Explain the Various Elements of the Marketing Process
This paper explains the strategic marketing planning process illustrating the discussion with examples from the low cost airline, Easyjet. The paper proceeds in five parts. In the next section of the paper, the concept of market segmentation is described and discussed. Next, the concept is located in the overall positioning, segmentation, targeting (PST) organisational strategy. Porters’ Generic Strategy is then outlined, as a supplementary paradigm to market segmentation. The concept of the marketing mix is discussed and applied to the case study company. A brief conclusion closes the paper.
Before examining the marketing process, however, it is necessary to provide an overview of the case study company. Easyjet is an airline company that has been operating in the United Kingdom since 1995 (Easyjet, 2014). Like many other low-cost carriers, the company initially modeled itself on the business model of a successful American carrier, Southwestern Airlines (Yip, 2004). That airline had experienced unprecedented success by cultivating and exploiting a low cost operating model – Easyjet sought to implement this model in the European context, launching a flight between London and Amsterdam that was half the cost of the fare at the time offered by national carrier British Airways (Sull, 1999). In the years that followed, Easyjet rapidly expanded its route network to include hubs in some of the major British cities: Glasgow, Manchester and Liverpool, and routes to popular European destinations including Rome, Brussels, Milan, Barcelona, Frankfurt, Oslo and Stockholm. Today, Easyjet is “Europe’s leading airline”, specialising in short haul, point-to-point flights between Great Britain and Europe (Easyjet, 2014, online). The carrier operates some 600 routes serving 30 countries, and had firm plans to expand its network further afield in the future.
Marketing as a concept
Marketing can be thought of as a strategic philosophy which holds that assessing and meeting the needs of customers is a complex and multifaceted activity, so that organisations are required to take a holistic, customer-focused approach to all of their business activities (Svensson, 2001). In practice, marketing involves collecting, recording and analysing data about customers, and using this data to establish a strategy for meeting their needs. The marketing process covers a myriad of business activities that enable companies to meet the needs of consumers. Three key activities form the backbone of the marketing process. In the first instance, the customer base is segmented on the basis of demographic or other characteristics. Secondly, apositioning, segmentation, targeting (PST) strategy is developed in order to target goods and services to the correct market segments. Thirdly, a marketing mix is developed. Considered together these three elements form the basis of the firm’s overall marketing strategy (Kotler and Keller, 2006).
Populations, and hence markets are potentially large and heterogeneous (Dibb, 1998). Marketers would find it impractical to target every member of such a diverse grouping, and thus market segmentation is a key activity in the marketing process (Kotler and Keller, 2006). Market heterogeneity can be defined as “the extent to which groupings of customers based on operational descriptor variables respond differentially to the choices of both offerings and the way they are marketed” (Wensley, 1995, p. 78). So, market segmentation refers to the activity in which this large heterogeneous market is segmented or divided into smaller, more homogeneous groupings of individuals with similar demographic characteristics or similar needs (Kotler and Keller, 2006). Segmentation recognises that it is neither practical nor profitable to attempt to satisfy the needs of a large heterogeneous population; ultimately, its aim is to identify the business’ most profitable customers, to understand them, and to target them. Each portion of the market is known as a market segment. Segments can be identified on the basis of consumer characteristics (e.g. socio-economics such as wealth or social class, demographics such as gender or geographical location), psychographics (that is, interest, attitudes or opinions), product-related behavioural characteristics such as purchasing or consumption habits, or, in the case of business to business (B2B) marketing, business characteristics such as business size, location or level or turnover (Wedel and Kamakura, 2000).
Easyjet uses two consumer characteristics to segment its market: level of wealth, and hence, the degree to which customers are price conscious, and purpose of travel (i.e. leisure or business) (Sull, 1999). The way in which this is evident is through the pricing strategy of the company, which is discussed in greater detail below. For now, it is important to note that Easyjet’s business model differs from conventional carriers who typically drive sales towards the more lucrative business class passengers, filling the remainder of their seats with low-paying leisure passengers. In contrast, Easyjet, “does not serve the
business consumer first and use the tourists as a buffer in case it has some excess capacity, but rather restricts the demand of both segments (by raising the appropriate prices) so as to equate capacity to expected demand” (Koenigsberg, Muller, and Vilcassim, 2004, pp. 16-17). In other words, the company recognises two distinct customer segments but uses similar market capture strategies for both.
Segmenting, Positioning and Targeting the market
Identifying the target market does not end with segmentation: after segmentation has been undertaken, organisations must target the market, and position themselves. This is known as the segmentation, targeting and positioning (STP) process (Sausen, Tomczak, and Herrmann, 2005) Targeting refers to the way in which marketing efforts are aimed at the segment while positioning refers to the “designing of the company’s image so that the target customers understand and appreciate what the company stands for in relation to its competitors” (Hooley and Saunders, 1993, p. 8). Two broad strategies can be identified. Functional positioning refers to positioning on the basis of product characteristics (e.g. price or quality), while expressive positioning refers to positioning on the basis of consumer characteristics (Johar and Sirgy, 1989).
