The application of marketing in air service of vietnam airlines 40

THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES TABLE OF CONTENTS ACKNOWLEDGEMENT III LIST OF ABBREVIATIONS IV LIST OF CHARTS AND TABLES V INTRODUCTION VI CHAPTER 1: AN OVERVIEW OF AIR SERVICE MARKETING 1 WHAT IS AIR SERVICE MARKETING? 1 1 Special features of air service 1 1 Intangibility 1 Inseparability 1 Heterogeneity 1 Perishability 1 Lack of ownership 1 Service and Marketing service 1 Marketing in air service 1 2 3 PROCEDURES OF DOING AIR SERVICE MARKETING SWOT analysis 1 Strengths 2 Weaknesses Opportunities Threats 2 Doing market research 2 Finding out customers needs and wants 2 Segmenting markets 2 What is market segmentation? 2 2 Benefits of Segmentation 2 The process of Segmentation 2 Targeting market Working out marketing mix strategies Product Strategy Price Strategy 3 Place Strategy Promotion Strategy People Strategy Physical Evidence Strategy Process Strategy CHAPTER 2: ASSESSMENT OF THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES AN OVERVIEW OF VIETNAM AIRLINES 1 Vietnam Airlines’ history 2 The status of Vietnam Airlines in the Region 5 6 7 8 10 11 11 13 13 14 17 18 19 20 20 20 23 I 2 THE APPLICATION OF “MARKETING IN AIR SERVICE” OF VIETNAM AIRLINES 27 2 Studying Marketing environments 27 2 SWOT analysis 29 2 Strength 29 2 2 Weaknesses 31 2 Opportunities 32 2 Threats 33 2 Doing market research 35 2 How does Vietnam Airlines find out the customers’ ne eds and wants? 35 2 Market Segmentation 37 2 Broad Segmentation 37 2 2 Needs-based segmentations and segment identifications 38 2 Targeting Markets of Vietnam Airlines 39 2 Marketing Mix Strategies 40 2 Product Strategy 40 2 Price Strategy 46 2 Place Strategy (Distribution Network) 47 2 Promotion Strategy 49 2 5 People Strategy 53 2 Process Strategy 54 2 Physical Evidence strategy 54 2 Evaluation 55 2 Achievements 55 2 Drawbacks 57 CHAPTER 3: MARKETING SOLUTIONS TO IMPROVING VIETNAM AIRLINES’ SERVICE 60 MARKETING SOLUTIONS 60 1 Diversification and improvement of the quality of Vietnam airlines Enhancement of air service marketing and promotion activities 60 61 RECOMMENDATIONS 62 For the Government 2 For Vietnam Airlines  Company interview (Directly)  Questionnaire 62 64 65 66 CONCLUSION 71 APPENDIX 76 II Acknowledgement This thesis would not have been made possible without the help from many wonderful people who gave their supports in different ways To them I would like to express my deepest gratitude and sincere appreciation First of all, I am deeply indebted to my supervisor Asso Prof , Dr Do Thi Loan, a senior lecturer and the Dean of the Post Graduate Studies Faculty of Hanoi Foreign Trade University, for her valuable instruction, corrections, comments, suggestions and enthusiasm during the development of my graduation thesis Her guidance and encouragement have been invaluable to me and she will always be remembered as the key factor that influenced my career towards this path Second, I am especially grateful to the lecturers of the English Faculty who provided me with a basic knowledge that is absolutely important in writing the thesis I would also like to extend warmest thanks to all staff of the Vietnam Airlines and the Civil Aviation Administration of Vietnam (CVVA) who supplied me with valuable data Third, throughout my hard working days, I was blessed with a great deal of support from my family I am forever thankful to my admired parents for their love, understanding, and endless patience and for supporting me in all my endeavors Finally, my last thanks go to all my classmates and former BBE graduates of the Foreign Trade University, for their encouragement and support whilst I was working on the completion of this work III List of abbreviations SWOT :Strength, weakness, opportunity, threat ATL :Above the line BTL :Below the line CAAV : Civil Association Administration of Vietnam VNA : Vietnam Airlines WTO : World Trade Organization SARS : Serve Acute Respiratory Syndrome HCMC :Ho Chi Minh City AVOD :Audio/Video on demand RTW :Round the world VFF :Vietnam Football Federation 7ps :Price, Place, Physical Promotion, Product, People, Evidence, Process UK :United Kingdom USa :The United Stated of America PEST :Political, Economic, Socio-cultural and Technological ICAO :International Civil Aviation Organization IATA :International Aviation Transport Association CRS :Computer Reservation System GPS :Global Distribution System IV List of Charts and tables Table 1: Vietnam Airlines' competitors 23 Table 2: Market Share of Vietnam Airlines 30 Table 3: Key competitors and competitive strategies 34 Table 4: Roundtrip prices 39 Table 5: Evaluating passengers' taste Source: Vietnam Airlines market survey Table 44 1: Action plan for 2006 62 Chart 1: Good aspects of Vietnam Airlines’ service 67 Chart 2: Aspects which VNA needs improving 68 Chart 3: Passengers’ Favorite Airlines 70 V Introduction Why I choose this topic The sixth Party Congress marked a turning point in the process of economic development of our nation The country’s reform that began in the late 1986s and started generating results in the early 1990s created breakthrough changes in attitudes towards economy and what constitutes a modern state What Vietnam has gained from the Doi