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A Report By
Amit Singh
ID: c3099441
Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue
in 2000 provided very steep challenges to Qantas for survival. Qantas
identified this changing environment and designed its business portfolio as
part of its strategic planning. This included purchase of Impulse airline, launch
of low-cost carriers like Australian Airlines and JetStar and expansion of non-
flying businesses such as catering travel and freight. Qantas also reviewed
and re-designed its business portfolio regularly to ensure its business portfolio
best fit the company’s strengths and weakness to opportunities in the
changing environment. This included cease operations of Impulse and
Australian airlines. Through these strategies planning Qantas successfully
competed with low-cost carriers and also to reduce the risk of cannibalisation
of the mainline carrier.
Qantas has created and delivered customer value by providing best possible
experience to customers before, during and after the flight. As customers are
value maximisers and they see product as complex bundles of benefits that
satisfy their needs, Qantas has augmented products benefits by having high
quality inflight services, seat allocation, convenient check in, Qantas Club,
holidays packages, car rental facilities and many more. Qantas brand
reputation for safety and spirit of Australia has also played a big role in
creating and delivering customer value.
In line with all above discussions, it can be concluded that Qantas has applied
strategic planning, product positioning and customer value marketing theories
very well in it marketing strategy. However, few safety incidents within last few
months, ongoing cost cutting, outsourced maintenance agreements and
ongoing disputes with personnel have all served to undertake not only
Qantas’s reputation for safety and engineering excellence, but also
confidence in the airline as a whole. So, it is time for Qantas to refocus on the
process of creating value to customers as well shareholders through strategic
planning. If shareholders value dominates, customer value is reduced and
consumers actively look for alternatives. If customer value dominates,
shareholders do not receive sufficient value in terms of dividends and capital
growth. Hence, Qantas needs to get the optimal balance between shareholder
value and customer value through strategic planning.
1.3 Challenges
Since Qantas was privatized in 1993, it has operated profitably in international
and domestic air services and a range of related businesses (Bamber et. al,
2005). It is only because Qantas has successfully managed the challenges
that it has faced in past. Some of the challenges include: launch of low cost
carriers worldwide, and Virgin Blue and Impulse airlines in Australia increasing
competition, increasing fuel price leading to higher operating cost,
unpredictable factors like terrorism and natural disasters affecting airline
revenue (Firth, 2008). However, the report will only focus on challenged faced
by Qantas as result of launch of low cost carriers.
2. Strategic Planning
2.2 Strategic Planning Theory
Most organisations operate according to some sort of formal plans. These
usually include annual plans and long-term plans (Kotler et al., 2007). The
annual plans consist of the action plan, objectives, marketing strategy,
budgets and controls for the year. The long-terms plans deal with resources,
objectives, action plans and major factors affecting the organisation during
next 5-10 years period. So, these two plans basically focus on the current
business direction and its continuation. However, the market and consumer
Business unit,
product & market
level
Setting Planning,
Defining company Designing Marketing &
the company goals and business other
mission objectives portfolio functional
strategies
At corporate level, the company first outlines its overall purpose and mission
of accomplishment through a mission statement. This mission statement is
then translated into detailed supporting objectives outlining how company
intends to accomplish its mission. Guided by the company’s mission and
objectives, the company now selects its business portfolio (business units and
products) that best fit the company’s strengths and weakness to opportunities
in the changing environment. Each business unit has a separate mission and
objectives and can be planned independent of other business unit. In turn,
each business unit prepares detailed marketing and other plans in line with
company’s mission and objectives. For a complex organisation, strategic
planning occurs at different levels of the organisations. A hierarchy of
strategies is shown in Figure 2.
Because of the low fare war, Qantas mission to be a leading provider of air
transport and related services in the Asia- pacific region (Firth, 2008) was
under threat. Against the background of low fare war, Qantas took over
Impulse in November 2001 and derived savings from utilising Impulse's low-
To respond to this competitive threat from Virgin Blue and to restrict Virgin
Blue and other carriers from taking more than 35 percent of domestic market
Qantas launched JetStar, low cost carrier, on 25 May 2004 and ceased
operation of Impulse airline (Harcourt, 2004). JetStar had mission to provide
consistent low fares to Australian, New Zealand and Asian leisure travelers.
JetStar’s business performed to plan in its first year to capture over 10 percent
of domestic market and contributed more than A$19 million before tax profits
in its first six months (Kotler et al., 2007). Thus, establishment of low cost
carrier (JetStar) allowed Qantas to compete with Virgin Blue on price,
especially in growing leisure markets, whilst Qantas as a full service airline to
concentrate on business markets. Qantas intended to force Virgin Blue to
respond either by reducing costs to compete with JetStar or by increasing
costs to compete with Qantas in the corporate market. This strategy, using
two brands to target different markets, aimed to close the gap at the lower end
of the domestic market and also to reduce the risk of cannibalisation of the
mainline carrier.
Qantas
Qantas
Engineer
Qantas ing
Defence
Service Qantas
Holidays
Qantas JetStar
Airports Qantas
Freight
Qantas
Catering
Qantas
Link
3. Product Positioning
3.2 Positioning Theory
Product position is the way the product is defined by consumers on important
attributes – the place that product occupies in consumers’ minds relative to
competing products (Kotler et al., 2007). In other words, a product’s position is
the complex set of perceptions, impressions and feelings that consumers hold
for the product compared with the competing product. Consumers position
products with or without the help of marketers and use product position while
making a buying decision. So, it important for marketers to select and
communicate product position that will give their products the greatest
advantage in the targeted markets. Positioning a product has three steps:
identifying possible competitive advantages, selecting the right competitive
advantages, and communicating and delivering chosen position to the market
(Kotler et al., 2007).