Easyjet, established in 1995, entered the air travel industry specifically to address the needs of low income passengers, as exemplified by the emphasis placed on the prices of its fares (Sull, 1999; Dobruszkes, 2009). Accordingly, the segmentation strategy used by the company was essentially an income-based, or price-conscious strategy: it met the needs of individuals wishing to travel throughout Europe that were not willing, or able to pay the airfares charged by full service airlines. However, more recently, the carrier has begun to be used by business passengers (Lu, 2009). For instance, from March 2013 to March 2014, the airline transported 12 million business passengers (almost fifty percent of its fleet’s seat capacity was taken up by business passengers), representing a growth in this market by 8.5 per cent over the previous year (The Guardian, 2014). This development has been attributed to the introduction of allocated seating. Previously, Easyjet, like many other Low Cost Carriers (LCCs) was able to keep airfares low because passengers were not able to select their seats prior to travel. However, the company abandoned this policy in November 2012, with the firm’s Chief Executive Officer (CEO) Carolyn McCall, remarking that “I think allocated seating has been the single most popular thing we have ever done for our passengers’ (cited in The Telegraph, online). The introduction of allocated seating is tantamount to a market repositioning and has enabled the airline to capture a greater share of the business passenger market. Repositioning is a normal part of the marketing process, for as Baines, Fill and Page (2012, p. 131) have noted “most marketers need to be alert and be prepared to reposition their brands as the relative position occupied by brands, in the minds of customers, will be challenged and shifted around on a frequent basis”.
Detractors have argued that the STP process is inadequate at fully explaining business’ repositioning activities because it does not take into account the positioning strategies of competitors. To combat this, strategist Michael Porter (cited in Kotler and Keller, 2006) developed his generic strategies framework. This concept identified three positioning strategies available to firms: cost leadership, differentiation and focus. Under acost leadership strategy, the organisation seeks to offer its product or service at the lowest costs relative to competitors. Under the differentiation strategy, the firm seeks to differentiate itself from its competitors on the basis of product features such as quality. The third approach, the focus strategy, describes a stratified approach to positioning. Organisations using the focus strategy target concentrated or niche markets by seeking to understand the unique needs of that segment and tailoring well-specified products to them. It is generally argued that organisations that do not adopt a strategy are unsuccessful (Kotler and Keller, 2006).
Easyjet has been vastly successful in relation to its competitors since its inception. In 2014, it became the largest British airline, in terms of passenger volumes, outstripping those of the national carrier, British Airways (Euromonitor, 2014). In Europe, in terms of market share, the company is second only to its Irish competitor, Ryanair. The fact that the company is competing on two fronts (with similar, low cost-carriers and conventional full-service carriers) suggests that it is pursuing a differentiation strategy. Easyjet has differentiated itself from low-cost carriers by introducing aspects which are typically absent from the services provided by those airlines (allocated seating is a good example), but it is differentiated from full-service airlines through, for example, its pricing strategy.
The marketing mix
An essential element of any company’s marketing strategy is the marketing mix (Brassington and Pettitt, 2009). This concept was developed to explain the factors influencing the demand for a product. Typically, the marketing mix is operationalised in terms of the ‘4 Ps’ - Product, Place, Price and Promotion.
In services marketing, product refers to all aspects of the services offered by the organisation including the level of the quality of the service, any guarantees or warranties, product lines or packaging (Kotler and Keller, 2006). Easyjet aspires to offer its business and leisure passengers safe and simple flights to a myriad of European destinations (Easyjet, 2014). To meet these aspirations, the company operates a large, modern fleet comprised of 220 Airbus A320 and A319 (ADS Advance, 2014). Despite media claims, the airline is one of the safest and most punctual airlines in Europe, and has invested significant amounts of cash in boosting the quality of its product. For instance, the company is investing in drone and robots that will be used to carry out safety checks on the aircraft, and the airline is working towards the provision of ‘paperless planes’ which it says will improve efficiency (ADS Advance, 2014).
Flexibility is a major feature of the airline’s product. While full service airlines adhere to a business model that discriminates between airfares with different levels of flexibility (for example, non-refundable tickets and fully refundable tickets), Easyjet does not differentiate between tickets in this way (Nair, Paulose, Palacios, and Tafur, 2013). Furthermore, it is conventional in the industry for one-way tickets to cost passengers more than round-trip tickets. Carriers prefer passengers to make return flights because selling tickets in this way builds convenience into their flight scheduling processes. Passengers who purchase one-way flights make it difficult for carriers to set schedules and make staffing decisions (Nair et al, 2013). Easyjet utilises a different business model, which makes it more straightforward for customers to understand the product offering and enables it to build flexibility into its scheduling systems.
Place refers to the distribution strategy of a company (Brassington and Pettitt, 2010). Easyjet aims to make travel on its fleet as widely available as possible, highlighted by its presence in almost every Western European country (Easyjet, 2014). The company is particularly proud of the extensiveness of its network, with its marketing materials claiming that “over 300 million people [reside] within a one hour drive of an easyJet airport” (Easyjet, 2014, online). Not only is the airline the leading carrier in Europe, it also holds strong positions in several major markets, including Edinburgh, Venice, Nice, and Naples, where it is the largest carrier, and Lisbon, Lyon and London Stansted, where it is the second largest carrier (Easyjet, 2014).
