1.1 Using relevant examples from the case study analyse how United Airlines has

Question

1.1 Using relevant examples from the case study analyse how United Airlines has achieved the move from market follower to industry leader. Discuss 5 points.

Read the case study below and answer the above question.

Using Global Segmentation to grow a business: United Airlines

Introduction

Today we live in a global community as global citizens where we have become increasingly conscious about sharing the planet with people from other cultures and backgrounds. In this global community where so many technologies are shared, distances and time barriers have shrunk. Not only can we use information technologies to e-mail, phone or fax friends, family and colleagues in other parts of the world, we can also use reliable and regular travel links to visit them, covering vast distances in a matter of hours.

Whereas in the past travelling by air was, for many people, an experience more often than not associated with an annual family holiday, today air travel has become a way of life both for business and leisure. One frequently quoted estimate is that demand for air travel will double in the next 20 years. As a result more and more people do not just need regular air travel, but also the type of travel that meets their particular needs best.

This case study focuses upon how United Airlines uses customers' motivations for different types of services to segment the market and improve its competitiveness.

United Airlines

United Airlines was formed in 1927 from four airlines - Boeing Airplane Company, National Air Transport, Varney and Pacific Air Transport. From its roots as a USA domestic carrier, United Airlines expanded into international routes to become the world's second largest air carrier. With hubs in Chicago, Denver, Los Angeles, San Francisco, Washington D.C. and key international gateways in Tokyo, London, Frankfurt, Miami and Toronto, United Airlines flies to 117 destinationsin 26 countries. These schedules are obviously subject to change. United employs more than 80,000 people worldwide and carries more than 210,000 passengers every day. Its customers have access to more than 729 destinations around the world through Star Alliance, the leading global airline network.

By offering a range of customer-focused products and services, United Airlines has become an industry innovator. In a service-based industry, customers and the services they require are at the center of any marketing strategy. Besides offering convenient scheduling throughout its domestic and international routes, United Airlines seeks to attract high-yield customers and to earn their preference and loyalty. It does this by providing a comprehensive network and an attractive frequent-flyer programme with enhanced product/service offerings.

The base for segmentation

United Airlines uses a form of psychographic segmentation to divide up the market for its services. This involves identifying the social class, lifestyles, opinions, interests, behaviour and attitudes of customers. Modern communication systems play a major part in this information-gathering exercise. With the help of questionnaires, United Airlines classifies its customers by their motivations. For example, some customers choose United Airlines because of price, while others choose the airline because of schedules, frequent flyer programmes or other forms of service.

For United Airlines, successful segmentation enables targeting to take place. Targeting provides the focus for the activities of the business.

It enables promotions and services to be aimed only at those who are most likely to respond positively to them. Passengers are communicated with through email which is becoming a focus for closely-targeted marketing.

The United Airlines business model can be compared to the classic 80:20 rule in Pareto's Analysis. Based on experience of the airline industry, the model assumes that, for airlines offering a high level of service, 80% of profit comes from 20% of customers. The profit-generating customers are the ones who are prepared to pay a premium price for a premium service. They are the ones that the airline most needs to attract.

There are clear differences between domestic segments and global segments. For example, international segments might differ by hours rather than minutes in the US, and the cost of domestic travel is also significantly lower.

Having identified different segments, United Airlines had to decide on which ones to concentrate. One key factor was the potential of each sector to generate not only revenue but also profit. In some segments, such as global executives, the customer profile was clear-cut regarding who they were and what they required so compiling a package of services for them was comparatively straightforward. However, some segments were less responsive to key benefits and it proved harder to identify precisely what they were most looking for.

With global executives as the target market, the airline also developed packages for schedule optimizers, mile accumulators, travel seekers, corporate troopers and quality vacationers.

Meeting customer needs

In an industry in which the service provided is a major form of competition, the most successful airlines will be those who most accurately identify what different segments of their customer base want and are willing to pay for, and then provide it, usually within one aircraft. The end product is complex. For example, United Economy International provides services such as multi-course meals based upon consultation with celebrity chefs, brand name beverages, multi-lingual flight attendants, Mileage Plus¨ programmes and entertainment systems. The services offered by United Business International and United First International include built-in entertainment centres and a greater amount of private space.

The service life-cycle

In general, depending on the size of the company, service providers can modify their offer more quickly than manufacturers can alter their products. United Airlines' ability to fine-tune its services rapidly in response to changing customer needs enables it to retain its market position. Growth strategies also depend on a capacity for 'rapid response'.

Service adjustments may involve, for example:

• expanding the range of services for some segments;

• modifying how a service is delivered;

• re-positioning services in chosen segments;

• differentiating services even further from those of competitors and

• finding untapped markets for services.

Like the product life-cycle, the service life-cycle needs constant injections of life to extend the growth phase and increase the profitability of the organisation.

Conclusion

United Airlines recognises that airlines need to be able to respond rapidly to changing customer requirements in what is a complex service industry. The company understands the role of technology in enabling it to amass the data it requires about customer requirements. In a heavily regulated and increasingly competitive market place with good prospects for long term growth, United Airlines successfully uses market segmentation to target distinct customer groups from whom growth opportunities can be developed.

Explanation / Answer

United Airlines has achieved great amount of success and became an industry leader.

They acted as an industry innovator. In a service-based industry, customers and the services they require are most important aspects. The main five reasons that have contributed to the success of United Airlines are:

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