Attributes Of A Global Brand Marketing Essay

3713 words (15 pages) Essay

1st Jan 1970 Marketing Reference this

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There are several attributes that makes Formula One a globalised brand. Firstly, it is highest class of one-seater auto racing in the world, driving the fastest cars on the planet. F1 holds the most exhilarating car races, young boys aspires to be F1 racers, millions of people buy tickets to the races and subscribe to media that streams every year to watch. According to Levitt (1983), different cultural preferences, national tastes and values, and business institutions are vestiges of the past; some inheritances die slowly; others prosper and develop into mainstream global preferences. F1 became a mainstream favourite sport of the world. The state-of-the-art technology used in the race such as engineering of the cars, time keeping, changing of tyres at the shortest time etc. attracts people of the current generation. Almost everyone everywhere wants what they have heard about, seen, or experienced via new technologies (Levitt, 1983).

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The unpredictability of F1 allows it to attract viewers constantly. It is a unique experience that cannot be duplicated easily e.g. crashing as different parts of the track, the seriousness of the crashes, different outcomes etc.

Organising the race is very costly thus running a team is mostly and sometimes entirely sponsored by various big international brands that wish to gain exposure from F1. And thus, consumers of the brands would be aware F1, for the logo will be displayed on all kinds of products and media like advertisements, news and magazine interview articles etc., and promotions for F1 will include the brands’ logo as well; hence creating maximum awareness to F1 and the international brands’ market.

F1 is a season consisting of series of races held around the world on purpose-built circuits and public roads. The annual calendar is global, taking 19 races in countries such as Australia, Asia (Malaysia, Singapore and Japan), the Middle East (Bahrain), Europe (the mainstay of F1), and North and South America (Canada and Brazil). It goes through major developed countries and with the gigantic scale of the event, F1 is known throughout the countries and their neighbours.

Standardisation VS Adaptation

According to Levitt (1983), most executives in multinational corporations are tactlessly accommodating; they wrongly presume that marketing means giving the consumer what he says he wants rather than trying to comprehend exactly what he’d like, thus persisting with high-cost, customized multinational products and practices instead of pressing hard and pressing properly for global standardization. They are afraid to standardise for fear that the strategy will fail. But Levitt (1983) says that poor execution is often the cause of failure, not the standardisation.

According to Levitt (1983), the world’s needs and desires have been irreversibly homogenized. This makes the multinational corporation outdated and the global corporation absolute.

Thus we have successful global brands like F1 which are mostly standardised than adaptive to the countries and cultures they are in, with accurate execution. F1 is known worldwide for its attributes as mentioned above, and thus it does not have a need to adapt when entering a new market in another country as what is expected of them is their signature races. The products and methods of the industrialized world play a single tune for the entire world, and the entire world eagerly dances to it (Levitt, 1983). There are 19 races, half of which are held in other continents apart from its traditional base in Europe. Despite that, the only adaption is probably the nature of the course track built for the race or the public roads structure in the countries. For example, from the classic circuits, now countries such as Singapore, Monaco, Melbourne etc., have street circuits, using a combination of public roads and circuits for the race.

F1 Grand Prix event spans over a weekend and throughout the practices sessions it has a specific set of rules and control. This set of regulations is by the F1 and is standardised.

According to the case study, merchandizing is through specialist F1 outlets worldwide, selling replica model cars, baseball caps, jackets and other memorabilia, all custom-made and packaged with the F1 logo. These subsidiary products of the brand are also standardised, not adapted to whichever country the products are sold.

Product Globalization Strategy

Adapted from Jim Riley (2012), global strategy of F1 will involve appreciating that success demands a presence in every part of the world to compete effectively, which is what F1 had been doing; expanding to host the races at other continents.

F1 make its product similar for each market by using the same set of regulations and control for the races, same technology and security and other elements in the operations despite being in different countries from Europe. Centralised control where the final say still belongs to F1 Management and F1 Administration. Ecclestone founded the F1 Constructors’ Association (FOCA) to fight for commercial control with Fédération Internationale de l’Automobile (FIA).

