Marketing strategy for Vietnam Airlines to penetrate the US market

MINISTRY OF EDUCATION & TRAINING UNIVERSITEÙ LIBRE DE BRUXELLESHO CHI MINH CITY OPEN UNIVERSITY SOLVAY BUSINESS SCHOOL MBMM PROGRAM TRAN QUANG HOA MARKETING STRATEGY FOR VIETNAM AIRLI

MINISTRY OF EDUCATION & TRAINING UNIVERSITEÙ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY 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 UNIVERSITEÙ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY 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

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

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

TUTOR COMMENTS

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JURY COMMENTS

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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

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 3 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

- 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

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 1 INTRODUCTION……….1

1.1 Background and Management Problem……….1

1.2 The Project Objective……….2

1.3 Research Method……… 2

1.4 Project Scope……… 2

CHAPTER TWO 2 LITERATURE BACKGROUND……….3

2.1 Company Internal Analysis………3

2.2 Company External Business Environment………3

2.2.1 Market and Customers………4

2.2.2 Competitor profile………4

2.2.3 Structural Analysis of the Industry……….4

2.3 SWOT Analysis……….4

2.4 SWOT Matrix……… 5

2.5 Strategy Formulation……… 5

2.5.1 Marketing Strategy……… … 5

2.5.1.1 Advertising strategy……… 5

CHAPTER THREE 3 EXTERNAL ENVIRONMENT ANALYSIS 6

3.1 General Introduction about US and VN – US relationship……….6

3.1.1 General……… 6

3.1.2 Population, overseas Vietnamese in US………6

3.2 U.S Air Transport Market………7

3.2.1 Outbound market……… 7

3.2.2 Inbound market………8

3.3 Airline Transporting Market Between Vietnam and US……… 8

3.3.1 Vietnam - US aviation market according to Origin & Destination……….8

3.3.2 Passengers structure……… 9

3.3.3 Passengers distribution by US Departure/ Destination……….9

3.3.4 Connection Gateway……….9

3.3.5 Competitors profile……….10

3.3.5.1 Competitive rate based on the origin/ destination in LAX/ SFO……… 10

3.3.5.2 Competition through the TPE Gateway……… 10

3.3.6 Feature of sale system……….10

3.4 Summary……….11

CHAPTER FOUR 4 INTERNAL ENVIRONMENT ANALYSIS……….12

4.1 History and development process……….12

4.2 Flight network……….13

4.3 Global Cooperation………13

4.4 VNA Fleet……….13

4.5 Service quality at passengers' sight……….14

4.6 Frequent Flyer program………14

4.7 Advertisements………14

4.7.1 Advertising strategy………14

4.7.2 International advertisements………14

4.7.3 Vietnam market advertisements……….15

4.8 Sponsoring operations………15

4.9 Summary……….16

CHAPTER FIVE 5 STRATEGIC ANALYSIS AND CHOICE……… 17

5.1 SWOT analyses……… ……….17

5.2 SWOT Matrix………18

5.3 Marketing Strategy……… …….18

5.3.1 Target segment……….………18

5.3.2 General strategy……… ……….……….19

5.3.2.1 Differentiation strategy……….………19

5.3.2.2 Joint venture strategy……….19

5.3.2.3 Competitive price strategy……… ………19

5.3.2.4 Human resources developing and technology transfer strategy……….19

5.3.3 Product strategy……….19

5.3.3.1 Cooperation-product……….19

5.3.3.2 The ground and in-flight service……… 20

5.3.4 Price and distribution policy……….20

5.3.5 Promotion/ communication………21

5.3.5.1 Build up advertising strategy……….21

5.3.5.2 Picture advertisements………23

5.3.5.3 To systematize tactic advertisements……….23

5.3.5.4 Means………23

CHAPTER SIX 6 CONCLUSIONS AND RECOMMENDATIONS……….24

6.1 Conclusion……….24

6.2 Recommendations to VNA……….24 REFERENCES……….I APPENDIX………II

Figure 1: Value- Creating activities (chapter: 2.1)……… i

Figure 2: Company environment (chapter 2.2) ii

Figure 3: Five Forces Framework (chapter 2.2.3)………iii

Figure 4: SWOT Matrix (Chapter 2.4)……….iv

Figure 5: Strategy Formulation Process Flow in a Company (chapter 2.5)……….v

Figure 6: Geography of United States (chapter 3.1)……….vi

Figure 7: Overseas Vietnamese allocating in USA (chapter 3.1.2)……… vii

Figure 8: US passenger total traveling abroad fr1995 to 2005(Chapter 3.2.1)…………viii

