Introduction
Internet marketing has played a major role in expanding the market shares for companies across the globe. Customers use internet-based online purchasing to acquire the commodities in the market. They use it as a means of saving time and to get a wide range of options for goods and prices for the goods.
Through the internet, the customers are able to explore the different products and company brands that are available in the market as well as their prices and therefore have the opportunity to make choices that suit their preferences and their financial capabilities. Although companies have many marketing and distribution channels to market and sell their brands, internet-based online distribution channels are growing at a fast rate considering that today, we are in a globalized market.
Companies employ internet-based online marketing to achieve market segmentation and positioning to target specific market areas so as to increase their market shares and therefore optimize profit. The internet-based online marketing has significantly changed the role of customers in the service industry. They have taken an active role in determining value creation. Services industries therefore have to balance trade-offs to achieve benefits while making sacrifices that favour their customers.
The airline industry is among the services industries that have applied internet-based online marketing strategy in the United Arab Emirates to achieve their marketing goals. One such airline company that applies internet-online based is Continental Airlines. Its airline industry data shows that online marketing has penetrated the leisure travel market as well as the low-fare market (Brunger 66).
Although the company’s internet distribution channels yield lower revenue as compared to its revenues from traditional travel agencies by a significant percentage, the data available shows that internet distribution channels are fast catching up in the market.
Purpose and Scope
The aim of this study is to analyse Continental’s organizational effectiveness in implementing internet-based online marketing strategy. The paper examines the effect of the internet on the company’s marketing and the company’s ability to effectively explore the internet in the evolving role of marketing. The paper examines how the company uses the internet for pricing management as well as for product management.
It explores Continental Airlines ability to apply internet-based online marketing to achieve market segmentation and positioning as well as market targeting. It discusses the company’s market research and analysis through the use of the characteristics of its online travel agency and traditional agency customers to expand its services and market. Finally, the paper explores the company’s use of the internet in channels management.
Methodology
The study takes both qualitative and quantitative analysis of internet-based online marketing applied by Continental Airlines. The study reviews the literature written by William Brunger on the price effect of the internet. The data available in the journal is both qualitative and quantitative. The analysis takes a look at the research results presented by Brunger from the large multivariate regression analysis of the data from the company’s data base. The information available includes data that was collected between June 2003 and June 2007.
The study evaluates Continental Airlines’ effectiveness in the application of its internet marketing strategy by comparing its strategies to standard marketing strategies obtained from other written sources. The data that was used for the research presented in this journal was collected from the bookings from the airlines website (continental.com) as well as from its reservation offices and contained complete records of Continental Airlines’ customer information.
Literature Review
Airline yields for Continental Airlines which is expressed as the amount of money each customer pays for a mile is said to be on the decline since 1988 when the company began to offer internet purchasing services to its customers. However, the internet sales have tremendously increased over the years and this has been the major reason for the reduction in its yields.
The study that was carried out from June 2003 to June 2007 found out that the company’s internet distribution channels yielded 25% less (Brunger 66). The company offers equivalent fares as well as equal inventory allocations to both its online travel agencies and its traditional travel agencies.
The company has established that its traditional travel agencies yield more revenue to the company since its business customers particularly business corporations rely on them to manage their travel budgets. The business customers are ready to pay higher fares as compared to the leisure customers since they acquire their travel tickets from the traditional agencies.
The traditional agencies sold higher fare tickets to customers than online travel agencies. On the contrary, Continental Airlines offered equal fare averages and inventory to both its traditional and online distributional channels.
The online customers are able to explore all the brands available through advanced searches to acquire low-priced tickets which are available during the off-peek hours and days while customer who use traditional agencies do not get the same chance to explore all the prices available. To them, they rely on the explanations offered by the traditional agencies. The study showed that the marked difference on its revenue collection depended on the purpose of the travel.
Continental Airlines offers an array of airline pricing structure as part of its marketing strategy. It has segmented its markets and offers a range of fare products in every market. Each fare product comes with fare restrictions particularly for the advanced ticket purchases. It sets penalties for ticket refunds and change restrictions and also sets conditions for stay requirements (Brunger 67).
The airline use price differentiation to segment its markets. Its offers different fare products targeting its main two categories of customers which are the leisure travelers and business travelers. Most of its online fare products structures are targeted to the leisure customers. The airline defines leisure travelers as those visiting friends and relatives as well as customers travelling on vacation.
The airline’s revenue management system ensures that it offers different fares products in each given flight at any particular time in the same market. The airline also uses the Expected Marginal Seat Revenue to predict the price that the customer is ready to pay by applying the power of its regression technique.