Taking advantage of customer needs and wants across international borders as F1 fans are spread across the globe, instead of only watching from screens, F1 made it live by hosting at major countries where their target markets were. Locating value adding activities where F1 can achieve greatest competitive advantage, thus the expansion to the most developed countries in the world. Integrating and co-ordinating activities across borders, F1 does by having management and administration team to be there at each different location. This part is significant where Ecclestone established the F1 Promotions and Administration (FOPA). According to Levitt (1983), as long as the marketing is good, consumers would be influenced to accept the product no matter what they claimed they want. This is where Ecclestone succeed in influencing people to crave to watch the race.

Conclusion

The changing patterns and structures of communication typically related to the demands of globalization require flexibility, responsiveness, speed, and efficient knowledge production, generation, and dissemination (Cynthia Stohl, 2004).

A global industry is where firms compete in all world markets in order to survive (Jim Riley, 2012). Thus be like F1 where they venture into all the potential markets.

A successful global corporation does not abjure customization or differentiation for the requirements of markets that differ in product preferences, spending patterns, shopping preferences, and institutional or legal arrangements (Levitt, 1983).

A global strategy is successful when there are very minor differences between countries and competition is global, it has advantages in terms of economies of scale, lower costs, co-ordination of activities and quicker product development (Jim Riley, 2012). Given what is everywhere the purpose of commerce, the global industry will shape the vectors of technology and globalization into its great strategic fecundity; companies that do not adapt to the new global realities will become victims of those that do (Levitt, 1983).

Environment – Qantas

Identify the Marketing Environmental Factors

This paper will state how factors in the environment affect each other in ‘Qantas Moment’. The global marketing environment consists of 4 main environments. Refer: Appendix A.

Organization environment can be controlled by the firm.

Structure

Company Image and brand equity are a vital parts in marketing as they help raise finance, form joint ventures and alliances seeking marketing intermediaries, get purchase or sales contract, launch new products etc. (Ebstudies, 2012). From the case we can see it takes very long to build a good rapport, but just one incident to tarnish the reputation.

Strategy

The technological capabilities decide company’s ability to innovate and compete. The design and safety of the Trent engines are extremely important as one minor mistake might tarnish the prestigious reputation and injure people as seen from the Qantas moment.

Process

Rolls-Royce and Airbus aim to manufacture the desired quality and quantity products. Factors which influence the competitiveness of a firm or to sustain the firm are production capacity technology and efficiency of the productive apparatus, distribution logistics etc. (Ebstudies, 2012). Marketing resources like quality of marketing and distribution network have direct link to marketing efficiency. They are crucial for new product introduction and brand extension (Ebstudies, 2012).

In intermediate environment, it is semi controllable by organisation.

Supplier

Purchasing goods and services from reliable external sources to make the engines and maintain engines is important. Thus suppliers can alter firm’s competitive position and marketing capabilities e.g. raw material suppliers (for engine parts), energy suppliers, labour and capital. According to Michael Porter, the relationship between suppliers and firm epitomizes a power equation between them; this equation is based on the industry condition and degree to which each of them is reliant on the other (Ebstudies, 2012).

According to Ebstudies (2012), the bargaining power of supplier gets maximized in the following situations:

The seller is a monopoly or oligopoly firm.

The buyer is not important customer.

The supplier’s product is important input to buyer’s business and finished product.

The supplier poses real threat of forward integration.

Every producer has to have several intermediaries for promoting, selling and distributing the goods and service to consumers (Ebstudies, 2012). The intermediaries for Rolls-Royce and Airbus are the airlines and the ultimate consumers are the flight passengers.

Stakeholders

In the case study, the Qantas Moment had affected the stakeholders greatly. Airbus’ parent company European Aeronautic Defence and Space (EADS) share prices fell 3.5% when it happened.

Rolls-Royce, the aircraft engine manufacturer fell 5% in share prices right it happened. Rolls-Royce tried to stop the slide in share prices by convincing the City and investors that the incident is a one-off thing than a design fault. However within 2 days, share prices dropped to 9%, losing £1 billion in market value. When chief executive of Qantas blame the incident on the engine maker, the situation got worst. Rolls-Royce engineers had to decipher the problem in Singapore and London to find out what is the main problem to address the market positively within a few days. Pictures of the blackened, shattered aircraft engine shared all over the world damaged the consumers’ confidence on its safety record. Qantas grounded all its A380 aircraft fitted with Trent 900 engine for three weeks, other airlines delayed flights for extensive flights and expensive checks to be carried out.

