MARKETING STRATEGY FOR VIETNAM AIRLINES TO PENETRATE THE US MARKET

MINISTRY OF EDUCATION & TRAINING HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITEÙ LIBRE DE BRUXELLES SOLVAY BUSINESS SCHOOL MBMM PROGRAM TRAN QUANG HOA MARKETING STRATEGY FOR VIETNAM AIRLINES TO PENETRATE THE US MARKET FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT Ho Chi Minh City 2007 MINISTRY OF EDUCATION & TRAINING HO CHI MINH CITY OPEN UNIVERSITY UNIVERSITEÙ LIBRE DE BRUXELLES SOLVAY BUSINESS SCHOOL MBMM PROGRAM TRAN QUANG HOA MARKETING STRATEGY FOR VIETNAM AIRLINES TO PENETRATE THE US MARKET FINAL PROJECT MASTER IN BUSINESS & MARKETING MANAGEMENT TUTOR: DR LE NGUYEN HAU Ho Chi Minh City 2007 i DECLARATION I declare that the project entitled “Marketing strategy for VNA to penetrate the US market” is my own work The information and data analysis of the project are based on reliable sources I hope that my project will be evaluated seriously and approved to recommend the strategic program for VNA to penetrate the US market promptly ii ACKNOWLEDGEMENT I would like to express my deep sense of gratitude to my tutor Doctor Le Nguyen Hau, who kindly supported and gave continuous guidance and precious recommendations to this study He gave cares for clear direction, methodology and conceptual thinking to this study Further I would like to show my honest appreciation to my mentor Dao Viet Dzung, General Manager of Passenger Sales and Marketing – Southern Regional Office, HochiMinh city – Vietnam Airline for assistance and gave facilities for information getting My sincere recognition is also for all of my lectures of the MBMM program, my classmates, my colleagues and subordinates, my friends and my family for their continuing encouragement and their assistance of my participation of this valuable training program Ho Chi Minh City, Vietnam TRAN QUANG HOA Jun, 2007 iii TUTOR COMMENTS ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………….…………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ……………………………………………………………………………………………………………………… iv JURY COMMENTS ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ……………………………………………………………………………………………….……………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………………… v EXECUTIVE SUMMARY MANAGEMENT PROBLEM Vietnam Airline (VNA) plans to launch a direct route to the US the beginning of year 2008 and the problem is how can VNA penetrate the US market to compete with other airlines and which strategy will apply to this market It is the problem that must be solved in this study THE PROJECT OBJECTIVE: The objective of this project is: To analyze the external and internal environment of VNA in relation to the US market To develop marketing strategy for VNA to penetrate US market To recommend strategic program for VNA RESEARCH METHOD: The process of solving this management problem is based on theories in strategic management and marketing management and information in the external and internal of Vietnam airlines are to be applied to solve this strategic management problem PROJECT SCOPE: Because of project limitation, this study will focus much on advertising strategy MARKETING STRATEGY: Based on SWOT analyses and SWOT matrix to bring out the Marketing strategy for VNA to penetrate the US market vi In this project framework, we will focus much on advertising strategy for this market BUILD UP ADVERTISING STRATEGY Carry out this strategy in the period of years from 2008 to 2010 as following: 2008 – Deep understanding – Sharing - Main message: Vietnam Airline - outstanding at products, sale networks, price policy - maximum satisfying the customers' need - being a close bridge for family's members, reunions 2009 - Affirmations - Main message: Vietnam Airline is typical with international services and technological standards - as the typical picture of a renewed Vietnam 2010 - Constructing faith - Main message: Vietnam Airline - highly responsible against community supporting and promoting, satisfying the developing need of socio economic of country DESIRED RESULTS Base on the customers’ profiles and features of US market, the advertising strategy for this new market need to be archived the following targets: - Introduce a new route to our potential customers - Advertise the preeminent products of VNA compared to the others, especially the using new, modern