Apart from Qantas image associated with safety records, the Qantas brand
image has also been associated with ‘the Spirit of Australia’. The Qantas
brand is synonymous with Australia and is regarded as part of the fabric of the
country (Brandstrategy, 2008). Qantas red kangaroo logo has provided a
strong brand recognition and image differentiation.
Australia’s Australia’s
Oldest Time-critical Largest
Airlines Transport Airlines
In-flight
Services Seat
Allocation
Flight Booking System
The attribute like high quality meals, inflight services, and seat allocation may
be important to some travellers while not so important for others. None of
these attributes are pre-emptive either that is the competitor can easily copy
the attribute. This is not to suggest that pre-emptive is the most critical
selecting criteria. Qantas is the oldest and largest airline in Australia, no
competitor can copy this but still Qantas does not product position as the
oldest and largest airline as these attributes are not important to most
travellers. Similarly, attributes like schedules, flight booking system, and time
critical transport are important to most travellers but yet again Qantas product
It can be seen in Table 1 that ‘Safety records’ and ‘Spirit of Australia’ are the
only two attributes that meet all the selection criteria requirements. Qantas
4. Customer Value
4.1 Customer Value Theory
Consumers have needs of various kinds. This is the most basic concept
around which marketing revolves. Consumers satisfy their needs with
products and services. But consumers usually find a broad range of products
and services that might satisfy a given need. There is when the role of
customer value becomes vital. Consumers make their buying decision based
on their perceptions of the value that various products and services provide.
The concept of product is not limited to physical objects. The importance of
physical goods lies not much in owing them as in the benefits they provide.
Consumers view products as bundles of benefits and they buy the product
that give them the best bundle for their money. In other words, consumers
choose the marketing offer that they believe gives them the most value. The
consumers are value maximisers. So, really is a customer value?
Let us examine how Qantas is creating and delivering customer value while
making profit at the same time. When a customer buys a Qantas air ticket for
Hong Kong, the customer receives a Qantas air ticket and a seat on a plane
as product and service. Qantas’s competitor Virgin Blue can provide an air
ticket and a seat on a plane. So, the real question is why would a customer
buy Qantas air ticket? From customers’ perspective, they are not just after the
air ticket and a seat on a plane and customers tend to see product as complex
bundles of benefits that satisfy their needs. Customers are after value that
they can receive before, during and after the flight. Some consumers might
buy air ticket from supplier who has better flight booking system and
convenient check in facilities. Some other consumers might buy air ticket
from supplier who has better in-flight services, are more reliable and has
better safety records. Similarly, other group of consumers might buy air ticket
from supplier who has car rental facilities at the airport. To consumer, these
augmented benefits become an important part of the total product value and
will contribute to their choice of airline for their purchase of air ticket.
Psychic, energy and time costs will be identical and very minimal for both
Qantas and Virgin Blue because customer can obtain air ticket price by calling
travel agents or by looking at company websites. Accordingly, 1 point has
been allocated for these categories. The actual air ticket cost for Qantas is
quite high as compared to Virgin Blue. Hence, 8 points has been allocated for
Qantas and 4.5 points for Virgin Blue. Point allocations for all determinant of
customer delivered value is shown in Figure 7.
It can be seen from Figure 7 that Qantas has customer value 11.5 points more
than its competitor Virgin Blue. But it does not mean that customer will always
buy Qantas ticket. Customers operate under various constraints and they are
after different benefits. For example if customers considers ticket price being
Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue
in 2000 provided very steep challenges to Qantas for survival. Qantas
identified this changing environment and designed its business portfolio as
part of its strategic planning. This included purchase of Impulse airline, launch
of low-cost carriers like Australian Airlines and JetStar and expansion of non-
flying businesses such as catering travel and freight. Qantas also reviewed
and re-designed its business portfolio regularly to ensure its business portfolio
best fit the company’s strengths and weakness to opportunities in the
changing environment. This included cease operations of Impulse and
Australian airlines. Through these strategies planning Qantas successfully
competed with low-cost carriers and also to reduce the risk of cannibalisation
of the mainline carrier.
Qantas has created and delivered customer value by providing best possible
experience to customers before, during and after the flight. As customers are
value maximisers and they see product as complex bundles of benefits that
satisfy their needs, Qantas has augmented products benefits by having high
quality inflight services, seat allocation, convenient check in, Qantas Club,
holidays packages, car rental facilities and many more. Qantas brand
reputation for safety and spirit of Australia has also played a big role in
creating and delivering customer value.
In line with all above discussions, it can be concluded that Qantas has applied
strategic planning, product positioning and customer value marketing theories
very well in it marketing strategy. However, few safety incidents within last few
months, ongoing cost cutting, outsourced maintenance agreements and
ongoing disputes with personnel have all served to undertake not only
Qantas’s reputation for safety and engineering excellence, but also
confidence in the airline as a whole (Hogan, 2008). So, it is time for Qantas to
refocus on the process of creating value to customers as well shareholders
through strategic planning. If shareholders value dominates, customer value is
reduced and consumers actively look for alternatives. If customer value
dominates, shareholders do not receive sufficient value in terms of dividends
and capital growth. Hence, Qantas needs to get the optimal balance between
shareholder value and customer value through strategic planning.
Kotler, P., Brown, L., Adam, S., Burton, S. and Armstrong, G. (2007)
Marketing, 7th Edn., Prentice Hall.
Unisys (2008) Qantas ranked as one of the world’s most trusted airlines,
viewed 17 November 2008,
http://www.unisys.com.au/about__unisys/news_a_events/20080725_1.htm