It was found out that it was indeed a design fault; the report into the Trent 900 failure states that oil fire is the most likely cause of the explosion, leading Qantas to seek compensation claims. It was also found that there was a potential manufacturing defect in the oil pipes. Thus Rolls-Royce is liable for financial compensation of at least £19 million to ground and replace the engines for Qantas and Singapore Airlines.

Hence, the incident in November 2010 has not only caused damage to Rolls-Royce in financial terms, as well as its hard-earned reputation and the trust of its clients and the public. Only until February 2011 did Rolls-Royce improve its situation when they won a £1.4 billion service contract from Emirates to maintain the Trent engines on 70 Airbus aircrafts that the carrier was due to take delivery over the next few years, then a £700 million service deal for Emirates and a £3.2 billion engine deal for British Airways.

Macro environment factors are external to the company and are uncontrollable. They do not affect marketing directly but indirectly influence marketing decisions of the company.

Socio-cultural

Marketers are interested in the size and growth rate of population in different cities, regions, and nations; educational levels; age distribution and ethnic mix; households patterns; and regional characteristics and movements (Ebstudies, 2012).

Social forces attempt to make marketing socially responsible; means that Rolls-Royce and Airbus should take a lead in eliminating socially harmful products and produce only what is beneficial to the society (Ebstudies, 2012).

Economic

The economic environment also has an impact on the business of an organization; example would be the share prices of Rolls-Royce.

Technology

Technological changes have also become particularly significant in the post-millennium world; this is particularly true in terms of modern communication technologies (Business Case Studies LLP, 2013). Thus the share prices dropped almost instantly as information was transmitted very quickly.

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The technological environment consists of factors related to knowledge applied, and the materials and machines used in the production of goods and services (Ebstudies, 2012). E.g. Rolls-Royce and Airbus produce top-notch engines to support commercial planes.

Political and Legal

Marketing decisions have to take into account government, pressure groups, law etc. Laws influence production capacity, capability, product design, pricing and promotion. Usually government intervenes in marketing process regardless of what their political ideologies are (Ebstudies, 2012).

Legal factors are vital as organisations have to work within legislative frameworks; legislation can hinder business by placing onerous obligations on organisations if not dealt with properly (Learning Marketing, 2013).

The physical environment consists of ecological factors beyond the organisation’s control. Physical forces such as non-renewal natural resources are finite e.g. oil, coal, minerals etc. Especially resources that contributes to the fuel the engines need in order to operate, affects the production greatly.

Pricing – AirAsia

Steps to Implement Pricing Strategy

Firstly, pricing is one of the key global strategic decisions as the concept of exchanging money for goods and services received, in the form of exchange of bank notes or credit or other credit facility, is widely accepted in today’s world (Lee & Carter, 2009). Price element of the marketing mix is one of the more controllable and fast in effect, it is the element that generates revenue (Lee & Carter, 2009).

According to Lee & Carter (2009), for a firm that develops and implement pricing strategy for services internationally, AirAsia should go through a series of steps:

Identify and analyse factors affecting pricing e.g. cost and revenue models, customer perceived value, legal requirements etc. which is to apply the no-frills, low-cost strategy, a unique cost and revenue model that has been proven successful from short-haul to long-haul

Set pricing in the context of corporate objectives which is mainly low-cost flying

Develop and select most appropriate price option of low-cost long-haul and low-cost short-haul flights

Implement selected option of low-cost long-haul with AirAsia X

Manage and finance international transactions

Account for terms of trade

Factors to Consider in Pricing

According to Lee & Carter (2009), based on Terpstra and Sarathy (2000), there are some factors to be considered in pricing products and services globally. They are classified under three main categories; organization-specific, environmental and market-specific.

