumers and customers, and other local stakeholders. 3. 2. 1 Industry Analysis Michael Porter’s (1998) five forces analysis will allow an examination of the amount of power BA has in its immediate environment. 3. 2. 1. Competitive Rivalry This not only refers to the degree of competition, but also the type of competition occurring. BA operates in two different markets – long-haul and short-haul flights – and therefore faces competition in both. In the long-haul market, competition comes from other large airlines for example Air France, who compete on routes, service, comfort and overall quality. In short-haul, competition is driven by low-prices from airlines including EasyJet. A growing number of tour operators (like Thomas Cook and TUI) are also now selling air only scheduled seats to reduced prices (Feldman, 2002). . 2. 1. 2 Bargaining Power of Suppliers This refers to the extent to which firms who supply a business can dictate prices, contract terms or delivery times. For BA this situation can be complex. As identified in the macro analysis BA’s prices depend on fluctuations in oil prices which it cannot control. Without aviation fuel, planes do not fly and BA will not make a profit. Although one may argue that BA has a choice as to which fuel supplier it uses, the petrol market is alike in terms of prices. In terms of suppliers of the actual planes, the situation is different again.

Companies such as Airbus with its new A380 plane and Boeing with its 787 Dreamliner, are desperate to secure long-term orders to recover development costs. 3. 2. 1. 3 Bargaining Power of Customers There is a high degree of buyer power for BA’s. Customers as they have the ability to vote with their feet if they are not happy with the product. Events such as the check-in and baggage-handlers strike at Heathrow 2005 (in support of Gategourmet employees) seriously affected BA’s revenue as customers had to find alternative airlines to use.

Buyer power is strong especially in the low-cost market , as there is little differentiation between market offers, and hence consumers shop around for the cheapest price, supported by the convenience of online-sales. These low switching costs mean that customer loyalty is crucial. Customers also have the Civil Aviation Authority (CAA) on their side. 3. 2. 1. 4 Threat of new entrants BAs dominant position means that it would be difficult for a firm to compete with the company on a global level from the start.

However as barriers of entry are becoming non-existent, new entrants are appearing in the short-haul business and these low-cost operators, such as Easy Jet, have steadily chipped away at BA’S European dominance. However, a lack of take-off and landing slots makes it difficult for new carriers to find suitable airports. Several speculators have suggested that it is only a matter of time until a low-cost operator attempts a more serious move into long-haul market. Lufthansa has responded early to this speculation by offering a high-cost high-quality service, including private limousine transfers to and from the airport, massages and champagne. . 2. 1. 5Threat of substitutes The threat of substitutes refers to the ability of buyers to switch to an alternative type of product, hence alternatives to air travel. While it is fair to suggest that there is no real alternative to long haul air travel in terms of time and cost, the alternatives for short-haul destinations do exist, and vary from coach to car to rail. The extent to which any of these pose a real threat depends upon factors such as the efficiency and the price of the rail or coach service, however, until trains travel as fast on UK rail as they can on the continent, this will not be so much of a threat. 3. . 2 Market Analysis The first thing that needs to be done is to identify which market BA operate in to be able to carryout an accurate analysis. BA operates in the airline industry. Their main market is hence transportation but they also work in other areas such as communication, leisure and logistics. During the last 10 years the airline industry in the UK has changed out of almost all recognition. Today, according to the International Air Transport Association (IATA), the airline industry is going through ‘the worst crisis in history’ (BBC, 2006)British Airways operates within the highly competitive airline market.

The UK market for airlines grew by 1. 2% since 2003 to reach a value of ? 8. 7 billion in 2004. The number of passengers flying from UK airports alone has increased from 70 million in 2000, to 86 million. The development of a fifth terminal at London Heathrow testifies this growth. However, against this expanding consumer market, the airline industry continues to struggle with the continuous threat of terrorism, high fuel prices and increased competition. The two main sectors of the market are long-haul and short-haul, both of which BA operate in.

The market for airlines is forecast to grow by 5. 7% by 2009 to reach a value of ? 9. 2 billion (see appendix 4) as air travel will remain to be the favourable mode of transport . Short-haul is expected to be both the most dynamic and largest sector accounting for 72. 9% of the market in 2009 (appendix 5). Prices for both markets will continue to decline as the price competition continues to grow between major carriers like BA and low-cost airlines who are already dominating the short-haul market. There will be however, some upward pressure from the ever growing fuel prices. . 2. 3 Competitor Analysis The airline sector is more competitive today than it has been at any time in the past, providing consumers with more choice and cheaper fares than ever before due to the emergence of low-cost airlines British Airways operates within two strategic groups within the airline sector ??? the short-haul and the long-haul. Each of these sectors has different competitors (see fig 1). One group consists of airlines with regional operations offering scheduled flights and competing on costs.