aircraft – B777 - Popularize our brand name to targeted passengers, making the difference in customer mind about Vietnam - Coordinate closely with sales department vii - Consolidate our good relationship with customers Ỉ build up the loyalty, create the friendly image - In US market, the advertisement on media communication and newspaper popularized in Vietnam community should focus on Vietnamese passengers, Vietnamese sales agents Concurrently, VNA should use US tourist companies to advertise about VNA and Vietnam destination to launch overseas Vietnamese to come back Vietnam for family reunion and business purpose - In Vietnam market, VN should introduce new products to travel agencies, ticket agents and community via mass communication such as press, TV, brochures and to hotels, local travel points and Embassies where many US experts and oversea Vietnamese are working at viii TABLE OF CONTENT Declaration….…………………………………………………………………………………………………………………………………………i Acknowledgement…………………………………………………………………………………………………………………… ……….ii Tutor comments…………………………………………………………………………………………………………………………… iii Jury comments………………………………………………………………………………………………………………………………….…iv Executive summary…………………………………………………………………………………………………………………………….v Table of content……………………………………………………………………………………………………………………………….viii Appendix (Figure)………………………………………………………………………………………………………………………… xii Appendix (Table)………………………………………………………………………………………………………………………… xiii Abbreviations…………………………………………………………………………………………………………………………………….xiv CHAPTER ONE INTRODUCTION……………………………………………………………………………………………………………………….1 1.1 Background and Management Problem…………………………………………………………………………….1 1.2 The Project Objective……………………………………………………………………………………………………………….2 1.3 Research Method……………………………………………………………………………………………………………………… 1.4 Project Scope……………………………………………………………………………………………………………………………… CHAPTER TWO LITERATURE BACKGROUND………………………………………………………………………………………….3 2.1 Company Internal Analysis………………………………………………………………………………………………………3 2.2 Company External Business Environment…………………………………………………………………………3 2.2.1 Market and Customers……………………………………………………………………………………………………………4 VI Figure 5: Strategy Formulation Process Flow in a Company (chapter 2.5) Source: Johnson & Scholes, 2002 VII Figure 6: Geography of United States (chapter 3.1) Source: http://www.maps.com VIII Figure 7: overseas Vietnamese allocating in USA (chapter 3.1.2) 12.616 20.570 50.697 21.212 33.204 11.219 15.232 36.685 20.709 27.105 16.707 10.040 18.086 40.500 484.000 17.142 31.092 17.108 14.533 37.086 25.601 11.654 143.352 13.673 Source: ( as population inquiry in 2000 USA – US Census) IX Figure 8: US passenger total traveling abroad from 1995 to 2005 (Chapter 3.2.1) 15% 35,000 30,000 10% 25,000 20,000 5% 15,000 0% 10,000 -5% 5,000 -10% 1995 1996 1997 1998 1999 2000 2001 Tong Outbound 2002 2003 2004 2005 Tang truong Source: market research data from marketing planning Division – Vietnam airlines, 2006 Figure 9: Tourist passenger total travel to US from 1995 to 2005 (Chapter 3.2.2) 30,000 15% 25,000 10% 5% 20,000 0% 15,000 -5% 10,000 -10% 5,000 -15% -20% 1995 1996 1997 1998 1999 2000 Tong Inbound 2001 2002 2003 2004 2005 Tang truong Source: market research materials from marketing planning Division – Vietnam airlines, 2006 X Figure 10: VietNam-America airline market according to Origin & Destination (chapter 3.3.1) 100 80 4.3 4.1 5.7 5.8 31.3 26 27.7 27.7 60 40 64.4 69.9 66.6 66.5 20 VN to US Non-Vietnamese US to VN Vietnamese US to VN Y2003 Y2004 Y2005 Y2006 Source: market research data from marketing planning Division – Vietnam airlines 2006 XI Figure 11: Organization chart of Vietnam Airline (chapter 4.1) Source: http://www.vietnamairlines.com XII Figure 12: 10 Codeshare Agreements of Vietnam Airline (chapter 4.3) Source: http://www.vietnamairlines.com XIII APPENDIX (TABLES) Table 1: Structural Analysis of the Industry (chapter 2.2.3) Threat of entry and entry barrier New entrants to an industry typically bring in substantial resources, new capacity and a desire to gain market share The threat of entry depends on the presence of entry barrier and the reaction that can be expected from existing competitors Entry barrier is an obstruction that makes it difficult for a company to enter an industry Some of the possible barriers to entry are as follows: Large economies