The Dreamliner Crisis !

Report on Boeings reactions to the grounding of its 787 model

Group I5 Prateek Trivedi Manoj Muthu Kumar Gurmukh Singh Anand Chandran Abhay Manjunath 61310088 61310585 61310015 61310146 61310859

Dreamliner : The boon to a loss making commercial aircraft industry

Airbus announces A 350 9/11 attacks Firms focus on cost Boeing announ ces 787 Dreamli ner Boeing announc es further delay Aviation authority grounds all 787 due to battery problem

Boeing announces delay and technical Difficulties

787 Aircraft Delivery starts

A 350 set to roll out flight

2001

2003

2005

2007

2009

2011

2013

2015

2011

2012

Commercial Airline industry is a high Fixed Cost and Low Margin business

Duopoly

Boeing Commercial Vs Airbus > 95% share in the commercial passenger aviation

Increased Privatization

National Carriers either sold to Private players or gone public Government subsidies are slowly withering

Customers in Loss

More than 90% of commercial airline operators are in loss Trend to continue for the next decade R&D on airlines with low operating costs Consolidation (both Mergers and Acquisitions) are common Industry believes saving operational costs by sharing maintenance and airport charges Industry believes saving operational costs by sharing maintenance and airport charges Low Customization; High Standardization

Consolidation, a trend

High R&D Costs

Stock price of Boeing was fairly stable despite grounding of the 787
Boeing announced a
delay in testing 787 model due to technical issues Boeing had to
compensate customers for delay

Stock Prices never went

down !

But Order Cancellations

began ! Powerful Branding Effective KAM practices Pricing tactics to
influence Buyer Behavior

Boeing Sales is divided largely into two divisions with reps interacting with all levels of decision makers

C - Suite

Geographical Sales Directors

Director / VP, Procurement & Ops National Head, Procurement and Ops

Geographical Sales Directors

Boeing Commercial Flight Experts

Corporate Strategy Team

Boeing Commercial Flight Experts Geographical Sales Directors

Increased focus on managing Key Accounts effectively, helped Boeing minimize order losses
Order Size Type of Markets Cross Selling prospect

Cost on Contract Delay clauses

Deal Value

Price / Margin

Key Accounts
Macroeconomic
indicators of country Customer Profitability Type of Aircraft & Expansion plans

Order Patterns

Customer Maintenance Costs

Buying Process (Bid vs

Relational Buying) Evolving needs of customers

Key accounts turned out to be National Carriers of developing countries and large airliners of developed economies

Boeings STP is a well thought out model for its 787 sales focused on long term
SEGMENTATION TARGETING POSITIONING

Based on Distance vs Capacity 787 plays in the Niche segment of Long distance and High Capacity a strategic decision for lower overall costs

Low chance of new customers so focus on repeat purchase and contract renewal Focus on Key Accounts based on KA matrix Focus on Niche Segment

787s positioning: DIRECT POINT TO POINT OPERATION (since model is gaining popularity over HUB AND SPOKE model) Low Overall Total cost of ownership as differentiator

KAM Strategy 1: Long Term Customer Satisfaction

Cultivating Long term Relationships Signal long term presence in different international markets through development of Research centers and institutes Develop close relationships with clients especially governments of key markets through projects and partnerships Region Specific KAM manager

Gold Care Program Provides customers with detailed information on their maintenance and engineering operations Acts as customer relationship management solution. Tailored as per customer needs and integrated with operational processes and business management of each airline.

KAM Strategy 2: Going beyond just selling !

Boeing Capital Corporation Consultative Selling:

Boeing Capital acts as consultative selling arm for Boeing whereby they help with the comprehensive list of financial dealings related to sales and delivery of planes. Not only do they help in absorbing financial risks, help in leasing, they also provide consulting services for starting up and running an airline through the Startup Boeing initiative

KAM during the Battery Crisis KAM personal talk to individual clients who already had a 787 in their fleet Press conference by top management assuring customers of the safety of plane. Accepts responsibility and bears losses of grounded airplanes Boeing creates an informational website to give information about 787s problem and its resolution in process

Boeings flexible pricing strategy might help its account managers minimize 787 order losses
Price is fixed by taking into account the following factors: Perceived value system - Payment schedule lets Boeing focus on services and reliability over the life cycle of the aircraft Experience curve effect - can enable the company to benefit from economies of scale. Leasing - Boeing Capital Solutions offer leasing services to airlines. Leasing is common practice for Boeing to build long term relationships with its customers. Discount policy Airlines are quite sensitive to Discount. Policy is focused to retain established customers and attract new ones. Boeing periodically cuts its prices to make a sale. Boeing includes attractive delay clauses in tis contracts

Boeings brand and its history of success came to its rescue during 787 crisis
Key Branding Strategies Efforts concentrated around single global corporate brand rather than individual products Ingredient branding Buyers and users may not necessarily be the only decision makers Better than the competition message in a Duopoly market

Image Benefit

Information Efficiency

Risk Reduction

Boeings had extensive External branding tactics and effective communication strategies
Ingredient branding
Marketed to all constituencies: passengers, airline employees, corporate travel agents and the airlines Inaugural flight (Dec15) was streamed live online
Customers

Company

Building the corporate Brand Umbrella Branding Similar messages for defense and commercial campaigns
Collaborat ors

Airshows
FarnBorough internataional air show Centered around Boeing because Airbus has easy market

Print Ads
For Commercial flights unit only Appropriate channels - Worldwide in many major financial and aviation trade publications

Boeing used various internal and external signals to communicate their commitment to get 787 right !
Positive messages from CEO
There are no instructions to slow down, Its business as usual. Lets keep building airplanes and then lets ramp up as we planned. Messages stick to overall corporate Boeing image and keep dreamliner out of media comments

Partners and their messages:

Ryan Air - CEO Calls Boeing 787 Problems 'Regulatory Crap' Norwegian Air: stays loyal to Boeing 787 for long-term growth

Increase commitment signaling a credible commitment

The program remains on track to further increase the final assembly build
rate to seven per month in mid 2013 and 10 per month by late 2013, with a subsequent increase in delivery rates.

Boeing should continue its strategy on KAM and branding to get on track its 787 orders
Key Account Management :
Apart from discounts, Boeing should also consider partly compensating its customers for the operating losses of 787 aircraft grounding (AMC discounts & free upgrades etc.) Reiterate the Accounts vision again (the same vision that led Boeing to invest $14 Bn in R&D for 787 Dreamliner) Invest more on Boeing Capital Corporation and GOLD CARE PROGRAM Conduct independent tests (apart from Govt. funded tests) to signal commitment to get the planes back on air

Branding :
Boeing should use its historical track record to reinforce that its a minor setback Continue to stress of Better than Competition in the Duopoly market

Other :
Invest in the invisible stakeholder the Governments (be leveraging the relationships already developed by Boeing Military)

Appendix

Type of Sales- Expansion and Replacement

Looking at the graph from Boeings 2012 CMO, we see that 59% is through fleet expansion and 41% through replacement of old airplanes. This could call for two types of account management directed specifically towards each purpose. This is very important because apart from the very big too big to fail national carriers, there has been considerable churn within the turbulent airline industry

Other Exhibits