Figure 9: Tourist passenger total travel to US fr 1995 to 2005(Chapter 3.2.2)……….viii

Figure 10: VN- US airline market according to O & D (chapter 3.3.1)………ix

Figure 11: Organization chart of Vietnam Airline (chapter 4.1)……….x

Figure 12: 10 Codeshare Agreements of Vietnam Airline (chapter 4.3)………xi

APPENDIX (TABLE)

Table 1: Structural Analysis of the Industry (chapter 2.2.3)………xii

Table 2: SWOT analysis (Chapter 2.3)……….xiii

Table 3: Bandy commercial between U.S and ASEAN (Chapter 3.1.2)……… xiv

Table 4: VN -US airline market according to O & D (Chapter 3.3.1)……… xiv

Table 5: Distribute passengers by US Departure/Destination (Chapter 3.3.3)…………xv

Table 6: Passengers from Lax to Vietnam through gateway (chapter 3.3.4)……….xv

Table 7: Passengers from SFO to Vietnam through gateway (chapter 3.3.4)………….xvi

Table 8: Service quality at passengers' sight (chapter 4.5)……… xvii

Table 9: Frequent Flyer program (chapter 4.6)………xviii

Table 10: Strategical advertisements in typical markets (chapter 4.7.2)……….xviii

Table 11: SWOT matrix (Chapter 5.2)……….xix

ABBREVIATIONS

VNA : Vietnam Airlines

IATA : International Air Transport Association WTO : World Trade Organization

APEC : Asia-Pacific Economic Cooperation GDP : Gross Domestic Product

FFP : Frequent Flyer Program

ARC : Airlines Reporting Corporation BSP : Bank Settlement Program

O&D : Origin & Destination

C class : Business class

Y class : Economy class

Yd class : Economy deluxe class

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CHAPTER ONE INTRODUCTION

1.1 BACKGROUND AND MANAGEMENT PROBLEM

Vietnam’s recent accession into the WTO creates big opportunities for VN aviation market, but challenges will also rise to a higher level The aviation market has been expanded, thus Vietnam airline (VNA) has to try to develop markets and its network of flight routes

Besides, IATA (International Air Transport Association) acknowledged VNA as IATA official member as from 5/12/2006 Becoming a member of IATA not only brings about commercial benefits but also plays a significant part in reinforcing the name of VNA The trademark and symbol “Vietnam Airlines” will be added

to the member list of IATA, which will greatly contribute to reinforcing the position of VNA in the international market as well as the quality of services that VNA is offering to its passengers

Currently VNA operate and code shared co-operate to 38 destinations around the world including Europe, Asia, Australia and the Middle East Domestically, VNA fly to 18 destinations Now VNA have 40 Aircrafts include: 10 Boeing 777, 08 Airbus321, 10 Airbus320, 10 ATR-72, 2 Fokker-70 The corporation planned to increase its fleet to 86 aircrafts by 2015, expand international and domestic routes Next year, VNA plans to launch a direct route to the US That is the goal VNA expects to reach in the beginning of year 2008

The biggest difficulty faced by VNA when launching the route to US is competition, noting that 7 - 8 airlines currently transport passengers from the United States to Vietnam and vice versa

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And the problem is how VNA can 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

1 2 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

1.3 RESEARCH METHOD:

The process of solving this management problem is based on the strategic management framework developed by Pearce and Robinson, 1997 The competitive strategy is determined according to the concepts of Michael Porter,

1998

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

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CHAPTER TWO LITERATURE BACKGROUND 2.1 Company Internal Analysis

five primary activities and four support activities (Figure 1)

