Discuss how United Airlines identified its target market and used this to their

Question

Discuss how United Airlines identified its target market and used this to their advantage.

) Read the case study below and answer the above question.

The base for segmentation

United Airlines uses a form of psychographic segmentation to divide up the market for its services. This involves identifying the social class, lifestyles, opinions, interests, behaviour and attitudes of customers. Modern communication systems play a major part in this information-gathering exercise. With the help of questionnaires, United Airlines classifies its customers by their motivations. For example, some customers choose United Airlines because of price, while others choose the airline because of schedules, frequent flyer programmes or other forms of service. For United Airlines, successful segmentation enables targeting to take place. Targeting provides the focus for the activities of the business. It enables promotions and services to be aimed only at those who are most likely to respond positively to them. Passengers are communicated with through email which is becoming a focus for closely-targeted marketing. The United Airlines business model can be compared to the classic 80:20 rule in Pareto's Analysis. Based on experience of the airline industry, the model assumes that, for airlines offering a high level of service, 80% of profit comes from 20% of customers. The profit-generating customers are the ones who are prepared to pay a premium price for a premium service. They are the ones that the airline most needs to attract.

There are clear differences between domestic segments and global segments. For example, international segments might differ by hours rather than minutes in the US, and the cost of domestic travel is also significantly lower. Having identified different segments, United Airlines had to decide on which ones to concentrate. One key factor was the potential of each sector to generate not only revenue but also profit. In some segments, such as global executives, the customer profile was clear-cut regarding who they were and what they required so compiling a package of services for them was comparatively straightforward. However, some segments were less responsive to key benefits and it proved harder to identify precisely what they were most looking for. With global executives as the target market, the airline also developed packages for schedule optimizers, mile accumulators, travel seekers, corporate troopers and quality vacationers.

Meeting customer needs

In an industry in which the service provided is a major form of competition, the most successful airlines will be those who most accurately identify what different segments of their customer base want and are willing to pay for, and then provide it, usually within one aircraft. The end product is complex. For example, United Economy International provides services such as multi-course meals based upon consultation with celebrity chefs, brand name beverages, multi-lingual flight attendants, Mileage Plus¨ programmes and entertainment systems. The services offered by United Business International and United First International include built-in entertainment centers and a greater amount of private space.

The service life-cycle

In general, depending on the size of the company, service providers can modify their offer more quickly than manufacturers can alter their products. United Airlines' ability to fine-tune its services rapidly in response to changing customer needs enables it to retain its market position. Growth strategies also depend on a capacity for 'rapid response'. Service adjustments may involve, for example: • expanding the range of services for some segments; • modifying how a service is delivered; • re-positioning services in chosen segments; • differentiating services even further from those of competitors and • finding untapped markets for services. Like the product life-cycle, the service life-cycle needs constant injections of life to extend the growth phase and increase the profitability of the organisation

Explanation / Answer

The Pareto Rule is practically universal. 80% of profits come from 20% of your customers. Any company that can identify this 20% successfully and cater to them will go much further than their competitors. This is something your competitors cannot copy.

United Airlines used psychographic segmentation which involves identifying the social class, lifestyles, opinions, interests, behaviour and attitudes of customers. This segmentation enables targeting to take place. Targeting provides focus enabling promotions and services to be aimed only at those who are most likely to respond positively to them and thus enable United Airlines to charge a premium from them.

They can concentrate on some segments to make sure occupancy is high enough. This makes sure they recover their fixed costs, which is quite high. Then for profitability they can target the whales who spend more for tailor-made services

Now that they had the segments defined they can go ahead and provide specific services to each segment. E.g. With global executives as the target market, the airline developed packages for schedule optimizers, mile accumulators, travel seekers, corporate troopers and quality vacationers

Service is a major driver of the Customers preference and one of the things where Airlines can successfully differentiate. And on top of this upgradation of service doesn’t require a huge upfront cost unlike upgradation of the Airline itself. United Airlines used this to successfully package different services together to make a compelling offering to the customers

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