The second group offer long haul flights, with quality environments and services to a range of destinations. Therefore, BA competes on a global, European, national and regional scale . Within the UK, BA is the largest carrier in the market accounting for 45. 1% of passengers in 2004 (Euromoniter) with Virgin Atlantic being the second largest carrier in the market with 9. 2% market share. It is also likely that long-haul licenses will be granted to low-cost airlines which will enable them to compete in both strategic groups increasing its influence on BA’s strategy (see appendix 6).

In Europe, the UK’s EasyJet and Ryanair were the pioneers of budget airline travel. Their initial business model was based upon offering low fares through outstanding cost management . As mentioned in 2. 2. 1. 4, Lufthansa’s change in strategy will have direct affect on BA as they continue to attract customers for their high quality standards. Another strategy that seems to be emerging amongst traditional carriers is to reduce fares in order to become more competitive with the low-cost airlines. BA also has to consider the indirect competitors that were mentioned in 2. . 1. New planes, new routes, additional flights and management changes are all factors that impinge a business. Such changes made by a competitor need constant monitoring in order for BA to examine its current position and develop future strategies. 3. 2. 4Customer Analysis Shaw (2004) addresses what he calls the most fundamental and commonest mistakes made in airline marketing – failure to make a proper distinction between the ‘Consumer and the ‘Customer’. Consumers are the people who actually travel however it is important that BA consider customers, as they re the decision makers. This is important in both consumer and industrial markets. BAs customers differ enormously in terms of their buying behaviour. Not only do they differ in terms of their age, income, educational levels and geographic location but more fundamentally in BAs case in terms of their lifestyles and expectations which are influenced by many factors. BA also operates in an industrial market where differences in buying behaviour are exhibited by the formality of BAs purchasing policies, delivery dates and expected performance.

The majority of these decisions are made by a group of individuals working to a set of purchasing criteria, known as the Decision Making Unit (DMU) as illustrated below in fig 3. 3. 2. 5 Stakeholder Analysis BA recognises that financial stability alone cannot ensure long term prosperity, therefore it strongly believes in the importance of loyalty, support and trust amongst its stakeholders; customers, employees, pressure groups, government, suppliers, banks and local communities within which it operates.

A report carried out by Mintel in 2003, found that 44% viewed BA as the most trusted brand in the UK. All factors that are internal to the organization are known as the ‘internal environment’. The internal environment is as important for managing change as the external and is used to aid communication and change management. As stated by Hooley et al; ‘The realistic identification of an organisation’s marketing strategy options can only be undertaken in the context of that organisation’s’.

The resources of an organisation should be the things that give it a competitive edge. The corporate capabilities should be sources of competitive differentiation and advantage in activities that matter to the customers. BA places much importance on their employees and hence is seen as an excellent employee. For example, for the fist 6 months that Walsh was with the company, he spent getting to know the company through meeting the employees. However, recent jobs cuts made by Willie Walsh will affect the morale of the workers. See appendix 7) It is essential to have an understanding of BA’s strategic resources; both assets and capabilities as these are the things that determine the nature and strength of the internal and external resources BA have. Please see overleaf for resource analysis. TANGIBLEINTANGIBLE PhysicalOwnership and control of facilities at prime airports across the wordAbility to expand e. g. terminal 5 at HeathrowStrategic Recent recruitment of Willie Walsh who has an excellent reputation since Aer-Lingus FinancialIs making a large profit yet still in some amount of debt. A Considerable amount of money is put into marketing each year at BA.

Good credit ratings ??? the government will always bail them outFunctionalExcellent skills of individual departments ??? marketing department??? able to handle customer relationships, product management and new product innovation OperationalHigh standard and range of planes, equipment and technologyProcedures and Systems OperationalThe skills required to run the day to day operations including the flexibility to react to sudden changes within the environment and the skills required to maintain relationships with agencies for example Bartle Bogle Hegarty (BBH) HumanHighly skilled workforce from managerial to baggage handlers.

