Marketing Strategy of Ethiad Airways free essay sample

Etihad Airways, the national airline of the United Arab Emirates, has in just eight years established itself as the world’s leading airline. Set up by Royal Decree in July 2003, Etihad commenced commercial operations in November 2003 and became the fastest growing airline in the history of commercial aviation (Etihad, 2012). Abu Dhabi, the capital of the United Arab Emirates, is the airline’s hub. The airline seeks to reflect the best of Arabian hospitality – cultured, considerate, warm and generous – as well as enhance the prestige of Abu Dhabi as a centre of hospitality between East and West. However, nowadays it is very hard to maintain the business in such a competitive market in times of recovery from the recent recession. Therefore, it is crucial to understand that just providing a service is not enough. Firstly, this report overviews the external environment in which Etihad has to survive and compete, evaluating its main challenges and opportunities. Secondly, Etihad’s main marketing strategies will be identified and critically discussed. Thirdly, the extent to which adopted marketing strategies help to achieve and sustain the competitive advantage will be analysed. Finally, the conclusion will be drawn based on achieved knowledge and personal assumptions. 2. 0 External Environment Analysis For better understanding of the marketing strategy that Etihad uses, it is crucial to analyse the external environment in which the company operates. 2. 1 Porter’s Five Forces Analysis In order to examine the positioning strategy and forces of the external environment that may potentially affect the Etihad’s performance, it has been decided to adopt the classical Porter’s Five Forces model. By using this model, it is possible to judge the extent to which an external environment is able to shape the costs, the prices and the profits of the organisation (Porter, 1980). * Competitive rivalry in the industry high In terms of competitors, Etihad Airlines’ main competitors are the companies operating in Middle East, which are Emirates Airlines, Quatar Airways and Gulf Air. These airlines operate in a higher price and quality spectrum than, for example, Air Arabia and are being direct competitors for each other (McKechnie et al. , 2008). Rivalry between these companies is very intensive, as there are a small number of competitors on the market. * Bargaining power of customers low In order to have a significant amount of power in the industry, there should be a few customers who can dictate their rules to the organisations, as for example in some B2B cases. However, there are millions of customers, who are willing to fly to and from Middle East, where Etihad operates, therefore, customers have a very limited power. * Bargaining power of suppliers high For the airlines organisations the main suppliers are the aircraft manufacturers and the oil companies. In both cases there are a very few of them. Therefore, airline industry companies have a very limited power over their suppliers. Additionally, as it has been announced by the International Air Transport Association (2008), the global airline industry possesses losses due to the increased oil prices which also decrease the industry’s profitability. * Threat of new entrants low The threat of new entrants depends on the number and complexity of the barriers to entry. The barrier of the starting capital or investment is extremely high in the airline industry. Also, there are a lot of legal or patents issues with opening and maintaining of the airline organisation, which also is a barrier to entry. The brand loyalty is another very important barrier to entry. When choosing the airlines, customers, especially â€Å"the high profile† ones, are being very careful about health and safety, comfort and other details, therefore tend to choose companies with the brand they trust. Overall, the threat of new entrants is low, because there is a number of very hard to overcome barriers to entry, and if the small company appears on the market, it tends to be absorbed by one of the major players in the industry. Threat of substitutes – low Airlines industry – being an important sector of travel and tourism industry will have such potential substitutes as the sea, railway and road types of transportation. However, as Etihad is operating in an upper-class prices level, the threat of substitutes would be fairly low. In terms of potenti al business travellers, the time would be more important than money for them. In terms of leisure tourists, the prices may matter, however, cruise ships’ tickets tend to be more expensive than the planes’ ones. The main component of the firm’s marketing strategy and the rationale for this strategy in light of the environmental conditions in which it operates; 3. 1 Segmentation, Targeting and Positioning In marketing, segmentation, targeting and positioning are inseparable as they all related to each other. Segmentation is dividing the market into different groups with similar needs. Targeting is determining which offerings to make to each market segment and then the final step is to position the brand within the target market (Hooley and Saunders, 1993). Traditionally, airlines segment their customers in order to align their product strategy according to the different segments (Teichert et al, 2008). 3. 1. 1 Segmentation Market Segmentation was defined by Baines et al (2008, p. 217) as the division of a market into different groups of customers with distinctly similar needs. Alternatively, Kotler et al (2005, p. 391) add that these groups of customers have different needs, characteristics and behaviours and they require different marketing or product mixes. Customers can be segmented according to geographic, demographic, psychographic and behaviour variables. Etihad segment their customers according to three different boarding classes, which are: Diamond First Class, Pearl Business Class and Coral Economy. Each class is aimed at a different customer segment. Diamond First Class is aimed at wealthy individuals and business people who are willing to maintain their luxurious lifestyle in the air. Pearl Business is targeted at business and leisure travellers who are willing to pay more to enjoy a better flying experience. Coral Economy is aimed at customers who are on a budget but willing to enjoy a comfortable flying experience with the highest level of service. It is worth noting that Etihad is a five star airline and provides the highest level of service. According to Milne (2009) Etihad segment their customers according to business, religious, personal and tourist purposes. The rationale behind Etihad’s segmentation is to appeal to all types of customers with different income levels. Based on the prices that Etihad charge, it is clear to see that they aim for the middle and upper class social sector customers who command high standards of hospitality and luxury. 