Moi process is practically immeasurable More important than any other things, however, is that the most significant achievement over the last 20 years was that Vietnam has successfully changed from its centrally planned economy into a socialist-oriented market economy Thanks to the renovation process and the open door policies of recent years, Vietnam’s tourism and civil aviation industries have grown rapidly and recorded encouraging successes Tourism development has helped the air industry to grow, and the development of the air industry ensures an important means of transport for tourism The number of foreign visitors to Vietnam in the past few years has continued to increase, and those arriving by air account for well over 50 percent of them At present, the concept of marketing has been widely applied in manufacturing sector in Vietnam Nevertheless, the concept of marketing service in general and marketing air service in particular are quite new In fact, many services industries such as airlines have traditionall y applied marketing to their operations less than manufacturing firms It cannot be denied that marketing is an important activity for any business that wishes to become and remain competitive and successful This is certainly the case in the rapid changing airlines industry, especially Vietnam Airlines However, there remains much room to improve in the application of marketing to air service of Vietnam Airlines This is the reason why I VI choose this topic for my graduation thesis in the hope of making some recommendations to improve the efficiency of Vietnam Airlines Research Methodology - Collecting data primary from doing field research, direct interviews and surveys in Vietnam Airlines and secondary data from text books and reference books concerned - Using different methods for study, comprising of analysis, comparison and generalization - Analyzing based on the marketing rules, processing and summarizing the collected data - Using online survey via email Focus of the study The focus of the thesis is on theoretical framework of marketing service and marketing air service and the assessment of the application of marketing air service strategy of Vietnam Airlines Structure of the thesis Apart from the introduction and conclusion, the thesis is divided into three chapters: Chapter 1: An overview of air service marketing Chapter 2: Assessment of the applications of marketing in air service of Vietnam Airlines Chapter 3: Marketing solutions to improving services of Vietnam Airlines VII CHAPTER An overview of air service marketing Since 1980s, in the UK more people are employed in the service sector than in all other sectors of the economy put together It is the same in the USA and in most Western economies In Britain, income from services contributes more than any other sectors to the Gross National Product, and income from selling services overseas, called ‘invisible earnings’ plays an increasingly important role in the balance of trade Since that time, service has grown considerably and has received much attention There are a number of factors which make services different from physical goods Marketing applied in service including has developed accordingly 1 WHAT IS AIR SERVICE MARKETING? 1 Special features of air service Unlike goods, services in general and air service in particular cannot be seen, touched, smelt, tasted, tried on for size or stored on a shelf They are intangible Services own some special features that often have a significant effect on marketing strategies These features of services result in marketing mix decisions that are substantially different from those relating to the marketing of goods It must be concerned with factors such as intangibility, inseparability, perish ability, heterogeneity and ownership when implementing marketing strategy 1 1 Intangibility Air services are intangible, that means services cannot be seen, tasted, felt, heard or smelt before the purchase decision Some marketing authors even say that the basic difference between goods and services is the intangibility Air services not have real, physical presence as a product does For instance, prior to boarding an airplane, airline passengers have nothing but an airline ticket and the promise of safe transportation to their - A4 – BBE – K41 destination Although services are intangible, the experience customers obtaining from the service has an impact on how they will perceive from What can the customers achieve from the customer service? The answer is the location, the inner presentation or the environment of where they are purchasing the service? In fact, a professional working environment, the hearty welcome of the staff or even the security of the airline will provide cues as to how well it is run 1 Inseparability The production and consumption of services are inseparable Inseparability means that the consumers have direct experience of the production of the service The task of satisfying customers for the provider of a service is in many ways much more difficult than it is for the manufacture of a product In service industries everything has to be right from first time, all the time, any mistake can prove very costly in terms of losing customers To take advantage of a bus