LS0590: Case Study Star Airways

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Case Study Star Airways

Star Airways offered passengers air services within the country and served a territory of 18, 000 sq. miles with an expanding population of over 70 lakh of people who are potential users of the airline services. The geographic diversity and scattered business and commercial cities have led to steady increase in the number of people who use air travel. The clientele includes business people, as well as individuals on non-business trips, holidays, and leisure trips etc. As a result, the passenger traffic had been increasing steadily since the firm started operations in 1983. In the last three years, however, the growth has not been consistent with the growth pattern showed by the company in the last fifteen years – as against a healthy growth of 13 per cent, the sales have marginally improved, registering a growth of 6 per cent.

 

The company’s early success was due to the pioneering concepts used by it in the airline industry, which was dominated by large private and government operators with little market orientation. The launch of the company’s services coincided with a boom in the aviation sector and reduced government dominance, which opened up the skies for private operators. Besides this, the company offered a host of innovations in the customer service functions such as smaller and newer planes, convenient schedules, free gifts, comfortable seats, exclusive terminals, express baggage-check, and airport-to hotel transit for its first and business class clients. In turn the fares charged by the company were premium in the category and almost 15 per cent higher than the industry average. The company president in the following words justified this move: ”We are selling entirely on the basis of providing quality experience to our clients. Our services, ambience, and commitment to safety and time-bound schedule, all surpass the standards of the industry.”

 

During the first ten years of operations the company faced no direct competition. The only problems faced by the marketing staff were (a) the price, (2) the need to convince clients that air service was more efficient than other alternatives, (c) identifying the customers, and more importantly (d) developing the image of a dependable service. The consumers, who till now were forced to put up indifferent service offered by large government operators, did not offer much resistance and were agreeable to try out new company. Once customers were convinced, retaining them was very easy. Hence the company enjoyed immense loyalty from its clients with almost 40 per cent of them being regular users. Sales were handled by the sales division as well as by some independent sales representatives.

 

In early 1990s the company faced direct competition for the first time with a new company coming up with smaller planes and all other advantages which were previously associated with Star Airways. The growing business had made the market very lucrative and hence in the next three years, four major competitors were also vying for the market share. The company slowly lost to these competitors and could manage to retain only 30 per cent of market share by the end of 1994. All the competitors were engaged in aggressive promotion and soon started a ‘price war’ in order to outdo one another. For the next six months, each of them offered big discounts and gifts (such as TV / audio systems) with the return ticket on different routes. The most profitable and commercia1ly viable routes were the major targets of these price related competitions. The consumer was the ultimate beneficiary and in short time, the companies started facing losses due to this price-cutting.

 

Star Airways had so far remained out of this ‘price-war’ and lost its market share on the competitive routes very rapidly. It was able to retain the clients on other routes, which were not a part of this intense competition. Unhappy an anxious about this state of affairs, the company vice president, marketing, developed a marketing plan with several components. The initial part of the plan consisted of a market research done on a cross-section of existing clients as well as the clients of competitors and the following observations were made :

 

  • Star Airways was considered a quality-oriented company but many felt that it was getting stodgy.
  • The satisfaction with crew and schedules had declined over the last 5 years amongst regular customers.
  • The clients felt that the airline was losing its edge over customer service because it was non­flexible.
  • The prices offered by competitors are less and they provide only a fraction of services offered by Star Airways. This was the main reason of clients switching over to competitors. As many as 70 per cent respondents considered the costs as the most important factor in deciding on the airline.
  • Some deciding factors and their relative importance to clients were found to be following this pattern.
Feature offered by airlineImportance of feature as the deciding factorRank of feature in decision making influence
Price67%1
Ambience and food9%3
Punctuality14%2
Services & convenience7%4
Free gifts etc.3%5

 

The second phase of the plan included a massive advertising and promotion plan. The VP marketing, Anil Saxena, felt that the company needed to advertise it’s dedication to quality and rebuild an image of being a customer-oriented airline. He began discussions with the advertising agency to launch a campaign in the near future.

 

After a month, the agency came out with the following recommendations:

 

  • The campaign is to be completed in four months time and the budget will be 351akh.
  • The company would reach 85% of target audience, once in a month by direct mail.
  • Four times a month a TV commercial will be aired on a business show time. The audience TRP is consistent and highest in this category of shows.
  • Star Airways would build the campaign theme around ‘quality and customer service initiatives’.
  • The direct mail letter would be sent to a database of 85,000 clients in four months. The letter will contain information on the airline and again stress on the same theme of’ quality and customer service’.

Question 1: What is likely to be the decision process in case of choosing an airline?

Question 2: Would this plan suggested by the vice president help in convincing the customers to use Star Airways?
Give your reasons.


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