3. 1. 2 Targeting Once a company has segmented their customers into different groups based on their characteristics, the next step is to target their customers with products and services that might appeal to that particular customer segment. Etihad airlines follow a differentiated marketing approach which involves targeting several market segments and designing separate offers for each (Kotler et al, 2005, p. 419). Etihad is different from their rivals because they are smaller airline but they are a luxury brand and offer personalised services to all their customers in spite of what class they are travelling in. By differentiating the market, this might lead to higher sales volumes for Etihad because they are able to exploit the segments with their offerings. The benefits of the strategy are its difficulty for competitors to copy and the level of service cannot be obtained anywhere else by the customer. A disadvantage of the strategy is the high volume of resources required to meet the needs of different customers, resulting in a loss of economies of scales and increased operating costs for the company. 3. 1. Positioning A positioning strategy determines where the business competes, how it competes and the choice of differential advantage which dictates how it competes (Doyle and Stern, 2006, p. 84). Positioning is important for an organisation because it is a way for a business to stand out from its rivals and let the customers to identify the brand easily (Baines, 2008, p. 251). Etihad positions itself within the airline industry as a luxury brand which offers 5 star hospitality and luxury personalised service. Etihad’s on-board services are hospitality orientated and are similar to those of 5 star hotels. The airline industry is very competitive and it is hard to differentiate between the quality of services because they almost the same and there is not much of a distinctive difference between them. Etihad has a competitive advantage in this market by starting out as a luxury brand form the outset. Other airlines are now trying to raise their standards but this will take a long time to achieve. Etihad is positioned at the high end of the airline industry. In comparison to RyanAir and Easyjet, these airlines are at two extremes of the scale and it is clear that Etihad does have a strategy that makes it different from all the airlines on the market. Because Etihad has positioned itself well within the industry, it has capitalised on its uniqueness. The company achieved a huge success in the short time of operating and established a strong sustainable market position. Looking at the STP of Etihad in the light of the environmental conditions in which it operates, it is clear to see that the conditions are a little bit tough due to competition from cheaper airlines and the gloomy economic outlook. Due to the recession, people are tightening their belts and spending less, therefore most people would prefer to pay less to fly to their chosen destinations. This is where Etihad stand to lose out to cheaper airline companies. 40% of their revenue comes from economy class seats, therefore if they price themselves too high in these current economic conditions, they risk losing a huge chunk of their revenue to other airlines because customers will always go for the cheaper airline ticket. In terms of competition, Emirates amp; Qatar Airways are Etihad’s biggest competitors, fighting for the same customers. Also these two companies are more established and have a bigger customer base than Etihad. Etihad is still a very young company being vulnerable to competition. However, it seems they are doing very well and recently broke even, planning to expand, while maintaining their current market position. All this can be accredited to their solid marketing strategy which they are using to maximise their benefit and strengthen their position within this market. 4. 0 Strategic Alliances Strategic alliances reduce the boundaries between firms and enable easier flow of knowledge across those boundaries. This process creates the possibility for organisations to share administrative authority, form social links and joint ventures (Badaracso, 1991). One of the reasons why firms engage in strategic alliances includes sufficient resources, low pace of innovation, low technology, high manufacturing cost and market access (Doz, 1996). Another reason to collaborate in strategic alliances is to create a competitive advantage over competitors in the market (Lei and Slocum, 2005). Also, strategic alliance help companies to bring their products on to the new innovation level (Zhang, 2010). The advantage of strategic alliances is to share the risk and cost of products. Firms join strategic alliances for compiling technologies and assets, enhancing easier access to resources and technologies (Ohmae, 1989). Firms could assure the sufficiency of their resources, that the new technologies to maintain their advantages with the strategic alliances (Ireland, et al. , 2002). The disadvantages of strategic alliances is that organisations might give their partners more than they gain, the exchange of resources, benefits and knowledge should be reciprocated between the firms. Organizations could stand the chance of losing their competitive advantages if they provide benefits such as resources, knowledge and technology. Most strategic alliances don’t maintain their cooperative relationships for a long term as most strategic alliances are based on the current benefits rather than future competitive advantages. Also, in strategic alliances, the effect of competition can lead to aggressive knowledge acquisition from partner firms (Kaplan, et al. , 2010). Notably, many alliances fail as a result of inter firm rivalry (Park and Ungson, 2001). When firms merely pursue self-interests (competition) but neglect common benefits (derived from cooperation), partner firms may lose motivation to continue the alliance. Implementing any organisational alliance successfully depends upon a firm’s knowledge and ability to manage interdependencies with a partner through on-going coordination with that partner, to credibly convey relevant information and knowledge to the partner, and to develop social bonds with the partner (Ireland, et al. , 2002). Strategic alliance between airlines, as