Corporate and marketing objectives of AirAsia can be seen from the CEO, Tony Fernandes’ saying, “Our group thrives on innovation in disruptive market by taking the opportunities to fly where others dare not fly or have given up.” Thus AirAsia proposed clear-cut comparatively lower fares, going against the tide believing on brighter side of its future. According to the case, AirAsia also has very positive corporate culture, leadership, and entrepreneurial skills and the right management philosophy. Domestic and targeted countries’ government influences are not significant in AirAsia’s case except for the fuel hike however it was eventually offset by its unique pricing model. Consumers’ expectations; the management believe that most customers do not have loyalty to any particular brand, because their choice is driven by prices, location; AirAsia’s established network of flights to over 60 cities in 16 countries with 126 domestic and international routes from and within Malaysia, Thailand and Indonesia, and connects to China, Taiwan, India, Sri Lanka, Bangladesh, Australia and United Kingdom caters to a larger target markets due to operations in these countries, ability to pay; targeting the regular budget travellers and new customers who switch from premium flights to AirAsia due to the big difference in flight prices, market growth potential; losing some regular travellers but gaining new travellers from premium flights, frequency of purchase; focusing on maximising sales during off-peak periods but setting attractive promotions and discounts.

The cost structure of AirAsia is basically to cut down to leaveonly the absolute necessary costs to operate a flight, reducing fixed costs and eliminating most of variable costs. This is done by maintaining a simple aircraft fleet and a route network based on low-cost airports, without complex code-sharing and legacy overheads that weigh down traditional airlines. During economy fluctuations such as inflation and deflation, people always look for cheaper alternatives, especially in recession times. Fluctuations also depend on seasonal changes during summer and school holidays. AirAsia adapts to the market as it the main airline deals with short-haul flights and the new subsidiary is a long-haul carrier, suiting needs of more customer segments.

Product range of AirAsia is from the main short-haul flights what they started with to AirAsia X where they focus on long-haul flights. As a low-cost carrier for short distances, they grew to fly further when they came up with AirAsia X, providing options to travellers from more countries to use the airline. AirAsia can be considered a monopoly in Malaysia, Thailand and Indonesia due to the large numbers of hubs they have, and the number of domestic and international flights from these hubs, dominating from other low-cost carriers like them. A hike in fuel prices caused several low-cost carriers to cease operations as they cannot cope with the increase and thus boost AirAsia’s market share and enhances its position as the ultimate leader in the region’s low-cost airline sector. Market analysts predicted that the AirAsia group would have the marketing know-how and X-factor to capitalise on such opportunities that arise from its competitors falling out of the game.

Marketing factors such as product positioning; positions itself as a top-notch low-cost carrier, segmentation of customers by catering to short haul flights in ASEAN and longer haul flights in Asia and UK, image maintained as a good and affordable airline and differentiation of long and short distances flights. When faced with competition in the market, AirAsia targets cities least ventured to, to gain a competitive advantage. And due to its innovative business model, it is able to tide through the fuel price hike better than their competitors.

Cost Reduction Strategies

According to Lee & Carter (2009), we can identify how AirAsia has used cost reduction strategies to contribute to their profitability and sustain from the continuous potential fuel hike. Refer to Appendix A.

Economies of scale can be found by the increased number of domestic and international flights after the establishment of AirAsia X to fly new cities in China, Australia and UK.

Economies of size are shown when the case said that AirAsia has nine regional hubs in Malaysia, Thailand and Indonesia instead of just one base in 2009.

Learning curve can be seen from the shared service agreement where AirAsia and AirAsia X share pilots, cabin crew, service staff, website, IT platform, marketing and distribution to optimise efficiency on operating costs. AirAsia also invested heavily to build its brand and association with globally recognised organizations such as AT&T William F1, British MotoGP etc.

The significance in introduction of new technologies by AirAsia is the New Skies; a state-of-the-art booking system that contributed to expansion of booking capacity, allowing up to 1 million flights booking a day.

The major competitive advantage over other airlines is that passengers can use the Kuala Lumpur hub to connect to a wide range of routes. And relocating by placing more regional hubs in Malaysia, Thailand and Indonesia, these are areas with low labour costs to achieve the same advantage over the airlines at the cities too.