of scale, high production differentiation, high capital requirements, high switching costs, effective access to distribution channels and local cost advantages Bargaining Power of Buyers Buyer can effect an industry through their ability to force prices down, bargain for higher quality or more services Normally, these buyers play competitors against each other Bargaining Power of Suppliers Raw material suppliers can effect an industry through their ability to raise supply prices or reduce the quality of supplied goods and services The power of each important supplier group depends on number of characteristics of their own market situation and on their relative importance of their purchases or sales to the industry compared with their overall business Threat of Substitutes Substitute alternatives are those product or service that appear to be different, but can satisfy the same need as the previously used product or service Those substitutes limit the profit potential of the industry normally place a ceiling on product or service prices Competitive Rivalry Rivalry among existing firms are related to the presence of several factors as follows: small number of competitors, slow rate of industry growth, generic product or service characteristic, relative high percentages of fixed costs, over capacities, low entry barriers and focused business of the rivals XIV Table 2: SWOT analysis (Chapter 2.3) Strengths A strength is a resource, a skill, or another advantage to compete or serve the needs of the market It is distinctive competency when it gives the firm a competitive advantage in the market place Weaknesses A weakness is a limitation or deficiency in a resource, a skill, or another capability which seriously impedes a firm’s effective performance Sources of weaknesses can be scarce financial resources, limited management capabilities, inadequate marketing skill and damaged brand images Opportunities An opportunity is a major favorable situation in a firm’s environment Sources of opportunities for the firm can be key trends, previously overlooked market segments, changes in the competitive or the regulatory environment, technological changes and improvements in the buyer or supplier relationships Threats A threat is a major unfavorable situation in a firm’s environment Threats are sources of key impediments to the firm’s current or designed strategic position Threat to the firm’s success could be represented by the entrance of new competitors, a slow market growth, an increasing bargaining power of key buyers or key supplier, changes in the regulatory environment and technological changes XV Table 3: Bandy commercial between U.S and ASEAN (Chapter 3.1.2) Export Import Sum 31.3 49.8 81.1 San Francisco 5.6 11.6 17.1 Los Angeles 7.0 6.0 13.0 Dallas Ft Worth 4.1 4.7 8.8 United States Sources: http://www.census.gov/foreign-trade/balance Table 4: VietNam -America airline market according to Origin & Destination (Chapter 3.3.1) 1a 1b O&D US VietNam Overseas vietnamese to VN American to VN Vietnamese to US Y2003 Y2004 to 210,072 292,258 Y2005 320,409 Y 2006 326,030 141,377 212,940 226,180 225,840 68,695 9,463 94,229 19,191 94,229 19,527 79,318 12,401 Source: market research data from marketing planning Division – Vietnam airlines, 2006 XVI Table 5: Distribute passengers by America Departure/Destination (Chapter 3.3.3) Year The West 2003 2004 2005 75.2% 71.1% 66.9% California 69.1% 64.8% 63.6% LAX 52.9% 49.9% 40.1% SFO 16.1% 14.9% 23.5% 8.6% 13.2% 18.2% The Middle 17.2% 17.8% 17.1% The East 1.7% 2.6% 4.4% Others Source: market research data from marketing planning Division – Vietnam airlines, 2006 Table 6: Passengers from Lax to Vietnam through gateway (chapter 3.3.4) Y2003 Y2004 Y2005 100% Total US to 111,22 145,76 128,77 80% 16.8% 19.6% VIETNAM 20.3% 47,65 59,68 57,63 60% 20.6% 20.4% 19.4% TPE 40% 22,72 28,22 26,53 BKK 44.8% 42.8% 40.9% 20% 21,83 29,61 21,57 HKG 0% 13,14 12,51 Y2003 Y2004 Y2005 ICN 8,325 KUL 3,088 2,854 2,759 SIN 1,651 2,109 1,815 NRT 1,394 1,475 1,567 MNL 828 2,057 896 KIX 1,895 1,739 658 OT 1,820 4,874 2,815 Source: market research data from marketing planning Division – Vietnam airlines, 2006 OT KIX MNL NRT SIN KUL ICN HKG BKK TPE XVII Table 7: Passengers from SFO to Vietnam through gateway (chapter 3.3.4) Y2003 Y2004 Y2005 Total US to VIETNAM 33,871 