service, both you and the bus must make the journey at the same time Air service is similar, in most air services; both service providers and the customers must be present for the transaction to occur Customer-employees are part of the product The simultaneous occurrence of production, purchase and consumption of some services contrasts starkly with the lengthy time scale which can separate the production, purchase and consumption of a product 1 Heterogeneity Products are often made in batches while services are never identical The human element ensures that services will be highly heterogeneous, which simply means varied There are so many aviation firms within nation but how the customers choose among them? In traveling by plane the service quality may differ from the first time you traveled by that airline to the second, because the airhostess is more or less experienced Thus, there are several causes of variability First of all, services are produced and consumed simultaneously, which limits quality control Secondly, the high - A4 – BBE – K41 degree of contact between the service providers and the guests means that product consistency bases on the service providers’ skills and performance at the time of exchange Variability of services poses challenge to the marketing staff in service sector in general and in aviation in particular 1 Perishability Services last a specific time and can not be stored like a product for later use In addition, with some services, there is fluctuating demand that may make perish ability features more serious Key decisions have to be made on what maximum capacity level should be available to cope with demand Moreover, attention has to be paid in times of low levels of usages Short-term policies such as different pricing, special promotions will be adopted to deal with fluctuations in demand 1 Lack of ownership Ownership is not available in service since customer can not own and store service like a product When a consumer buys a service he does not usually receive ownership of anything intangible Services are used or hired for a period of time Buying an air ticket to Australia, say, the service will prolong within 13 hours but the customers want and expect excellent service for that long journey Air service buyers are therefore buying only access to the air plane or use of seats on the plane 1 Service and Marketing service In general meaning, a product is something that is developed, manufactured, grown or extracted in exposure to the use of the buyer A service, on the other hand, is a non-material equivalent of a good Service provision has been defined as an economic activity that does not result in ownership, and this is what differentiates it from providing physical good It’s claimed to be a process that creates benefits by facilitating a change in customers, a change in their physical possessions or a change in their intangible assets The standard definition of a service is that provided by - A4 – BBE – K41 give it the suggestion for what it has to to improve the advantages and minimize the limitations as well My research findings show as follows:  Company interview (Directly) Followings are the questions I directly interviewed Vietnam Airlines staff and their answers have been summarized What are the goals and strategies of Vietnam Airlines for the next five years? Our long-time goal is “to build modern airlines with a reputation for reliability and service Our top priorities for the next years are to modernize our fleet and improve the service as well as preserve our identity which reflects the hospitality and warmth of Vietnamese people” What international airlines that Vietnam Airlines considers as the company’s main competitor Vietnam Airlines is just as its first step to become a regional airline It only operates flights between Vietnam and the countries with which our Government has signed civil aviation agreements Therefore for different routes we have different competitors What you think is the strength of Vietnam Airlines in competing with its stronger competitors? We are the national airlines Our staff will demonstrate the hospitality and friendliness of our people They serve Vietnamese food along with other options, speak Vietnamese along with other languages in flight, wear our traditional costume etc that are all about giving a sense of - A4 – BBE – K41 65 our culture that Vietnamese travelers can be proud of and the foreign travelers may be looking for Airlines around the world are adding e-commerce capacity to their website How does the company’s view about this trend and the implication of information technology? In our strategy to be an aviation group in 2010 and to deploy technology to gain competitive advantage, however, so far we have not done much in realizing our strategic objectives Currently VNA are just utilizing some systems for flight control and booking as basically required for any airlines business How you think about the emerging trend of no-frills around the world? We are protected by the Government by the duopoly system in domestic market and inter-Governmental aviation agreements international routes But we are constantly studying the practices and lessons from those airlines  Questionnaire Email questions were sent to