However, the company's stated efforts to capture a growing share of the business passenger market share might be hindered by its choice of airports. Despite the firm’s claims that it serves ‘convenient’ locations, in many cases, the airline serves not the primary airport in a city, but smaller, supplementary airports that are typically in out-of-the-way locations. For instance, most Easyjet flights to Paris land at the city’s Orly airport, rather than the more popular Charles de Gaulle. Serving smaller airports is a key characteristic of the LCC business model, for larger airports tend to carry greater landing fees (O’Connell and Williams, 2005).
Place also refers to the outlets through which customers can purchase the product or service. When it was first established Easyjet first offered passengers the opportunity to purchase flights only through its own website, via its telephone booking system and at the airports from which it operates (Euromonitor, 2013; 2014). The purpose of this model was to build the brand, and to keep costs low. Over time, however, the company has extended its distribution model to include third party intermediaries like lastminute.com and travelsupermarket.com. This enables customers to be creative in building their journeys (for example, booking an outward flight with one carrier and a return flight with another), and has allowed the airline to boost its market share, because the growth of specialist search engines means that travellers need only visit one website when they are searching for flights (Euromonitor, 2014).
The telephone booking system that the company used to drive sales at its inception is also slowly being phased out, moving the company every further towards to an Internet-only business model (Euromonitor, 2014). When the company was first established, it relied on its web facilities, fleet and personnel branding (a trademark orange) and word-of-mouth to drive sales. It took the company 17 years of trading before it invested in a directed marketing campaign (Marketing Magazine, 2012). The company even featured in a London Weekend Television documentary, or ‘docusoap’ which, contrary to the fears of some analysts, turned out to be an enormously successful promotional exercise. As noted by Kilborn (2006, p. 201) “while Easyjet knew that there were certain risks involved in opening themselves up in this way, these were seen to be more than offset by the perceived opportunities for keeping the Easyjet brand name in front of the consumer. In the estimation of the company’s PR advisors, even those incidents of delays and other problems associated with air travel, could be turned to the company's advantage. The fact that Easyjet staff would be seen to be so actively involved in smoothing out problems and assisting in making alternative travel arrangements was regarded as a useful exercise in company public relations”
In addition, the company has recently adopted a more aggressive marketing and branding strategy. In October 2011, the airline invested some £50 million into its marketing strategy, recruiting an external advertising agency to establish a strong European-wide promotional campaign (Marketing Magazine, 2012). Although the resulting campaigns ‘Europe by Easyjet’ and ‘Where Are Young Going?; were panned by critics, analysts attributed a massive boost in the firm’s revenues per seat and passenger numbers to this aggressive promotional strategy (Marketing Magazine, 2012).
There can be no doubt that the pricing strategy of the airline is the cornerstone of its business model. Although the company has shifted some of its focus to other elements of the marketing mix in recent years, the low prices offered by the company are probably its best-known feature among consumers. As the company's Chief Executive, Carolyn McCall remarked in a 2012 interview with Marketing Magazine (2012, online). “We'll never move away from price – it is the cornerstone of what we do. But now we communicate destination and service”. This focus on low price and low costs is tantamount to what strategist Michael Porter (1985) termed a cost leadership position. It is interesting that analysts have argued that such a position is untenable in the long run. For example, the CEO of US airliner Skytrax Edward Plaisted has argued that low-cost airline models rarely guarantee success – he pointed to the fact that half of new carriers go bust because they cannot maintain the low cost strategy (Kah, 2012).
Porter (1985) did argue that for such as position to be sustained, services must be perceived by customers to be good value for money. The empirical evidence does seem to suggest that Easyjet’s customers do believe that the carrier offers value for money, as highlighted by its improving punctuality record and growing passenger numbers (Euromonitor, 2014). The company has even outperformed competitors following a similar business model: for instance, the British low cost airline Flybe has reported large annual losses since 2012 (Euromonitor, 2014). For this reason, the airline’s chief has argued 'that there is a lot of blue water between us and Ryanair, and very little between us and British Airways” (Marketing Magazine, 2012, online).
The way in which the carrier has been able to consolidate its competitive advantage is by balancing its low price strategy with high peripheral prices (Euromonitor, 2014). For example, although passengers are able to find flights for as little as 9 euros, there are additional charges for printing off boarding cards, checking in at the airport, selecting a seat and taking hold luggage. Clearly, the growth in passenger numbers and the growth in the airline itself means that customers do view, even the high prices of peripherals as value for money. It must therefore be concluded that Easyjet’s cost leadership strategy is a fruitful one.
This report has outlined the marketing process, using the low cost airline Easyjet as a case study. The case study shows that the company has embraced the idea of marketing as a holistic, organisation-wide philosophy, and its recent successes can be attributed – at least partly – to well thought out segmentation and PST techniques, and an appropriate marketing mix.
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