Thus the airlines revenue system enables it apply product differentiation as well as price discrimination to its customers in the same market. For example, in June 2006, the Houston-to-Seattle market had five different fare products in the airline’s fare structure which include a 7-day advance purchasing as well as change or refund restrictions.
The different rates offered to the customers were designed to suit different categories of customers which are the price-sensitive leisure customers and the less-price-sensitive business customers. The fares also varied with time of the day and the day of the week depending on the peak periods of the travel time or day.
The information available at the Continental Airlines’ database indicates that most online travel agencies customers were more likely to buy lower ticket fares. Customers who purchase their tickets through the airline’s online travel agencies use internet’s enhanced search engines to buy less expensive fare tickets which are offered by the airline’s revenue management system. The internet also provides real-time fare alternatives to customers (Brunger 70-71).
Continental Airlines uses its internet-based online marketing to segment its customer population. The airline uses the customer information to evaluate the purpose for the trip and its relative effect on the fare product chosen in order to design fare products which are market specific. It uses differentiated pricing for each of its market segments.
The differentiated product fares focus on homogeneous sub-groups of its customers who exhibit almost same characteristics. The data on its online customers allows the airline to analyse all the customer characteristics and therefore classify them into more homogeneous groups. This enables the airline to design fare products which best suits its online groups of customers.
Previous studies and this research showed that leisure customers who use online channels to purchase their fare tickets tend to be more price-sensitive as well as less brand loyal as compared to leisure customers who use other distribution channels. This results from the internet’s enhanced search capabilities (Brunger 70).
The airline uses the data available in its database from the online customers to carry out market research and analysis. It uses regression techniques to determine the effect of its online marketing strategy on its sales volume, total revenue collection, customer characteristics and market effects.
It uses the results of its market research to redesign product fares which enable it achieve market segmentation and positioning through product and price differentiation. The information available from its online customers provides all characteristic needed for its quantitative analysis.
It analyses the mean value attributes of its customers to determine their attitudes towards its market brands and fare products and therefore classify them into a pool of homogeneous groups. This enables the airline to design brands and products that best meet their requirements through its distribution channels.
Findings
Continental Airlines uses a customer-dominant marketing strategy in its service provision to create value to customers. Its customer-company interactions focus on the mental life of its customers who use its services.
The results from various studies show that the increase in internet usage has increased the spread of restricted and unrestricted airline fares. The studies also show that more customers have increased their search for airline travel online (Lane and Verlinda 1).
The Evolving role of Marketing
Internet has shifted the traditional role of marketing which focused on product marketing and exchange to interactions (Heinonen, Strandvik and Voima 3). The internet also increases the utility of the airline as it enables it trade off-peak inventory to its online customers who utilise high-search engines to explore its product fares and brands while at the same time reserving more economically valuable seats to its customers who are less price-sensitive.
The internet enables Continental Airlines to sell its seats during the off-peak days and hours when the customers are fewer. It online transparency as well as differentiated pricing gives its online customers the opportunity to purchase tickets and travel during such times.
The internet allows the customers to pay a positive cost to search on the airline’s offerings and therefore identify and purchase their preferred brands. Thus, internet-based online marketing enables the airline to apply brand-intensive competition through its differentiated product fares (Lane and Verlinda 2).
Product Pricing and Management
The airline uses the internet and the online travel agencies to communicate and effect sophisticated pricing policies to customers and therefore experiences higher degree of price management through its various distribution channels. Its revenue management system enables it to charge higher fares to a section of its customers in the same market.
The internet has also created numerous alternative sources for information on prices and hence enhances transparency in its fare products. The customers are therefore enabled to gain access to the fare products across a range of flights in the market.
This has enabled Continental Airline to attract more non-loyal customers. The regression analysis that was done after the research that was done between 2003 and 2007 showed that most of the airline’s customers who use the traditional travel agencies belong to the group of its loyal customers (Frequent Flyer Program).
The airline uses the internet information to calculate the minimum Expected Marginal Seat Revenue that it charges on every flight. The Expected Marginal Seat Revenue is the minimum price that the customer has to pay to purchase a fare ticket for a given flight. It uses sophisticated revenue management systems to determine the prospects for filling the remaining seats on the particular flight.
The airline continuously updates its Expected Marginal Seat Revenue as bookings for each flight continues. It optimizes network and high-level benefits by considering the connections and interactions that exist among flights.
It uses the Expected Marginal Seat Revenue as a mean average so that whenever a prospective online customer searches its reservation system on a given flight, the reservation system matches the particular Expected Marginal Seat Revenue with the fares offered in the airlines market during that period.
The reservation system would therefore only display fare products which have higher values than the Expected Marginal Seat Revenue. Fare products with lower values are hidden from the prospective customer (Brunger 69).