2.2 Company External Business Environment

A guideline for analysis of the external environment is the “PEST” framework

(Figure 2) PEST stands for the Political, Economic, Social and technological

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environment (Johnson & Scholes, 2002 ) This analysis therefore includes social country environment and the industry task environment

2.2.1 Market and Customers

The traditional approach a customers and consumers analysis is based on customer’s profile and consumer profiles, which is constructed from geographic, psycho graphic variables and behavior information Based on these information the market is segmented (Philip Kotler, 1994)

2.2.2 Competitor profile

The analysis of the competitor profiles has several objectives: Identification of the current and of potential competitors, identification potential strategic competitor moves, identification of an effective strategy to compete

Although the exact criteria used in constructing a competitor profile are variable and determined by situational factors, the following criteria are commonly includes: raw material costs, capacity and productivity, relative product quality, price competitiveness, effectiveness of the marketing sales distribution, market share, financial position, general reputation and experience

2.2.3 Structural Analysis of the Industry

The five forces framework helps to identify the sources of competition in an

industry sector (Figure 3), (Table 1)

2.3 SWOT Analysis

The SWOT analysis is a technique to illustrate a quick overview of a company’s strategic position It illustrates a summary of the firm’s internal capabilities (strengths and weaknesses) and its external environment (opportunities and

threats) (Table 2)

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2.4 SWOT Matrix

SWOT matrix can facilitate the internal analysis of the firm The study uses an analysis which is based on the assumption that an effective strategy derives from maximized firm’s strengths and opportunities and minimized weaknesses and

threats (Figure 4)

2.5 Strategy Formulation

The diagram outlined process of a strategy formulation (Figure 5) Here a

paradigm is the set of assumptions held relatively in common and taken or granted in an organization (Johnson & Scholes, 2002) Based on such a company internal common sense the strategy suggestions are formulated

2.5.1 Marketing Strategy

The marketing strategy intends capture a larger market share of an existing market through market saturation and market penetration or development of new markets for the current products

2.5.1.1 Advertising strategy

Advertising is a non-personal form of promotion that is delivered through selected media outlets that, under most circumstances, require the marketer to pay for message placement

Worldwide advertising media:

• Newspapers, Magazines, Professional and technical magazines

• Cinema, television, radio, outdoor advertising and transport advertising

• Interactive communication media, Place-based media (the fitness center, supermarket, airport, in the aircraft…)

• Trade fairs and exhibitions, sponsorship of sport or art events

• …………

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CHAPTER THREE EXTERNAL ENVIRONMENT ANALYSIS

3 1 General Introduction about United States and Viet Nam – United States Relationship

3.1.1 General

United States (US) is a large geography country Including Alaska State at Northwest Canada and Hawaii archipelago in Pacific Ocean, USA area is 9.159.123 km2, the 4th position in the world behind Russian, Canada, China, holding 6.2% worldwide area It’s 4.500 km from East to West and 2.500km from

North to South (Figure 6)

3.1.2 Population, overseas Vietnamese in US

U.S has many euthenics groups, racial, cultural and languages In July 2004, U.S population is 293.027.571 people, 77.1% is white, 12.9% is black, 4.2% is Asian (approximately 12 million), 1.5% is U.S aboriginal, 0.3% is Alaska & Hawaii aboriginal and Pacific Islands and 4% from other origins

As US census in 2000, the overseas Vietnamese community in US is 1.2 million people, including: 46.3% of overseas Vietnamese (approximately 566.519 people) live in Western state, especially in California and Washington, 15.28%

of overseas Vietnamese (approximately 187.018 people) live in South West Central, especially in Texas, 12.42% of overseas Vietnamese (approximately 152.059 people) live in South Atlantic; The rest is allocated from 4-6% of

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overseas Vietnamese live in Middle Atlantic, North Central , Mountain, South

Central (Figure 7: overseas Vietnamese allocating in USA (US Census in 2000)

Political

U.S is divided in 50 states, each state has its law and constitution, but it isn't against federal constitutional Federal government seize the power management including: general tax policies, foreign policy, international trade, bearing responsibility for copyrights, national defense, metrology system, weights and measures, money issuing