Appendices

Appendix A

Appendix B

Economies of Scale

When additional cost per unit of production reduced overall per unit cost, given similar fixed costs

Economies of Size

Achieved from larger scale of operation through greater bargaining power

Learning Curve

Cost reduction from greater labour productivity, improved designs, and resource mix

Introduction of New Technologies

Improved efficiency gained through new technologies in innovation and processes

Relocation of Production

Moving production facilities to countries with substantially lower labour costs

There are several attributes that makes Formula One a globalised brand. Firstly, it is highest class of one-seater auto racing in the world, driving the fastest cars on the planet. F1 holds the most exhilarating car races, young boys aspires to be F1 racers, millions of people buy tickets to the races and subscribe to media that streams every year to watch. According to Levitt (1983), different cultural preferences, national tastes and values, and business institutions are vestiges of the past; some inheritances die slowly; others prosper and develop into mainstream global preferences. F1 became a mainstream favourite sport of the world. The state-of-the-art technology used in the race such as engineering of the cars, time keeping, changing of tyres at the shortest time etc. attracts people of the current generation. Almost everyone everywhere wants what they have heard about, seen, or experienced via new technologies (Levitt, 1983).

The unpredictability of F1 allows it to attract viewers constantly. It is a unique experience that cannot be duplicated easily e.g. crashing as different parts of the track, the seriousness of the crashes, different outcomes etc.

Organising the race is very costly thus running a team is mostly and sometimes entirely sponsored by various big international brands that wish to gain exposure from F1. And thus, consumers of the brands would be aware F1, for the logo will be displayed on all kinds of products and media like advertisements, news and magazine interview articles etc., and promotions for F1 will include the brands’ logo as well; hence creating maximum awareness to F1 and the international brands’ market.

F1 is a season consisting of series of races held around the world on purpose-built circuits and public roads. The annual calendar is global, taking 19 races in countries such as Australia, Asia (Malaysia, Singapore and Japan), the Middle East (Bahrain), Europe (the mainstay of F1), and North and South America (Canada and Brazil). It goes through major developed countries and with the gigantic scale of the event, F1 is known throughout the countries and their neighbours.

Standardisation VS Adaptation

According to Levitt (1983), most executives in multinational corporations are tactlessly accommodating; they wrongly presume that marketing means giving the consumer what he says he wants rather than trying to comprehend exactly what he’d like, thus persisting with high-cost, customized multinational products and practices instead of pressing hard and pressing properly for global standardization. They are afraid to standardise for fear that the strategy will fail. But Levitt (1983) says that poor execution is often the cause of failure, not the standardisation.

According to Levitt (1983), the world’s needs and desires have been irreversibly homogenized. This makes the multinational corporation outdated and the global corporation absolute.

Thus we have successful global brands like F1 which are mostly standardised than adaptive to the countries and cultures they are in, with accurate execution. F1 is known worldwide for its attributes as mentioned above, and thus it does not have a need to adapt when entering a new market in another country as what is expected of them is their signature races. The products and methods of the industrialized world play a single tune for the entire world, and the entire world eagerly dances to it (Levitt, 1983). There are 19 races, half of which are held in other continents apart from its traditional base in Europe. Despite that, the only adaption is probably the nature of the course track built for the race or the public roads structure in the countries. For example, from the classic circuits, now countries such as Singapore, Monaco, Melbourne etc., have street circuits, using a combination of public roads and circuits for the race.

F1 Grand Prix event spans over a weekend and throughout the practices sessions it has a specific set of rules and control. This set of regulations is by the F1 and is standardised.

According to the case study, merchandizing is through specialist F1 outlets worldwide, selling replica model cars, baseball caps, jackets and other memorabilia, all custom-made and packaged with the F1 logo. These subsidiary products of the brand are also standardised, not adapted to whichever country the products are sold.

Product Globalization Strategy

Adapted from Jim Riley (2012), global strategy of F1 will involve appreciating that success demands a presence in every part of the world to compete effectively, which is what F1 had been doing; expanding to host the races at other continents.

F1 make its product similar for each market by using the same set of regulations and control for the races, same technology and security and other elements in the operations despite being in different countries from Europe. Centralised control where the final say still belongs to F1 Management and F1 Administration. Ecclestone founded the F1 Constructors’ Association (FOCA) to fight for commercial control with Fédération Internationale de l’Automobile (FIA).