passengers who have been traveled or once traveled with Vietnam Airlines and other airlines Key findings for questions are summarized as below: What is your nationality? Most of them are Vietnamese and some others come from different nations such as Hong Kong, Singapore, America, etc - A4 – BBE – K41 66 in What aspects that you found good in Vietnam Airlines’ services? Chart 1: Good aspects of Vietnam Airlines’ service Source: Online survey result A) Food and Beverage B) Crew uniform and attitude C) Entertainment and in-flight reading D) Safety E) Electronic equipment F) Punctuation G) Website H) Ticket Price As you can see in the chart, most of the interviewees are most interested in in-flight food and beverage of Vietnam Airlines and happy with the safety of Vietnam Airlines Both Vietnamese and foreign passengers find good at safety and traditional dress, intimacy of airhostess Ticket price is quite good for them because it is easy to assess Vietnam airlines’ sales agents and ticketing offices but the price is another matter On the contrary the website, punctuation is not much highly appreciated - A4 – BBE – K41 67 What aspects that you think Vietnam Airlines should improve? Chart 2: Aspects which VNA needs improving Source: Online survey result A) Ticket price B) Website C) Crew D) Punctuation E) Check-in and check-out procedure F) Entertainment G) Food and Beverage H) Safety According to above chart, firstly, Vietnam airlines should take more consideration to the price ticket, especially in the competitive market as today There are many cheaper airlines emerging and entering into Vietnam such as Tiger airways, Pacific Airlines Their prices are reasonable and suitable to different kinds of passengers So Vietnam Airlines should give more discounts and readjust the price to meet the demand of the customers more and more Moreover, The Vietnam Airlines’ current website is not really useful because lack of necessary and updated information as well as functional offerings such as: current promotional programs, price quotation, retrieve points of Frequent Flyer Program members…and the - A4 – BBE – K41 68 interface of the website is so boring Secondly, the check-in and check-out procedure is still the hot issue, the complicated procedure leads to a long waiting queuing thus make the passengers tired and dissatisfy The crew is good however, they sometimes show little empathy and understanding to customers and the system is very slow in responding to any customers’ problems Flight attendances should improve their English and learn more languages not only English Thirdly, the in-flight entertainment program is out of date and not interesting If Vietnam Airlines change its policies such as improving entertainment programs, minimizing prolix procedure and readjusting the price, it can compete with any competitors not only in the same regions but all over the world as well Overall, are you satisfied with Vietnam Airlines? Most of the interviewees are satisfied with Vietnam Airlines at a moderate level Some of them who have got troubles in dealing with Vietnam Airlines are definitely not satisfied and some say that they will never fly with Vietnam Airline again And some have no comment In general, passengers are satisfied with Vietnam airlines If Vietnam Airlines offers such e-services as online booking, payment, check-in or retrieve/redeem points of Frequent Flyer Program, are you willing to use it? Vietnamese: Some of them want to use online services because it is very convenient and save time but limited at no-money-related services because they are afraid of security reason due to less-developed infrastructure in Vietnam In addition this service requires payment by credit card so the rest are not ready because they are not familiar with such online transactions - A4 – BBE – K41 69 Foreigners: welcome all online services because of their obvious advantages They are familiar with this service and they can easily pay by Visa or Master Card via internet instead of buying ticket from the offices When you need travel by air from or to Vietnam, which airlines you will think first? Vietnamese: Most of them will think of Vietnam Airlines because it is the national airlines Especially those who first time travel to an international destination, they prefer to fly with Vietnam Airlines because airhostess speaks native language and that would make them to feel more confident On the contrary, to someone who have experienced other airlines and go abroad frequently, they not have tend to go by Vietnam Airlines because firstly, the price is quite expensive and then the service of other airlines is better ( such as Singapore airlines or Thai airways) Foreigners: Cathay Pacific, Singapore Airlines, Thai Airways, Japan Airlines, Air France etc Few of them think of Vietnam Airlines Chart 3: Passengers’ Favorite Airlines Source: Online survey result - A4 – BBE – K41 70 A) Cathay Pacific B) Tiger Air C) Singapore Airlines D) Japan Airlines E) Thai Airways F) Qantas G) Air France H) Vietnam Airlines I) Other Conclusion As with the rapid growing economy and its integration to the world economy, Vietnam Airlines has been growing fast in the past years However, to meet the needs of integration when Vietnam joins