defined by the Federal Aviation Administration (FAA), is â€Å"a merging of resources, operations, of financial interests between [one] entity and [another] entity (Vander-Kraats, 1993). This entity could be an air carrier or a repair station and could involve the sharing of parts or the utilization of mechanics, pilots, and flight attendants. Some of the strategic alliance adopted by Etihad can include code-sharing agreements, marketing arrangements, procurement policies, system commonality, and interchanges of flight-crew personnel and sponsorship with other major organisation (Vander-Kraats, 1993). Etihad pursuit of code sharing agreement has become a key part of its marketing strategy. A  codeshare agreement, sometimes simply  codeshare, is an aviation business arrangement where two or more airlines share the same flight. A seat can be purchased on one airline but is actually operated by a cooperating airline under a different  flight number or code. Etihad has a major partnership with Virgin Blue’s group of airlines which enables Virgin Blue’s international brand â€Å"V Australia† to operate joint services with Etihad. Combined, these two airlines offer joint networks of more than 100 destinations (Etihad, 2012). To succeed, alliance partners must encourage true collaboration beyond the formal governance structure and learn how to adapt and integrate knowledge acquired from the alliance to serve the specific needs of their own innovative efforts (Hughes and Weiss, 2007). Through these alliances Etihad strengthen their core-competence such as stronger brand name, and capture a stronger client base. 5. 0 Sponsorship Etihad’s sponsorships portfolio includes sports and major tourism events in the U. A. E and different regions in the world. Commercial sponsorships is defined as a cash investment in an activity, person or event, while in return gaining the access to the exploitable commercial potential associated with that activity or person by the investor (Meenagham, 1991). Sponsorships provide the mechanism for changing, adjusting or reinforcing brand equity supported on updated processing of attributes, benefits and attitudes (Keller, 1998). Corporate sponsorships are used to enhance the brand equity by raising awareness and creating positive brand associations in the mind of consumers (Gwinner and Eaton, 1999; Meenagham, 1991). This highlights the effects and significance of strong brands as it possesses the ability to attract a wide audience. The advantages of sponsorships include the promotion of caring attitude and goodwill. The good example of successful sponsorship is Etihad’s stadium and Etihad’s association with Manchester city and a football team which attracts a wide audience (Etihad, 2012). The disadvantage of sponsorships is that the investments made by the sponsors do not always guarantee that the objectives will be achieved. In the case of Etihad, investing in sport teams can backfire if they don’t meet the expectations the firm had for their performance. The final disadvantage of sponsorships involves any bad publicity derived from the benefactor will inevitably affect the brand name associated. 6. 0 Contribution to the Competitive Advantage and its Sustainability After analysing Etihad’s main marketing strategies, the discussion below will be about how each of the components of these strategies contributes to the firm’s competitive advantage. 6. Segmentation, Positioning and Targeting Segmentation gives Etihad a competitive advantage because it helps them differentiate and understand their customers’ needs more and helps improve their offering to the different types of customers. By understanding their customers’ needs better, they can gain an advantage over their rivals. On the other hand, every airline segments their customers according to the different classes ther efore there is not much of an advantage since they all have a similar system of segmenting their customers. Etihad’s positioning gives them a competitive advantage because they position themselves as a 5 star airline offering 5 star hotel quality services on board. Their service on board is what sets them apart from their competitors. This advantage is sustainable in the long run provided they maintain their high standards throughout. Also, in terms of positioning, Etihad found a â€Å"gap† in the market by using Abu Dhabi Airport as their base rather than Dubai airport because of the cheaper airport fees and taxes which gives them a cost saving competitive advantage. By targeting a specific demographic, Etihad’s marketing campaigns are likely to be more cost and time efficient as it will be highly relevant to the target market’s needs and it enables them to stand out from their competitors. 6. 2 Strategic Alliances and Sponsorships Strategic alliances have enabled Etihad to create a competitive advantage in their industry and make this advantage sustainable. Etihad engage in strategic alliances as a way of seeking to reduce competition in their quest to raise profits (Badaracco, 1991). These alliances have nabled the company to share the risks associated with the ventures because some projects are too complicated for Etihad to handle on their own. (Badaracco, 1991). By collaborating with other firms worldwide, Etihad are overcoming barriers to entry in new geographical markets since they are a growing company looking to expand globally. Organizations expanding overseas find that they require a local partner due to unfamiliarity with the local conditions (Badaracco, 1991). Strategic alliances enable firms to exchange favours such as improving product quality, technologies and factors related to products. Sustainable competitive advantage indicates that companies could maintain their completive advantage for a long term (Culpan, 2008). Through their strategic alliance with Sabre in December 2011, Etihad gained access to integrated software across its reservations, inventory marketing and e-commerce, distribution and departure control operations. The benefits from this alliance included improved joint market share which has the potential to generate over $25 million dollars per annum for both companies. This report attempts to analyse the environment in which Etihad Airways Company has to maintain its business profitable and prosperous. The report covers main marketing strategies and tools Etihad uses for the purpose of identifying and understanding its customers’ base and keeping a relationship with it. Finally, the extent to which these marketing strategies help to keep the business and its competitive advantages sustainable is evaluated and critically accessed.