Using global segmentation
to grow a business
Learning outcomes:
As a result of carefully reading this case study, students should be
able to:
provide a brief understanding of the notion of
global citizenship
learn about the importance of customer service in
targeting customers within a service-based industry
understand the principles and practices of market
segmentation as well as the operation of a segmentation base
relate process and practices of segmentation to a large
service-based business
understand the service life-cycle.
Introduction
United Airlines
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.
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 flies to 117 destinations in 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.
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. For example, unlike the manufacture of
tangible goods such as shampoo or bread that have clear uses, providing
travel opportunities is more sophisticated as it involves providing
customer service to match the expectations of travel users.
This case study focuses upon how United Airlines uses customers’
motivations for different types of services to segment the market and
improve its competitiveness.
Customer Service Level
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Theory for revision
By offering a range of customer-focused products and services, United
has become an industry innovator. In a service-based industry,
customers and the services they require are at the centre of any
marketing strategy. Besides offering convenient scheduling throughout
its domestic and international routes, United 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 external business environment
A company’s marketing environment can be complex. It includes
opportunities that could enhance a business as well as threats from
outside the organisation that affect the ability of managers to develop
and maintain relationships with customers. United Airlines operates in
a competitive market place. It has to compete with a range of other
carriers across all routes and must decide how it is going to compete.
For example, more frequent services, more destinations, more
comfortable seating, superior food, lower prices etc.
To compete successfully, United Airlines must provide its customers with
greater value and satisfaction than its competitors. This involves finding out
what aspects of service most matter to customers and then positioning its
services strongly in those service aspects. Managers at United Airlines
constantly monitor competitor activity in order to maintain its market
position, whether through prices, schedules or route networks.
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Company information
Although airline travel experienced consistent growth since 1991, its
business environment is susceptible to shock events. The events of
11 September 2001 led to a decline in air travel for both business and
pleasure. This decline is likely to be temporary, but it has had a huge
impact upon airlines like United. Major airlines carry huge fixed costs.
Faced with excess capacity, they have had to respond quickly in order to
remain profitable.
Airline operations are also affected by a number of regulatory bodies
such as:
Aviation authorities
and standards.
that
monitor
maintenance,
safety
The Air Transport Users Council, which promotes the wider
interests of passengers.
National governments, which may limit access to certain routes
i.e. between Denver and Heathrow, where the Bermuda 2 agreement
between the USA and the UK limits the number of carriers.
Office of Fair Trading, which investigates the desirability
of potential links between airlines. e.g. between bmi and
United Airlines.
The need for segmentation
Within markets, not all customers are the same – they have different
tastes and want different things. As a result, particular markets can
usually be further divided into discrete segments. Each group consists of
people with similar needs and requirements. The organisation then
develops strategies that are closely aimed at satisfying each customer
group. This process is known as market segmentation.
Through segmentation, United Airlines can identify market
opportunities and meet its marketing objectives. Segmentation gives an
airline a better understanding of its customers, the services they require,
where and when they want those services and how they would prefer to
pay for them.
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United Airlines segments its market so that it can:
Tour takers: want everything arranged for them.
GLOBAL SEGMENT TARGETING
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.
identify consumer needs and the proportion of customers who
have those needs
Quality vacationers: treat the travel as part of the holiday experience
and so fly with carriers that provide superior services.
develop products and prices to meet these needs
Travel seekers: love to travel and seek out new experiences. They want
travel to be comfortable.
Conclusion
Frugal flyers: seek out the lowest cost carriers, but still expect their
flight experience to be a good one.
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.
allocate funds to support and develop each market opportunity.
Quality
Schedule
Global
Mile
Corporate
Vacationers
Optimizers
Executives
Accumulators
Troopers
Having identified these 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.
The base for segmentation
Segmentation involves dividing up a whole market so that products and
services can then be developed for each part of the market. Some
companies divide up a market geographically, while others divide
markets according to demographic details such as age, gender or
occupation. The criteria used to divide the market is known as the
segmentation base.
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 informationgathering 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.
With global executives as the target market, the airline also developed
packages for schedule optimizers, mile accumulators, travel seekers,
corporate troopers and quality vacationers.
Travel
Seekers
Marketing Targets
Tactical Consumption Targets
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 profitgenerating 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.
Global segmentation and growth strategies
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. In global segments United Airlines identified
nine motivational segment
profiles. These are:
Global
executives:
face
frequent business travel and
enjoy it because of the high
level of service.
A market place in which there are several producers supplying
similar goods or services.
Customer service:
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.
Process that provides time and place benefits for the customer
pre-transaction, during the enjoyment of the product and
post-transaction.
Global citizens:
Global community of people who share resources of the earth
whose actions are increasingly interdependent with people from
other countries, cultures and backgrounds.
Market segmentation:
Dividing the customers within a market into groups, each of which
has distinctive needs and expectations.
Marketing environment:
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’.
Organisations and forces outside the business that affect the ability
of managers to develop and maintain relationships with targeted
customers.
Pareto’s Analysis:
Classic example of the 80:20 rule by which 80% of the level of
profit is determined by 20% of customers.
Positioning:
Service adjustments may involve, for example:
Placing a product within the overall market e.g. at the ‘no frills’ end
or at the ‘luxury’ end of the market.
Schedule optimizers: must
reach their destination by a
certain time and select their
flights accordingly.
modifying how a service is delivered
Psychographic segmentation:
re-positioning services in chosen segments
Segmentation according to social class, lifestyle, activities,
opinions, behaviour or traits.
Corporate troopers: use an
airline and a class of travel
that has been chosen for them
by their company.
finding untapped markets for services.
differentiating services even further from those of competitors
Theory for revision
Segmentation base:
The criteria used to divide up a market into a number of segments.
Targeting:
Developing strategies for particular segments.
Reluctant travellers: do not
enjoy travel and look for
services that will make the
experience bearable e.g.
special
privileges
and
frequent flyer programmes.
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Competitive market place:
expanding the range of services for some segments
Mile accumulators: go out of
their way to take flights that
will build up their air miles
entitlement.
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GLOSSARY
Meeting customer needs
Sales
Market segmentation therefore enables United Airlines to maximise
the efficiency of its marketing efforts by moving the company to use a
different strategy for each market segment.
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Tangible goods:
Goods that have clear uses but no services attached to them.
Lagards
Majority
Early Adopters
For further information about Amway please browse:
Innovators
www.unitedairlines.co.uk
Time
Company information
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target communications at customers within each segment
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