43,543 75,318 HKG 9,187 10,283 39,451 TPE 19,963 27,498 31,580 SIN 1,108 1,416 1,219 MNL 626 1,865 1,123 ICN 625 908 598 NRT 2,121 1,109 535 OT 240 464 813 100% OT 80% 60% 58.9% 41.9% NRT ICN 63.2% MNL 40% SIN 52.4% 20% 27.1% 23.6% 0% Y2003 Y2004 TPE HKG Y2005 Source: market research data from marketing planning Division – Vietnam airlines, 2006 XVIII Table 8: Service quality at passengers' sight (chapter 4.5) Item Flight Telephone sales Domestic International Ticket selling at booking office Domestic International Formalities before flights Domestic International Aircraft facilities Domestic International Cabin crews Domestic International Food portions on plane Domestic International Drinks on plane Domestic International Served newspapers Domestic International Entertainments in flights Domestic International Year 2005 Year 2006 Increasing / Decreasing 5.95 5.95 5.80 5.92 5.90 5.84 5.65 5.66 0.01 5.65 5.81 0.15 5.58 5.62 0.05 5.68 5.71 0.03 5.28 5.32 0.04 5.95 6.00 0.05 5.75 5.78 0.03 4.80 4.97 0.17 5.15 5.25 0.10 4.93 5.01 0.08 5.28 5.31 0.04 5.43 5.39 5.08 5.10 0.03 - - - 4.53 4.71 0.18 0.00 0.12 -0.06 -0.04 Source: data from marketing planning Division – Vietnam airlines, 2006 XIX Table 9: Frequent Flyer program (chapter 4.6) Schedule of Member Sum Card style Gold Titan Silver Registry Total North of Vietnam South of Vietnam Midland of Vietnam Overseas Total Member % Sum Member % Sum Member % Sum Member % Sum Member % Sum 3,293 4,116 11,251 8,781 27,441 12 15 41 32 100 2,884 4,487 13,460 11,217 32,048 250 14 42 35 100 18 643 1,536 1,143 3,573 43 32 100 1,836 3,305 15,425 16,159 36,726 42 44 100 8,264 12,551 41,672 37,301 99,788 Source: data from marketing planning Division – Vietnam airlines, 2006 Table 10: Strategical advertisements in typical markets (chapter 4.7.2) Japan budget paid 386,453 USD increasing 61.3% of plan France budget paid 75,000 USD increasing 12.5% of plan German budget paid 499,132 USD increasing 99.8% of plan Russia budget paid 70,466 increasing 78.3% of plan Australia budget paid 119,551 USD increasing 99.6% of supplemented plan Korea budget paid 164,458 USD increasing 96.7% of supplemented plan USD Source: data from marketing planning Division – Vietnam airlines, 2006 13 42 37 100 XX Table 11: SWOT matrix (Chapter 5.2) Internal Factors Strengths (S) Weakness (W) - In-flight services are mostly suitable for Vietnamese passengers - Safety rate of VNA is pretty high - Aircrafts are new, modern - VNA has become the official member of IATA - VNA brings Vietnamese traditional to US market - Prices of aircrafts renting and fuel which are highly risen, - VNA capital is not strong enough to invest the plane facilities and technical conditions - Quality of products and services are still not high and stable -Limitation for advertisements budget - Limitation of fleet SO strategy WO strategy Differentiation strategy Joint venture strategy - Develop the diversity of VNA services, upgrade service quality by new and modern aircraft to attract target passengers, brings Vietnamese traditional to US market and continue to develop distribution network This Strategy helps VNA to develop the strengths and use the opportunities - This strategy helps VNA to overcome the weakness due to limitation of budget and fleet to use the opportunities as Environments of politics, economy, society are stable, directly foreign investments fast increasing ST strategy WT strategy Competitive price strategy - To segment the market to define suitable market, target passengers This strategy helps VNA to reduce the threats when open route to US Human resources developing and technology transfer strategy - This strategy helps VNA to encourage the investment to consolidate financial ability, increase the fleet, upgrade the service quality, customer service…Since then, avoiding to lag behind in aircraft technology External Factors Oportunities (O) - Environments of politics, economy, society are stable, directly foreign investments fast increasing, - The straight flight from Vietnam to US makes co-operations and exchanges between two countries - Vietnam economy has been restoring in a good condition - New Tansonnhat airport with high standards Threats (T) - Competitions are very severe about ability and price - Natural calamity, epidemic diseases - The war between US and Iraq