Their skills and abilities to perform effectivelyThe three above competencies are successful in BA on an individual, team and corporate basis. LegalLicensing agreements to fly into other airportsBA will go to court to defend their rights e. g. (DVT case) SystemsDatabases and MIS, E-ticket systemSpecialised knowledge and an infrastructure that supports decisions Marketing Customer basedDistribution basedAlliance basedInternally based Market leader Strong brand which has developed customer loyalty and high reputationLarge global geographic network and presenceMember of the one world alliance.

Allowing them to have access to markets, management expertise and exclusive agreements. BA can achieve lower costs than competitors through online booking. Large customer database Innovative culture ??? new product development and welcoming ideas from staff FIRM INFRASTRUCTUREExcellent infrastructure ??? highly skilled management, presence at hub airports. HUMAN RESOURCE MANAGEMENT AND DEVELOPMENTFlight, Route and Yield Analyst trainingPilot and cabin crew training including health and safetyBaggage Handling trainingHighly skilled and trained staffIn-flight training.

Union representation TECHNOLOGY AND SYSTEMSComputer reservation systems – Online booking and e-tickets. Fuelling machineryE-tickets, drive thru check in. High security systems, In-flight systems including flight scheduling. In flight entertainment systems Computer reservation systemsProduct development and market researchBaggage tracking systems PROCUREMENTWarehousing and inventory managementMaterial HandlingMaintenance ?Route selection ?Passenger service system ?Fuel ?Flight and crew scheduling ?Aircraft acquisition? Check in operations ?Gate operations ?Aircraft operators ?Onboard service Baggage handling? Baggage system ?Flight connections ?Rental car and hotel reservation? Promotion ?Advertising ?Frequent flyer ?Group sales ?Electronic sales ?Travel agent programs? Lost Baggage service ?Complaint follow up INBOUND LOGISTICSOPERATIONSOUTBOUND LOGISTICSMARKETING AND SALESSERVICE Now that an overview of BAs resources has been made and demonstration on how these resources relate to the organisations performance through using the value chain, an internal marketing audit needs to be carried out to identify wider assets and competencies that assist the marketing function.

Hooley et al (1998) suggests these wider non-marketing assets include how innovative the organisation is and its organisational climate, the skills of the management team, the financial resources and information systems. A specific review of BAs marketing activities is required and includes analysing the following distinct areas. 4. 2. 1Marketing Strategy Audit Need to ensure that adequate resources are allocated to the right components of the strategy for example; enough financial support for BA high impact advertising campaigns. In 2004, BA spent ? 488 million on Marketing. (Euromonitor, 2005) 4. 2. 2Marketing Structures audit

BA does not have a Marketing representative on the Board which indicates that it is not regarded as strategically important. However communication is the key between functions, especially Finance. As financial comparisons are extremely helpful and can aid modelling, forecasting, competitor analysis. 4. 2. 3Marketing Systems Audit BA has invested in new product development such as flat beds in business class, drive thru check in. 4. 2. 4Marketing functions audit Includes all aspects of BAs marketing mix, product, price, place, promotion, physical evidence, people and processes. 4. 2. 5Productivity audit

CIM developed a model that identified branding as an element of marketing excellence. Either way, it can be measured differently, for example profits, passenger traffic figures, BA shares (appendix 8). BAs brand is a phenomenal one and hence contributes largely to its success. Is BA’s marketing effective or efficient? Based on models developed by Kotler and CIM, the model below (fig 4) illustrates the effects that this has on an organisation. In light of BAs profit and performance levels it is both effective and efficient and hence this is why it is so successful. EFFICENCYEFFECTIVENESS HIGHLOW HIGH THRIVE DIE SLOWLY LOW

SURVIVE DIE QUICKLY As stated within the market analysis, the airline industry is confronting increasing global competition. It is stated that in order to survive, organisations need to foster creativity and innovation (Higgins, 1996) BA’s strong focus on customer service is driving its vision to deliver innovative services. Its worldwide reputation is built on high quality (appendix 9 ???Club world benefits) of its customer service and for its track record and innovation (www. londoneye. com). A survey carried out by Hay Group, August 2005, showed that BA was in the top 10 of the World’s most admired UK innovators (www. rnewswire. co. uk). Operating in such a competitive market, BA recognises innovation as being a key driver to increase market share and this shows with innovation such as the Club World flat bed that now features Sleeper Service on selected routes, the continued rollout of Self-Service Check-In and improved control of travel arrangements on ba. com. BA encourages an innovative climate where creativity is rewarded, for example a high-profile award ceremony is run to recognise the ideas put forward by line management level.

