Strategic Market Planning

in the Commercial
krhne Industry
Ronald L. Zallocco, D.B.A.
Cleveland State University
and
Donald W. Scotton, Ph.D.
Cleveland State University
and
David A. Jeresko, M.B.A.
Cleveland State University
Strategic market planning has gained widespread use in the past 15
years as an instrument to aid management in establishing focus and
direction for an organization. Two primary factors have encouraged this
acceptance level. Fixst strategic market planning provides a conceptual
framework for systematically mapping an organization's focus. Second,
analytic techniques are available to assist in carrying through the
planning process. The four most widely recognized techniques are:
Experience curve/cost analysis, portfolio analysis, investment oppor-
tunity analysis, and PIMS (Abell, 1978).
A new phase in the evolution of strategic market planning is under-
way. With increasing experience, firms have learned the limitations of
the four techniques mentioned above. These limitations, highlighted by
Jain (1981) and Kiechel (1981), are sufficient to suggest serious restric-
tions in the use of existing techniques. New techniques are being devel-
oped by consulting firms and academicians to aid in the planning process
(Kiecbel). Future evidence will determine whether these techniques are
more useful than those they are designed to replace.

@1983,AcademyofMarketingScience,Journal of the Academy ofMarketing Science

Fall, 1983,Vol. 11, No. 4, 404416
0092-0703/83/1104-0404 $2.00
404
 STRATEGIC MARKET PLANNING
405 IN THE COMMERCIAL AIRLINE INDUSTRY

As the methods used in planning change, it would be useful to deter-

mine empirically the extent to which various industries have adopted
formal strategic market planning in general, and the four techniques
mentioned above in particular. The data base pertaining to this issue
needs to be improved. Most of the literature on planning for specific
industries has provided conceptual frameworks or suggested policy
focus (Huffmire, 1975; Mason & Mayer, 1979; Bouamrene & Flavell,
1980). Empirical evidence on the adoption of planning is usually limited
to case studies of individual firms or general descriptive papers {Hofer,
1976). The purpose of this paper is to determine the extent that the
commercial airline industry uses formal strategic market planning and
planning techniques.

AIRLINE INDUSTRY

There are a number of reasons why the airline industry is a good

industry to study in determining the extent of adoption by business of
strategic market planning techniques. First, capital expenditure
requirements for airplane purchases and airport construction programs
are extensive and require an extended time horizon for decision-making.
Second, the nature of the environment- changing regulations, increas-
ing competition, rising fuel costs, an overall slowing of the economy
and the rate of increase in passenger miles, difficulties created by the air
traffic controllers situation, and increasing efforts by foreign firms to
gain greater access to American airline consumers-- has created a vola-
tile situation that demands constant environmental scanning. Third,
technological change makes airplane product life cycle planning impor-
tant. Firms must be able to predict the economic life of airplanes built on
a given technology. Finally, the changing structure of the industry- in
particular the increasing number of smaller firms concentrating on
serving commuters between major metropolitan m a r k e t s - makes
mapping company/market strategy important. The trend in the indus-
try appears to be increasing use of basic marketing strategies such as
market specialiT~tion and product differentiation in order to develop an
approach to serving the market.
All of these factors have had an impact on such performance areas as
capacity utiliT~tion, revenues, and costs, forcing firms to realistically
assess the utilization of their resources and methods for approaching the
marketplace. Uneconomic activities and inefficient practices that could
 ZALLOCCO, SCOTTON AND JERESKO 406

be ignored in the past when there was exponential growth in demand

can no longer be tolerated. Today's environment requires effective
planning.

OBJECTIVES

The specific objectives of this study are:

1. To determinte the extent that companies in the commercial air-
line industry are familiar with and utilize formal strategic mar-
ket planning methods.
2. To identify the major problems encountered by commercial air-
line firms in using strategic market planning techniques.
3. To determine how firms perceive their strategic market
planning process compared to other firms in the industry.