Taking advantage of customer needs and wants across international borders as F1 fans are spread across the globe, instead of only watching from screens, F1 made it live by hosting at major countries where their target markets were. Locating value adding activities where F1 can achieve greatest competitive advantage, thus the expansion to the most developed countries in the world. Integrating and co-ordinating activities across borders, F1 does by having management and administration team to be there at each different location. This part is significant where Ecclestone established the F1 Promotions and Administration (FOPA). According to Levitt (1983), as long as the marketing is good, consumers would be influenced to accept the product no matter what they claimed they want. This is where Ecclestone succeed in influencing people to crave to watch the race.

Conclusion

The changing patterns and structures of communication typically related to the demands of globalization require flexibility, responsiveness, speed, and efficient knowledge production, generation, and dissemination (Cynthia Stohl, 2004).

A global industry is where firms compete in all world markets in order to survive (Jim Riley, 2012). Thus be like F1 where they venture into all the potential markets.

A successful global corporation does not abjure customization or differentiation for the requirements of markets that differ in product preferences, spending patterns, shopping preferences, and institutional or legal arrangements (Levitt, 1983).

A global strategy is successful when there are very minor differences between countries and competition is global, it has advantages in terms of economies of scale, lower costs, co-ordination of activities and quicker product development (Jim Riley, 2012). Given what is everywhere the purpose of commerce, the global industry will shape the vectors of technology and globalization into its great strategic fecundity; companies that do not adapt to the new global realities will become victims of those that do (Levitt, 1983).

Environment – Qantas

Identify the Marketing Environmental Factors

This paper will state how factors in the environment affect each other in ‘Qantas Moment’. The global marketing environment consists of 4 main environments. Refer: Appendix A.

Organization environment can be controlled by the firm.

Structure

Company Image and brand equity are a vital parts in marketing as they help raise finance, form joint ventures and alliances seeking marketing intermediaries, get purchase or sales contract, launch new products etc. (Ebstudies, 2012). From the case we can see it takes very long to build a good rapport, but just one incident to tarnish the reputation.

Strategy

The technological capabilities decide company’s ability to innovate and compete. The design and safety of the Trent engines are extremely important as one minor mistake might tarnish the prestigious reputation and injure people as seen from the Qantas moment.

Process

Rolls-Royce and Airbus aim to manufacture the desired quality and quantity products. Factors which influence the competitiveness of a firm or to sustain the firm are production capacity technology and efficiency of the productive apparatus, distribution logistics etc. (Ebstudies, 2012). Marketing resources like quality of marketing and distribution network have direct link to marketing efficiency. They are crucial for new product introduction and brand extension (Ebstudies, 2012).

In intermediate environment, it is semi controllable by organisation.

Supplier

Purchasing goods and services from reliable external sources to make the engines and maintain engines is important. Thus suppliers can alter firm’s competitive position and marketing capabilities e.g. raw material suppliers (for engine parts), energy suppliers, labour and capital. According to Michael Porter, the relationship between suppliers and firm epitomizes a power equation between them; this equation is based on the industry condition and degree to which each of them is reliant on the other (Ebstudies, 2012).

According to Ebstudies (2012), the bargaining power of supplier gets maximized in the following situations:

The seller is a monopoly or oligopoly firm.

The buyer is not important customer.

The supplier’s product is important input to buyer’s business and finished product.

The supplier poses real threat of forward integration.

Every producer has to have several intermediaries for promoting, selling and distributing the goods and service to consumers (Ebstudies, 2012). The intermediaries for Rolls-Royce and Airbus are the airlines and the ultimate consumers are the flight passengers.

Stakeholders

In the case study, the Qantas Moment had affected the stakeholders greatly. Airbus’ parent company European Aeronautic Defence and Space (EADS) share prices fell 3.5% when it happened.

Rolls-Royce, the aircraft engine manufacturer fell 5% in share prices right it happened. Rolls-Royce tried to stop the slide in share prices by convincing the City and investors that the incident is a one-off thing than a design fault. However within 2 days, share prices dropped to 9%, losing £1 billion in market value. When chief executive of Qantas blame the incident on the engine maker, the situation got worst. Rolls-Royce engineers had to decipher the problem in Singapore and London to find out what is the main problem to address the market positively within a few days. Pictures of the blackened, shattered aircraft engine shared all over the world damaged the consumers’ confidence on its safety record. Qantas grounded all its A380 aircraft fitted with Trent 900 engine for three weeks, other airlines delayed flights for extensive flights and expensive checks to be carried out.