Internet in Channels Management
Internet enables airlines to manage their distribution channels by controlling the flow of information on its product fares and brands. It has changed the institutional functions of its distribution channels thereby allowing agencies to adopt online-based sales and advertisements of the organisation’s offerings.
It has enabled some of the airline’s channels of distribution to reduce their workforce’s participation since most explanations that the online customers may require are available on its website and that of its online travel agencies. It also enables the airline to efficiently coordinate its network of distribution channels and therefore bring its products to the ultimate customers.
Product Positioning
Internet has enabled Continental Airlines achieve market positioning by enabling it to continuously monitor its online customers’ preferences and characteristics. This gives the organisation the ability to focus on value creation to meet its customers’ preferences (Finney and Spake 6). The internet plays a role in helping the organisation form relationships with both its non-loyal and loyal customers.
It provides its online customers with an interactive channel through the online agencies and thus enabling the airline adopt marketing perspectives which enable it deliver customer-specific products and brands thereby achieving greater sales volume.
The internet enable airlines to center their product fares and brands to customers by designing more appealing offers since they better understand their customers’ characteristics (Finney and Spake 8). Internet enables the airline to achieve value creation through its market offerings which enables it acquire market positioning.
Market Research and Market Analysis
The internet enables the airline to acquire information on the characteristics of its customers, particularly online customers. These characteristics are used to carry out quantitative analysis of the customer characteristics on its marketing and sales volume. The airline focuses its research on customer behavior, its pricing, and its marketing strategy among many other dimensions.
The results are analysed to determine the best means to ensure value creation and price differentiation to its customers through its fare products and market brands.
The information available from the airline’s database reflecting its online customers is used to classify the customers into more homogeneous groups and therefore effectively analyse and design fare products and brands which best meet the customers’ preference and which also enables the company to sell its products and inventory.
Market Targeting and Segmentation
The airline carries out customer characteristic analysis through its online distribution channels and therefore classifies the customers into more homogeneous groups. It therefore designs customer-specific fare products that target the specific groups of customers which enable it apply price differentiation.
It structures its fares into various fare products and restrictions which meets the preferences of its online customers. It applies restrictions to enable it achieve market segmentation.
Failures in Continental’s Marketing Strategy
The airline has failed to completely restrict its online customers from exploring the low fare products during peek days. This has been the major factor that contributes to the company’s low revenue collection from its online distribution channels. Online distribution channels limit Continental Airlines’ ability to effectively apply its price distribution and as a result, reduce its revenue collection.
The airline’s inability to completely restrict ticket fares to all its customers enables online customers to purchase lower ticket fares than higher ticket fares. Thus, while internet marketing enhances product as well as price transparency to customers, it causes greater price sensitivity among customers, thereby lowering revenue collection by business organisations.
Studies that have been done to determine the effect of internet purchases on the revenue collection have shown that internet purchases generally yields lower revenues as compared to offline channels of distributions.
The customers utilise the internet’s search capabilities, the transparency enhanced by the internet and also control the internet to purchase find less expensive seats thereby increasing their utility. The airline has also not been able to achieve customer loyalty from most of its online customers. The study shows that most of the online customers are not brand loyal.
Summary
The paper discusses the Continental Airline’s effectiveness in exploring the use of online-based marketing. The paper discusses the purpose and scope of the study and also carries out a literature review of William Brunger ‘s journal. The paper explores the evolving role of marketing, the use of internet in channel management as well as in product pricing and management.
The paper also discusses the use of internet in marketing segmentation, targeting as well as positioning, it also analyses the use of the internet in marketing research and analysis. Finally, the paper discusses the failures of Continental Airlines in using internet.
Conclusion
Internet has changed the market strategies employed by organisations as well as the sales volume realised by organisations. It gives online customers the transparency and the capacity to explore all the available product prices and company brands and therefore make choices that meet their preferences and economic abilities thereby giving them more control over company’s products. Online marketing also gives organisations the opportunity to increase the market positioning and therefore increase their market shares.
Works Cited
Brunger, William. Revenue and Pricing Management. London: JINFORMS Revenue Management, 2010. Print.
Finney, Zachary and Spake, Debora. Lost in transition? The human influence on marketing’s emerging service-dominant logic. Journal of Management and Marketing Research. Alabama: University of Alabama Press, 2010. Print.
Heinonen, Kristina, Strandvik, Tore and Voima, Paivi. Exploring customer valueformation: A customer dominant Logic Perspective. Hanken: Hanken School of Economics, 2010. Print.
Lane, Leonard and Verlinda, Jeremy. The Effect of the Internet on Pricing in the Airline Industry. California: University of California Press, 2004. Print.