They cleverly link their meaning for existence into this sentence ‘ BA is all about brining people together, and taking them wherever they want to go. This applies as much to our employees as the 36 million people who travel with us every year’ (www. britishairwwaysjobs. com’ Management are highly trained so that they have a positive influence on the organisation’s orientation towards creativity and innovation through a balanced profile of cognitive styles. It has been demonstrated how the Value chain can analyse BAs internal environment.

Other auditing tools that can be used include the product life cycle and gap analysis. 4. 4. 1 Gap Analysis This is a simple diagrammatical method of presenting ‘where are we now? ‘ and ‘where do we want to be? ‘ The existing situation of the market whereby low-cost airlines are dominating the market, in order to fulfil this gap may adopt a differentiation strategy; to offer a service that is superior to those offered by competitors, instead of trying to compete on price with the low-cost airlines. 4. 4. 2 Product Life Cycle

BAs product is, of course, an intangible one which is instantly perishable and cannot be stored. To be able to market its product properly, BA must be aware of the product life cycle. The standard life cycle tends to have five phases: Development, Growth, Maturity and Decline. Taking BA as a whole, it is currently in the maturity stage, which is evidenced through their current application of the marketing mix . For example, their product has been developed and they are now concentrating on differentiation through emphasising quality, their pricing strategy is to simply compete with other ey competitors rather than price penetration and their advertising aims to remind its target audience that they are ‘the no 1 airline’ and to re-emphasise the brand which is already well established. As suggested by Meek et al, BA is a classic product as it seems to defy the traditional S shape PLC and go on forever (see fig below). Marketers in BA need to understand that the PLC is limited use as a forecasting tool and although they are in the mature stage of the PLC, creativity and innovation is still necessary to enable organisational success. . 5SWOT Analysis 4. 5. 1 Strengths ???British Airways is a well-established brand name that has gained loyalty and trust from customers. ???Innovative culture enables BA to take full advantage of technological developments for example, online sales, drive thru check in. ???BA has a global geographic coverage with excellent communication with strong international alliances. 4. 5. 2 Weaknesses ???BA has yet to have recovered from events including the Iraq war, the 2001 and 2005 terrorist attacks because of its reliance on international air travel.

The threat still remains. ???BA continues to have extremely high debts. ???Recent job cuts may have a negative effect on BA as in the past this cost-cutting exercise has resulted in understaffing and industrial action in 2004 and 2005. 4. 5. 3 Opportunities ???The growth of internet usage globally is likely to further expand BA’s online customer base ???Value-added and innovative flight services such as sleeper services wil attract more customers as customer expectations are risisng. ???Terminal 5 is due to open at Heathrow in 2008, which is likely to benefit BA.

The current UK government stresses Heathrow as a global gateway and recommends a third short runway and sixth terminal be opened by 2020, which will also benefit BA. 4. 5. 4 Threats ???Lo-cost airlines continue to enjoy strong growth and power in the market and new entrants and the likelihood of them being issued with long-haul licenses could pose a further threat to BA’s market share. ???The continuing growth and fluctuations in fuel prices is may threaten them with regards to not achieving a 10% profit margin. ???Customers are still cautious of the threat of repeated terrorist attacks. With the increase of competition in the low-cost airline market, more companies may focus their strategy on high quality and hence increase the direct competition for BA. British Airways remains cautiously optimistic about its future prospects. However, it is certain that considerably more work lies ahead if the airline is to succeed. The FSAS plan incorporated by BA resulted in considerable cost savings, and divestments also raised funds to pay off debt. The goal of the FSAS plan was to achieve a 10% operating margin and hence more recent cost cuts and job loses have been made by Willie Walsh order to accomplish this.

In air travel, a great deal of success or failure depends on external factors, with BA suffering badly in the aftermath of the 2001 and 2005 terrorist attacks, , the war in Iraq and the global economic slowdown. However, the single most important external factor is the price of fuel. Fuel prices are continuing to grow and this is likely to both erode profits and raise prices for BA. Rising prices could place BA in a disadvantageous position, particularly given the continued popularity of budget airlines.

This is an important factor for Willie Walsh to consider. Walsh must understand that the key growth area for BA is likely to be in value-added travel. In some areas, BA found that it could improve customers’ experience while reducing costs, such as in its building up of online sales. Other value-added services are likely to see mid-priced flights being upgraded, as air travel continues to become more competitive. Overall, BA, through Walsh, must continue to strive to reduce costs and improve customer and employee satisfaction .

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