Product) GDP per capita about 35.019USD (Table 3)

3.2 U.S AIR TRANSPORT MARKET

3.2.1 Outbound market

- So in stage from 1995 to 2005, the U.S outbound passengers to foreign country developed stably from 5% to 10% (excluding 2001 and 2002 which had a terrorism on 11/9, the war in Iraq, there was a SARS epidemic in 2003 that

effecting to the U.S aviation market and the world seriously (Figure 8)

Businessman coming to U.S is mostly at the Eastern states and California in West Most of businessman come in/out U.S that have resident period of time in U.S is 6 days normally

There is 77% tourist coming to U.S with the main purpose is traveling., 14% for visiting relative plus travel and joining to another events for remaining Resident

period of time in U.S is 8 days normally (Figure 9)

3.3 AIRLINE TRANSPORTING MARKET BETWEEN VIETNAM AND UNITED STATES

3.3.1 Vietnam - US aviation market according to Origin & Destination

In the year 2006, US-Vietnam aviation market have achieved 339,600 passengers which 94.15% is passengers from US to Vietnam (320,409 passengers), and 5.85% is passengers from Vietnam to US (19,191 passengers) Forecasting, number of passengers between US and Vietnam will grow continuously with high speed of 15% to 20% per year in the period of 2007 to

2010, especially, after Vietnam joins The World Trade Organization development ratio can be decreased a little and stable at the average of 10% per

year in the following five years (Table 4) (Figure 10)

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3.3.2 Passengers structure

In the US -Vietnam passengers structure, overseas Vietnamese holds 66.5% of the total O&D for both two way After Vietnam joins the WTO, development of travelers and business passengers segments are growing faster and their proportions also go up in the passenger structure from US From Vietnam, most

of the passengers are businessman, overseas students and emigrants to reunite with their families

3.3.3 Passengers distribution by US Departure/ Destination

With an advantaged geographical position, the West America, especially, California had become a biggest gateway for passengers transporting to US, and

in the market between US and Vietnam Although in recent years, the products flight directly from the Northeast Asia gateways to the East and Middle of US have caused the decrease of passenger ratio to the West However, the West, especially California still be a predominated gateway of transportation in the

coming years (Table 5)

The general feature is the oversea Vietnamese departuring from LAX, SFO also have the tendency to choose the flights through the TPE gateway, maybe

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because TPE has the variety of flights connecting to Vietnam or its airfare is

competitive (Table 6-7)

3.3.5 Competitors profile

3.3.5.1 Competitive rate based on the origin/ destination in LAX/ SFO

Comparing between LAX and SFO, we can see that the target of LAX is always higher in population, distributing into oversea Vietnamese, oversea Chinese, Americans coming to Vietnam as well as the operation frequency of the airlines However, only if basing on some target such as: oversea Vietnamese/ the quantity of flights through TPE gateway , we can see the index of growth of SFO and LAX is similar, it means that the competitive rate is nearly the same

3.3.5.2 Competition through the TPE Gateway

Considering the competitive products, along with the other connecting flights through TPE, the position of Vietnam connecting flights in Taiwan, Vietnam or

US can not be higher than China airlines and Eva airway which have the tradition of developing flights in the market When entering in the market, the market share of loading supply between TPE-US of Vietnam is not remarkable Therefore, Vietnam could encounter the big competition about the products and price

3.3.6 Feature of sale system

At present, over 70% airline ticket in the US market is booked by ARC agent (Airlines Reporting Corporation), an intermediate organization specializing in organizing the booking system and payment between the airlines and the agents

in the Northern US, operating the same as the BSP(bank settlement program) system in Europe, Asia Most of the airlines, having flights to Northern US, join

in ARC Until now, 135 airlines, about 23000 agents and 175 travel agents in US are the members of ARC

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3.4 SUMMARY

Vietnam-US aviation market has regularly grown for many years, average 9% per years in the period of 1998 to 2006 Except the years 2001 and 2003 with the September 11 event and SARS epidemic has pulled this number down much Vietnam’s recent accession into the WTO creates big opportunities for VN aviation market, but challenges will also rise to a higher level The aviation market has been expanded, thus VNA has to try to develop markets and its network of flight routes