It was found out that it was indeed a design fault; the report into the Trent 900 failure states that oil fire is the most likely cause of the explosion, leading Qantas to seek compensation claims. It was also found that there was a potential manufacturing defect in the oil pipes. Thus Rolls-Royce is liable for financial compensation of at least £19 million to ground and replace the engines for Qantas and Singapore Airlines.

Hence, the incident in November 2010 has not only caused damage to Rolls-Royce in financial terms, as well as its hard-earned reputation and the trust of its clients and the public. Only until February 2011 did Rolls-Royce improve its situation when they won a £1.4 billion service contract from Emirates to maintain the Trent engines on 70 Airbus aircrafts that the carrier was due to take delivery over the next few years, then a £700 million service deal for Emirates and a £3.2 billion engine deal for British Airways.

Macro environment factors are external to the company and are uncontrollable. They do not affect marketing directly but indirectly influence marketing decisions of the company.

Socio-cultural

Marketers are interested in the size and growth rate of population in different cities, regions, and nations; educational levels; age distribution and ethnic mix; households patterns; and regional characteristics and movements (Ebstudies, 2012).

Social forces attempt to make marketing socially responsible; means that Rolls-Royce and Airbus should take a lead in eliminating socially harmful products and produce only what is beneficial to the society (Ebstudies, 2012).

Economic

The economic environment also has an impact on the business of an organization; example would be the share prices of Rolls-Royce.

Technology

Technological changes have also become particularly significant in the post-millennium world; this is particularly true in terms of modern communication technologies (Business Case Studies LLP, 2013). Thus the share prices dropped almost instantly as information was transmitted very quickly.

The technological environment consists of factors related to knowledge applied, and the materials and machines used in the production of goods and services (Ebstudies, 2012). E.g. Rolls-Royce and Airbus produce top-notch engines to support commercial planes.

Political and Legal

Marketing decisions have to take into account government, pressure groups, law etc. Laws influence production capacity, capability, product design, pricing and promotion. Usually government intervenes in marketing process regardless of what their political ideologies are (Ebstudies, 2012).

Legal factors are vital as organisations have to work within legislative frameworks; legislation can hinder business by placing onerous obligations on organisations if not dealt with properly (Learning Marketing, 2013).

The physical environment consists of ecological factors beyond the organisation’s control. Physical forces such as non-renewal natural resources are finite e.g. oil, coal, minerals etc. Especially resources that contributes to the fuel the engines need in order to operate, affects the production greatly.

Pricing – AirAsia

Steps to Implement Pricing Strategy

Firstly, pricing is one of the key global strategic decisions as the concept of exchanging money for goods and services received, in the form of exchange of bank notes or credit or other credit facility, is widely accepted in today’s world (Lee & Carter, 2009). Price element of the marketing mix is one of the more controllable and fast in effect, it is the element that generates revenue (Lee & Carter, 2009).

According to Lee & Carter (2009), for a firm that develops and implement pricing strategy for services internationally, AirAsia should go through a series of steps:

Identify and analyse factors affecting pricing e.g. cost and revenue models, customer perceived value, legal requirements etc. which is to apply the no-frills, low-cost strategy, a unique cost and revenue model that has been proven successful from short-haul to long-haul

Set pricing in the context of corporate objectives which is mainly low-cost flying

Develop and select most appropriate price option of low-cost long-haul and low-cost short-haul flights

Implement selected option of low-cost long-haul with AirAsia X

Manage and finance international transactions

Account for terms of trade

Factors to Consider in Pricing

According to Lee & Carter (2009), based on Terpstra and Sarathy (2000), there are some factors to be considered in pricing products and services globally. They are classified under three main categories; organization-specific, environmental and market-specific.

