Open University of Mauritius Master of Business Administration EXAMINATIONS FOR: December 2013 - Semester 1 MODULE: DURATION: READING TIME: Marketing Management [C8] 3 HOURS 15 Minutes INSTRUCTIONS TO CANDIDATES 1. This paper consists of Sections A and B 2. Section A is Compulsory. 3. Answer any Two questions from Section B. 4. Always start a new question on a fresh page. 5. Total marks: 100. This question paper contains 5 questions and 7 pages. Page 1 of 7
SECTION A Case Study COMPULSORY [60 marks] A Tale of Two Airlines Think about the contrasting business strategies for two very different airlines. One is Ryanair, a very successful low-cost operator now branching out into parts of the worlds like the USA and Africa. The other is British Airways (BA), a rather successful full service airline (i.e., one which offers pre-booked eating, meals and drinks, and a generous supply of cabin crew to cater for each passenger s needs.) BA is one of the few airlines which fly to all six inhabited continents (the others are Delta, Emirates, Korean Air, Qantas, Qatar, Singapore Airlines, South Africa Airways and United Airlines). Ryanair Based in Ireland (Dublin), Ryanair was one of the first low-cost airlines in the world. Its business model has since been copied by many others, including Fastjet (Kenya), Mango (South Africa), PAL Airlines (Chile), JetBlue Airways and Southwest Airlines (USA), SpiceJet (India), AirAsia Philippines and Cebu Pacific (Philippines), Virgin Blue (Australia), JetStar Asia and Tiger Airways (Singapore), and Thai Air Asia (Thailand). All these companies exist at the time of writing this article, but some may have gone out of business by the time it s published, since the whole world of low-cost flying is very volatile and it takes a long time for any initiative to become established. Ryanair has copied the air travel juggernaut Southwest's airline model. They are the largest budget airline in Europe and the company is rapidly expanding. But in their effort to recreate the success of Southwest, they left out one key ingredient to Southwest s recipe for success: excellent customer service standard. It shows in Ryanair s experience from the very beginning and comes from the very top. Because Ryanair is a low-cost operation, it must raise revenue not principally from ticket sales but from other sources. It charges fees for check-in facilities, for baggage Page 2 of 7
and for the purchase of food and drink as part of a but-on-board programme. All passengers are now required to arrive at their airport with a pre-printed online checkin and boarding pass; if they don t, they will be charged 100 Euros The complaints about Ryanair are varied. From paying $95 to print a boarding pass at the airport to paying $80 for bags that were deemed too big by Ryanair s standards. But it doesn t stop there. Nearly all customers complained about rude employees that herded, goaded and in some cases, bullied them into compliance of Ryanair policies. The CEO often sets the standard for customer service for the company. Ryanair s CEO, Michael O Leary, has an attitude towards the customer that is appalling. It is as if the fact that they have very cheap flights means that they can not only lack customer service, but also actually cross the line into abuse. Here are just a few things he has said about customers in the past: We think they should pay 60 Euros for being so stupid. (regarding the boarding pass fee) You're not getting a refund so.. We don't want to hear your sob stories. What part of 'no refund' don't you understand? (when customers complain and demand a refund) Anyone who thinks Ryanair flights are some sort of bastion of sanctity where you can contemplate your navel is wrong. We already bombard you with as many in-flight announcements and trolleys as we can. Anyone who looks like sleeping, we wake them up to sell them things." (regarding the in-flight experience) Customer Experience is about a mindset. It s about a mission to design and create a deliberate experience for the people that frequent your company. But the mindset at Ryanair is combative with customers, made obvious by O Leary time and again. If this is the example he sets for his team, what results can you expect from the employees? Unfortunately, as Dr. Muhammad Taufiq Al Sattar, can tell you first-hand, it results in despicable customer experience. After learning that his wife and three children had been killed in a fire at his home, he was trying to get an earlier flight home. The surgeon who is based in Dublin and flies home to see his family on weekends via Ryanair was charged $253 to make the change to an earlier flight. Ryanair has since committed to refunding his money. But this may be too little too late in regards to the court of public opinion. To be fair, no one is required to fly on Ryanair. If you do, you realize that in order to have cheap flights you must sacrifice some of the extras. In order to keep costs low after all, they have to cut somewhere. There is no question that airline travel can be frustrating, but at the very least, employees could smile and be polite. That doesn t cost anything. After all, Southwest has built a company on this concept. According to the American Customer Satisfaction Index (ACSI) scores of 2011, Southwest scored Page 3 of 7
81 out of 100, the highest in the industry and 17 points above the second highest airline. Imagine what the ACSI score would be for Ryanair? Ryanair is not noted for the quality of its customer service. The Economist has written that Ryanair s cavalier treatment of passengers had given the company a deserved reputation for nastlines and that it has become a byword for appalling customer service and jeering rudeness towards anyone or anything that gets in its way. More specifically, Ryanair has been heavily criticised for its poor treatment of disabled passengers; for example, in 2002 it refused to provide wheelchairs for disabled passengers at London Stansted Airport, arguing that the responsibility for doing so resided solely with the airport authorities. Ryanair aircraft are delivered with the absolute minimum of luxuries and customer benefits. The seats don t recline, there are no seat-back pockets, safety cards are stuck on the back of the seats and life jackets are stowed overhead rather than under each seat. These changes allow the airline to save