WTO, marketing measures must be given enough attention and consideration to sustain the growth of Vietnam Airlines and achieve a competitive advantage Strong growth of Vietnam Airlines is not only important to the company but also to Vietnam because the well-being of the airline will contribute measurably to the economi c growth and the country’s infrastructure as well as enhance the image of the nation This is the reason for the topic “The application of marketing in air service of Vietnam Airlines” to be chosen as graduation thesis The thesis consists of chapters Chapter covers the marketing theory in air service It provides detail steps of applying marketing to air service An analysis of marketing environment, SWOT and marketing mix are also mentioned in this chapter Chapter focuses on the current practices of air service marketing of Vietnam Airlines Vietnam Airlines has drawn great attention to the differences between physical product and service product, and then designed appropriate marketing strategies to improve its products - A4 – BBE – K41 71 Chapter 3, basing on the assessment of the application of marketing strategy of Vietnam Airlines and the theories of marketing in air services specified in chapter one, some recommendations and solutions for the government and Vietnam Airlines itself have been made Especially via the surveys and questionnaires, the writer of this thesis knows how Vietnam Airlines has satisfied the customers’ needs and then makes suggestions to adjust the strategies to meet the passengers’ demand accordingly Due to the lack of time and knowledge about airlines and marketing in air service, shortcomings are inevitable Suggestions and corrections from lecturers, readers and friends will be highly appreciated - A4 – BBE – K41 72 REFERENCES I Books Do Thi Loan, (2003), “Trade Promotion Theory and Practice ”, Hanoi Science and Technology Publishing House Gudergan, S , Kotler, P, Best, R, “ Contemporary Marketing Management”, 2nd Edition, (ISBN 74103 377 2), Pearson Education, 2004 Hill, L 2003, “Good morning, Vietnam ”, Air Transport World, Dec 2003, Vol 40, Issue 12, pp 34-36 Lovelock, C H 1996, “Service marketing”, 3rd ed , Prentice Hall, Upper Saddle River, NJ McColl-Kennedy, J R 2003, “Services Marketing: a managerial approach”, John Wiley, Milton Michael J Etzel, Bruce J Walker, William J Stanton, “ Marketing”, McGraw-Hill/Irwin Nigel Hill, (1989), “Marketing”, A Tutor’s Guide Philip Kotler, “Principles of Marketing”, Edition Prentice Hall, “Marketing Principles and Practice ” (4th edition) II Journal Articles 10 Airline Business 2004, “ Vietnam Signs two historic pacts ”, Jan 2004 Vol 20, issue 11 ATW (Air Transport World) 2003, “ Air Transport World’s World Airline Report”, July 2003 - A4 – BBE – K41 73 12 Country watch 2004, “Industry profile: Airlines in Asia-Pacific” 13 Heritage, “The story of Vietnam Airlines” 14 Heritage “Vietnam Airlines services ” 15 Saigon Times daily, “ Vietnam Airlines plans direct flights to India ” 16 Stephen Shaw, “Airline Marketing and management ” (3rd edition) Pitman Publishing 17 Vietnam News, December 20 th 2005, “Vietnam Airlines flies direct to US” 18 Vietnam Aviation Magazine 19 Vietnam Economic Times, “ Golden Lotus rising” III Website http://nro vietnamair com http://asia news http://www mofa gov http://www vietnamairlines co kr http://www airlinequality com/Forum/vietnam htm http://www airlinemeals net/meals/VietnamAirlines061100 htm http://www vietnamairlines com/story/history htm http://vietnamnews vnagency com vn/showarticle php?num=01IND1 90706 http://www vietnamtourism com 10 http://www vnexpress net 11 http://www learnmarketing net 12 http://www vietnambusinessforum com 13 http://www vietnamair com 14 http://www atwonline com 15 http://www datamonitor com 16 http://people hoftra edu/geotrans/eng/ch3en/conc3en/airalliances 17 http://www austrade gov au 18 All Nippon Airways website, www Fly-ana com - A4 – BBE – K41 74 19 American Airlines website: www americanair com 20 Air France website: www airfrance com 21 China Airlines website: www china-airlines com 22 China Southern Airlines; www cs-air com/en/ 23 JAL system website: www jal co jp/en/ 24 Korean Air website, www koreanair com 25 Pacific Airlines website: www pacificairlines com 26 Philippines Airlines: www philippineair com 27 Qantas website: www qantas com au 28 Singapore Airlines website: www singaporeair com 29 Thai airways website: www thaiair com 30 United Airlines website: www united com 31 Vietnam Airlines website: www vietnamairlines com - A4 – BBE – K41 75 APPENDIX RESEARCH Questionnaires - A4 – BBE – K41 76 - A4 – BBE – K41 77 - A4 – BBE – K41 78 - A4 – BBE – K41 79 ... rapid changing airlines industry, especially Vietnam Airlines However, there remains much room to improve in the application of marketing to air service of Vietnam Airlines This is the reason... and marketing air service and the assessment of the application of marketing air service strategy of Vietnam Airlines Structure of the thesis Apart from the introduction and conclusion, the thesis... destination This is all part of the marketing process - A4 – BBE – K41 19 CHAPTER Assessment of the application of marketing in air service of Vietnam Airlines AN OVER VIEW OF VIETNAM AIRLINES