METHODOLOGY

Data Gathering
A questionnaire mailed to all commercial airline carriers listed in
Dunn and Bradstreet's MillionDollarDirectory was used to gather the
data for this study. Air cargo and helicopter companies were excluded.
The questionnaires were addressed to either the vice president of stra-
tegic planning, the vice president of marketing or the president of the
company. The cover letter requested the recipient to convey the ques-
tionnaire to the individual within the firm most responsible for strategic
planning.
Fifty~)ne questionnaires were mailed and twenty-six completed
usable responses were returned, a 51% response rate. The response
rate was considered acceptable. Since the Airline Deregulation Act of
1978, airlines have been hesitant to divulge certain information about
their business to outsiders. Strategic planning was an area mentioned
by an industry representative as a topic about which corporations would
decline to comment (Business Week, April 13,1981}. Given this attitude,
the response rate is somewhat surprising.
Using annual sales as a basis for comparison, the responding firms are
very comparable to the non-responding firms, suggesting they provide
an adequate representation of the industry. This information is summar-
ized in Table I.
 STRATEGIC M A R K E T P L A N N I N G
407 IN T H E C O M M E R C I A L AIRLINE INDUSTRY

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Questionnaire
The five page questionnaire utilized a combination of structured and
open~nded questions. There were five parts to the questionnaire:
1. Demographic data (annual sales, existence of a division or depart-
ment charged with planning responsibilites, etc.).
2. Resources devoted to planning (dollars budgeted directly to stra-
tegic planning, number of individuals committed to strategic
planning on a fun-time basis).
3. Self<lescriptions of the overall planning orientation (centralized
vs. decentralized, short-term vs. long-term).
4. Familiarity with the utilization of formal strategic market plan-
ning methods. (Methods examined were: Experience curve/cost
analysis, portfolio analysis, investment opportunity analysis, and
PIMS). In addition, respondents were asked to describe other
formal planning techniques they used or had used in the past.
5. Issues related to strategic market planning {Respondent's per-
ceptions of the firm's planning methods relative to other firms in
the industry, and planning areas the respondent felt the firm
could improve upon).
To avoid confusion about terms, a brief explanation of the strategic
market planning tools was included with the questionnaire. Although
the descriptions may have had a biasing effect, sufficient information
about utilization of the techniques was required in the questionnaire to
insure that when a respondent indicated the technique was used, the
response was valid. Descriptions of the planning methods provided in
the questionnaire follow (Abell & Hammond, 1979}.
Experience Curve/Cost Analysis. It has been demonstrated in
numerous industries that total costs decline in a predictable fashion
with 'experience' (usually defined as cumulative volume of
production). This 'experience effect' has implications for market stra-
tegy because volume leaders enjoy cost advantages which may
reinforce their position. Market share, therefore, becomes an
important strategic variable related to profitability.
Portfolio Analysis. Two<iimensional displays with market share
measure on one axis and industry growth on the other are prepared
to assess the expected cash flow of each product or business unit.
Such charts may be used to classify the 'mission' of a business, to
track businesses over time, to explore overall cash balance in a pert-
folio, and to assess competitive portfolios.
 STRATEGIC MARKET PLANNING
409 IN THE COMMERCIAL AIRLINE INDUSTRY

Investment Opportunity Analysis. By analyzing more variables than

simply industry growth and market share, assessment of 'industry
attractiveness' and 'company position' (strength) can be made. When
plotted on a two~llmensional display, such measures help to deter-
mine the relative overall attractiveness of different business units
from an investment point of view.
PIMS (The Profit Impact of Market Strategy). PIMS is an empirical
model which relates a wide range of strategic and situational vari-
ables to profitability and cash flow. Its purpose is to determine what
strategies work best under what market conditions. It is based on
data on over 1,000 businesses from more than 150 large and small
companies.