Corporate and marketing objectives of AirAsia can be seen from the CEO, Tony Fernandes’ saying, “Our group thrives on innovation in disruptive market by taking the opportunities to fly where others dare not fly or have given up.” Thus AirAsia proposed clear-cut comparatively lower fares, going against the tide believing on brighter side of its future. According to the case, AirAsia also has very positive corporate culture, leadership, and entrepreneurial skills and the right management philosophy. Domestic and targeted countries’ government influences are not significant in AirAsia’s case except for the fuel hike however it was eventually offset by its unique pricing model. Consumers’ expectations; the management believe that most customers do not have loyalty to any particular brand, because their choice is driven by prices, location; AirAsia’s established network of flights to over 60 cities in 16 countries with 126 domestic and international routes from and within Malaysia, Thailand and Indonesia, and connects to China, Taiwan, India, Sri Lanka, Bangladesh, Australia and United Kingdom caters to a larger target markets due to operations in these countries, ability to pay; targeting the regular budget travellers and new customers who switch from premium flights to AirAsia due to the big difference in flight prices, market growth potential; losing some regular travellers but gaining new travellers from premium flights, frequency of purchase; focusing on maximising sales during off-peak periods but setting attractive promotions and discounts.

The cost structure of AirAsia is basically to cut down to leaveonly the absolute necessary costs to operate a flight, reducing fixed costs and eliminating most of variable costs. This is done by maintaining a simple aircraft fleet and a route network based on low-cost airports, without complex code-sharing and legacy overheads that weigh down traditional airlines. During economy fluctuations such as inflation and deflation, people always look for cheaper alternatives, especially in recession times. Fluctuations also depend on seasonal changes during summer and school holidays. AirAsia adapts to the market as it the main airline deals with short-haul flights and the new subsidiary is a long-haul carrier, suiting needs of more customer segments.

Product range of AirAsia is from the main short-haul flights what they started with to AirAsia X where they focus on long-haul flights. As a low-cost carrier for short distances, they grew to fly further when they came up with AirAsia X, providing options to travellers from more countries to use the airline. AirAsia can be considered a monopoly in Malaysia, Thailand and Indonesia due to the large numbers of hubs they have, and the number of domestic and international flights from these hubs, dominating from other low-cost carriers like them. A hike in fuel prices caused several low-cost carriers to cease operations as they cannot cope with the increase and thus boost AirAsia’s market share and enhances its position as the ultimate leader in the region’s low-cost airline sector. Market analysts predicted that the AirAsia group would have the marketing know-how and X-factor to capitalise on such opportunities that arise from its competitors falling out of the game.

Marketing factors such as product positioning; positions itself as a top-notch low-cost carrier, segmentation of customers by catering to short haul flights in ASEAN and longer haul flights in Asia and UK, image maintained as a good and affordable airline and differentiation of long and short distances flights. When faced with competition in the market, AirAsia targets cities least ventured to, to gain a competitive advantage. And due to its innovative business model, it is able to tide through the fuel price hike better than their competitors.

Cost Reduction Strategies

According to Lee & Carter (2009), we can identify how AirAsia has used cost reduction strategies to contribute to their profitability and sustain from the continuous potential fuel hike. Refer to Appendix A.

Economies of scale can be found by the increased number of domestic and international flights after the establishment of AirAsia X to fly new cities in China, Australia and UK.

Economies of size are shown when the case said that AirAsia has nine regional hubs in Malaysia, Thailand and Indonesia instead of just one base in 2009.

Learning curve can be seen from the shared service agreement where AirAsia and AirAsia X share pilots, cabin crew, service staff, website, IT platform, marketing and distribution to optimise efficiency on operating costs. AirAsia also invested heavily to build its brand and association with globally recognised organizations such as AT&T William F1, British MotoGP etc.

The significance in introduction of new technologies by AirAsia is the New Skies; a state-of-the-art booking system that contributed to expansion of booking capacity, allowing up to 1 million flights booking a day.

The major competitive advantage over other airlines is that passengers can use the Kuala Lumpur hub to connect to a wide range of routes. And relocating by placing more regional hubs in Malaysia, Thailand and Indonesia, these are areas with low labour costs to achieve the same advantage over the airlines at the cities too.

Appendices

Appendix A

Appendix B

Economies of Scale

When additional cost per unit of production reduced overall per unit cost, given similar fixed costs

Economies of Size

Achieved from larger scale of operation through greater bargaining power

Learning Curve

Cost reduction from greater labour productivity, improved designs, and resource mix

Introduction of New Technologies

Improved efficiency gained through new technologies in innovation and processes

Relocation of Production

Moving production facilities to countries with substantially lower labour costs

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