on costs and, more importantly, permit faster cleaning and safety checks during the short turnaround times (when, incidentally, every Ryanair employees, including the pilot, is expected to contribute to the cleaning process). According to the New York Times, many people hate Ryanair. Enough that the shareholders in the company are holding the CEO s feet to the fire on how the company is treating customers as they announce that they may not achieve their profits forecast. Companies typically recognize they need to become more customer centric when they feel pressure in their bottom line. Ryanair is feeling pressure to get more profits, so O Leary is under pressure to initiate change. In recent articles at the BBC and New York Times Business News, O Leary admits that they need to address the issues that unnecessarily annoy the customer. He also takes responsibility for the abrupt culture that he attributes to his own character flaws. This is a result of pressure from the shareholders who believe that these transgressions to the customer are affecting the profits. British Airways By contrast, BA emerged from a merger in the 1970s and is very large. It is now reinforced by a further merger between BA and Iberia (the Spanish national carrier), to create the International Airlines Group (IAG). Currently, BA flies to 300 destinations and carries over 30 million passengers a year, with the support of nearly 240 aircraft. From 1989 to 1996, BA was voted the world s best airline in Business Traveller magazine s survey. In May 1996, BA implemented a business efficiency plan that Page 4 of 7
called for cutting costs by eliminating more than 5,000 jobs. It also sold its ground fleet services, in-flight catering operations, and landing-gear overhaul unit and scrapped its Marketplace Performance Unit, which was responsible for getting information about customer perceptions. These measures lowered employee morale and inspired the cabin staff union to go on a 72-hous strike. Customers complained about delays in baggage handling and in getting responses to their complaints. The planes also started to have technical problems, which increased customer dissatisfaction. To improve employee morale and increase customer satisfaction, the operations and customer service department were combined to improve cooperation between the two areas, and the company put more emphasis on punctuality and baggage handling. It entered into an alliance with other airlines such as Qantas to form one world through which frequent flyer mileage can be accumulated or redeemed, which resulted in cost sharing at airport terminals. Two main events have contributed to the current strategy for BA. First, the privatisation of BA led to the adoption of a new Big Idea in the mission statement, To Be the Best and Most Successful Company in the Airline Industry. Second were a strategic turnaround in 1997 and the appearance of a new mission, to address four key areas: The global economic climate The competition What customers expect What employees want After losing its title as the world s best airline in 1996, BA experienced a number of problems but they have worked hard to improve their mage and earned first place in 2009. In the mid-nineties, BA initiated a portfolio analysis which defined the level of criticality of its operations. Based on this review, strategic decisions were taken to outsource functions (including human resources) that were not seen to be core. BA has been able to instil commitment and enthusiasm amongst its employees in delivering outstanding customer service it s about employee engagement, it s about High Performance Working, it s about employer branding to create the connection with customers. More recently, as exemplified in the BA Annual Report for 2009-2010, the company has set out five main strategic objectives that should transform BA into the world s leading global premium airline: Page 5 of 7
1. Become the airline of choice for long-haul premium customers 2. Deliver outstanding customer service at every touch point 3. Grow BA s presence in key global cities 4. Build on the company s leading position in London 5. Meet customer needs and improve margins through revenue stream In 2009, BA was awarded the best airline in the world by Business Traveller. Adapted from Student Focus, April, 2013. QUESTION 1 [Compulsory Attempt all questions] [60 marks] Describe, with examples from the case study, the different marketing orientations for these two Airlines? (i) Using Porter s Generic Strategy model, critically analyse the marketing strategies adopted by each of these Airlines. (15 Marks) (ii) What type of best fit strategy would you recommend for both airlines in order to sustain the hypercompetitive business environment the airline industry is facing? Support your answer by relevant examples from the case study. (15 marks) (c) Compare the two airlines Marketing Philosophies in terms of their respective marketing mix elements with their corresponding customers perspective? (20 marks) Page 6 of 7
SECTION B Attempt any TWO questions. Each question carries 20 marks QUESTION 2 Describe what you understand by marketing objective in marketing planning process, and assess the key factors that should be taken into account when creating marketing objectives. (5 marks) Describe the Ansoff Matrix and, for an organisation of your choice, evaluate how the strategic marketer might use this model to help determine the organisation s strategic objectives and future direction. (15 marks) QUESTION 3 Discuss the role of intermediaries in the distribution channel and explain how this role has changed in recent years. Using the travel industry, critically discuss, and illustrate with appropriate examples, why some organisations might remove intermediaries from their supply chain while others might add them. QUESTION 4 Describe the concept of the different product life cycles (PLC) and evaluate their usefulness as a strategic marketing tool. Give examples to support your answer. Evaluate the market diffusion process and explain how an individual consumer perceives innovation in a new product launch. QUESTION 5 Briefly explain the five main characteristics unique to service marketing. As the strategic marketing manager of a company of your choice, discuss how you would measure service quality. --- End of Question Paper --- Page 7 of 7