RESULTS

Organizing for Planning

One important question centers on the organization structure and re-
sources devoted to strategic planning by the firms in the airline indus-
try. There is a direct, positive relationship between size of the firm (as
reflected by revenues) and existence of a department or division
devoted to strategic planning. None of the smaller firms (under $20
million) had a formal planning department, while all of the larger firms
(over $500 million) had such departments. The same relationship also
holds relative to the number of individuals directly involved in strategic
planning on a full-time basis. All the smaller firms had five or fewer full-
time individuals in planning, while the larger firms had between six and
twenty such individuals. In those firms with no planning division or
department, the president and VP. of Marketing or sales were cited
most often as responsible for planning. A few firms indicated the VP. of
Finance was in charge of planning.
Most respondents described their planning process as a centralized
one. 0nly five suggested planning was decentralized or participative in
nature. A majority of firms (54O/o)indicated their orientation was equally
divided between short-term (defined as less than five years) and long-
term (five years or longer) planning. Of the remaining firms, 350/o stated
their planning was oriented toward the short-term and only 11% identi-
fied a long-term focus.
 ZALLOCCO, SCOTTON AND JERESKO 410

Formal Planning Methods

One of the objectives of this study was to determine the familiarity
with and use of formal planning m e t h o d s - experience curve/cost
analysis, portfolio analysis, investment opportunity analysis, and PIMS.
Results are summarized in Table II, and commented upon below. In
addition, firms not using the formal methods were asked their reasons
for not doing so.
Experience curve/cost analysis. Overall, 81~ of the respondents
were familiar with this tool and 31% used it on a continuing basis.
Although 70% of the smaller firms were acquainted with the tool, none
used it. On the other hand, 58% of those firms with sales over $100
million used this technique in planning (Sum of Column 3 and 4, Table II).
Firms not using experience curve/cost analysis offered a number of
explanations. The most commonly mentioned reason was the maturity
of the airline industry, which, in their opinion, made the tool unneces-
sary. Others cited mature cost structures, the service nature of the
industry, and their perception that the airline indistry is a "single-
product industry" as reasons. A few respondents simply dismissed it as
unnecessarily sophisticated for their needs.
Portfolio analysis. This method had limited familiarity and use in the
airline industry. Fully, 42% were not famih'ar with it and another 31%
were familiar but indicated it was not used. Only 27% of the firms, most
of them larger companies, made ongoing use of portfolio analysis.
Most of the firms familiar with but not using the tool indicated it was
not applicable to a single-product industry. However, others used port-
folio analysis to analyze the composition of the routes, and indicated this
application provided them with a valuable look at their operation.
Investment opportunity analysis. Of the methods studied, usage of
this one varied most across firms. Seventy-nine percent of firms with
revenue under $100 million were unfamiliar with or did not use the
method (Sum of columns 1 and 2, Table II). At the other extreme, 75% of
firms with sales over $100 million made ongoing use of the technique.
One firm had used the technique at one time but abandoned it, citing
concentration on short-term survival as their reason.
One reason given for not employing investment opportunity analysis
was the feeling that it was too similar to portfolio analysis, which was
preferred. Another firm indicated their overall strategy was one of mar-
ket concentration, making this method unnecessary. They were not
interested in analyzing new product/market opportunities. Still another
organization claimed the method was "too complex to be of value".
 STRATEGIC MARKET PLANNING
411 IN THE COMMERCIAL AIRLINE INDUSTRY

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PIMS. This method was used by eight firms (31%) of varying sizes. Of
the four tools, PIMS was the one employed least by the firms with sales
over $100 million (Sum of columns 3 and 4, Table II).
Of the four methods studied, PIMS received the most negative com-
ments. Three firms indicated they had not developed to the stage where
they felt PIMS appropriate. Two others felt its applications too limited.
One respondent questioned the statistical quality and validity of the
tool. Finally, one planner suggested that since there are no airline firms
in the PIMS data base, the tool is of no use to the industry.

Perceptions of Planning Status

In order to evaluate how firms viewed their strategic planning, re-
spondents were asked to compare their companies relative to other
firms in the industry. The dominant attitude of the firms was that they
were ahead of the industry {42%) or were average {50%). Even firms
unfamiliar with any formal planning methods and having no formal
organizational structure or process for planning felt they were at or
above industry standards. Only two respondents admitted their strate-
gic planning lagged behind the industry standards.
Finally, firms were asked to identify areas of planning they felt
needed improvement. Responses are summarized in Table IH. Areas
most commonly identified as needing improvement were "defining plan-
ning requirements" and "top management support.". Preparation of
written plans and identifying applications of results of formal planning
were also cited as areas where improvement was needed. Cited as need-
ing least improvement were selection of planning methods, establishing
routine usage of planning, and presentation of planning results.