The straight flight from Vietnam to US makes co-operations and exchanges between two countries developed such as culture, economy, politic, especially these are being developed on many aspects after Vietnam has joined WTO Especially, VNA brings Vietnamese traditional culture to Vietnamese passengers so that has gained a high rate in serving Vietnamese people living in USA VNA has a great opportunity to attract this market and Overseas Vietnamese segment will be the most important segment in the US-Vietnam market in many years, so building approaching policies to US market is mainly to approach the overseas Vietnamese segment From this view, California, which contents 39.5% of the Vietnamese America amount, should be an important destination

However, The biggest difficulty faced by VNA when launching the route to US

is competition, noting that 7-8 airlines currently transport passengers from the United States to Vietnam Considering the competitive products, along with the other connecting flights via Taipei, VNA could encounter the big competition with China airline and Eva Air about the products and price

These analyses will help VNA to realize the opportunities and threats when launching the route to US

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CHAPTER FOUR INTERNAL ENVIRONMENT ANALYSIS 4.1 History and development process

Beginning with a fleet of only 5 aircraft in 1956, VNA has been through some dramatic changes Originally known as Vietnam Civil Aviation, VNA began flying as an independent airline soon after nationalizing Gia Lam Airport In the ensuing more than fifty one years, VNA have been through many changes And with every change, VNA have developed, expanded and improved our service to become an airline of international standard

In 1995 VNA Corporation was formed by Vietnam’s Prime Minister Our functions and tasks of business cover the following areas: to engage in trade, services, airline passenger transport and cargo transport domestically and abroad

in line with the State’s Civil Aviation development plans; to make plans for development, investment, construction, securing funds, leasing and buying airplanes, maintaining equipment, exporting and importing materials, equipment, spare parts, and raw materials needed for the business activities of VNA; to cooperate and form joint ventures with organizations in the country and abroad in accordance with State laws and policies; fulfilling business tasks in accordance with the law; to obtain and effectively use, save and develop the State's funds including capital to invest in other companies; to receive and effectively use natural resources, land, trading rights, and others resources entrusted by the State

to do business and perform other duties; to organize and manage the application

of new technology and techniques and to train and support the continued development of VNA staff Since that time, we have enjoyed remarkable growth

in passenger traffic (Figure 11: Organization chart of Vietnam Airline)

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4.2 Flight network

VNA worked hard to increase its network in the last 5 years and will continue to expand and add many new international and domestic flights Currently VNA operate and code shared co-operate to 38 destinations around the world, in Europe, Asia, Australia and the Middle East Domestically VNA fly to 18 destinations In 2006, approximately 6.8 million people choose to travel aboard VNA That figure includes over 3.1 million passengers on international flights, and 3.7 million on domestic flights, more than one billion USD revenue In the same year, VNA also carry an impressive 106 thousand tons of cargo

Airlines, Lao Airlines, American Airlines (Figure 12)

4.4 VNA Fleet

Plan to develop VNA fleet in 2007 will be as follows:

B777: since April to the end of year will be 11 aircrafts (estimated)

A321: Since December: 11 aircrafts

A320: 10 aircrafts

ATR-72:10 aircrafts

Fokker-70: 2 aircrafts

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4.5 Service quality at passengers' sight

Passengers still assumed VNA service to maintain the rate a little bit higher than normal rate and some of service styles were still in good conditions It was step

by step in order as ticket reservation through telephone where cabin attendant were not at the highest rate, nearly at 6/7 marks; then Formalities before flights ; airplane facilities; newspapers; food portions; drinks; and the last was

entertainments in the flights (Table 8)

4.6 Frequent Flyer program

Program had achieved the total of 99,788 members in 2006, including 8,264 Gold members occupying 8%; 12,551 Titan members occupying 12%; 41,672 Silver members occupying 42%; and 37,301 Registry members occupying 37%; increasing 34,059 members (equally 50%) vs 2005 The members who have got

abroad correspondent addresses occupied 36.8% of member sum (Table 9)