DISCUSSION

A number of important points emerge from this study regarding the

status of strategic market planning in the airline industry. One observa-
tion is that the extent that formal planning is used varies widely across
firms in the industry. Larger firms are the most systematic in their
approach to organizing for and employing planning methods. However,
there is a wide variation among larger firms as to the usage of strategic
market planning and the familiarity of planners within these organiza-
tions with available tools (PIMS, Experience curve/cost analysis, invest-
 STRATEGIC MARKET PLANNING
413 IN THE COMMERCIAL AIRLINE INDUSTRY

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ment opportunity analysis, and portfolio analysis). Although strategic

market planning is gaining acceptance and has become institutionalized
by many firms, it has not been adopted by all firms as an effective aid to
management. In fact, many planners are unfamiliar with the basic mar-
ket planning techniques.
The four planning tools received mixed evaluations from respondents
familiar with them. While some firms utilized them continuously and
found them to be a helpful managerial aid, other companies knowledge-
able about the techniques dismissed them as irrelevant. The biggest
problem planners perceived was a lack of flexibility and adaptability in
the four techniques. They were viewed as inappropriate for a mature
single-product market and/or for a firm concentrating on a single market
segment. One executive reported that the planning staff of his firm
"does not subscribe to 'fixed' planning methods."
Many companies have developed internal planning tools that they
feel better meet their companies' needs. The orientation of most of these
proprietary techniques is more financial in nature than the four tech-
niques mentioned above. As one planner indicated, "straight financial
forecasting for appraising opportunities works best."
The critical role played by the top executive in setting the tone for
market planning was highlighted by the respondents. A comment from
one of the largest airlines reinforced this point, "Top management plan-
ning is the crux of strategic planning. Arithmetic techniques are simply
tools to help but frequently hinder good planning. There is no substitute
for executive judgement."
These findings suggest that formal strategic market planning tech-
niques have received a mixed review by the commercial airline indus-
try. Some large companies with large planning staffs have gained
insight from their use. Other companies are unfamiliar with the tech-
niques. Finally, a number of firms have examined the techniques and
determined that their needs are better served with individually tailored
planning tools.
Further research is needed to determine whether or not these formal
planning techniques do, in fact, improve planning capabilities within
companies in the industry. Also, the question of the relationship
between planning and company performance (e.g.-ROI) needs to be
studied. Finally, research needs to be conducted to determine those
environmental, industry, and company circumstances where various
techniques are suitable for application.
 STRATEGIC MARKET PLANNING
415 IN THE COMMERCIAL AIRLINE INDUSTRY

REFERENCES

AbeU,Derek F. "Metamorphosis in Market Planning,". Research Frontiers in Market-

ing: Dialogues and Directions, American Marketing Association, Chicago, 1978.
Abell, Derek F. and Hammond, John S., Strategic Market Planning, Prentice-Hall,
New Jersey, 1979.
Adofse, J. and Vervoordeldonk, Frans, "Strategic Planning and Policy Making in
Banks," Long Range Planning, 12, #3 (June, 1979) 73-81.
Bouamrene, M.A. and Flavell, R., "Airline Corporate Planning- A Conceptual Frame-
work," Long Range Planning, 13 (Feb., 1980) 62-69.
Hofer, Charles W, "Research on Strategic Planning: A Survey of Past Studies and
Suggestions for Future Efforts," Journal of Economics and Business 28, #3 (Spring-
Summer, (1976) 261-286.
Huffmire, Donald W., "Strategies of the United States Airlines," Long Range Plan-
ning 8, #2 (April, 1975) 72-79.
Jain, Subhash C., Marketing Planning and Strategy, South-Western Publishing,
Ohio, 1981.
Kiechel, Walter, "Oh Where, Oh Where Has My Little Dog Gone? Or My Cash Cow?
Or My Star," Fortune 104, #9 (Nov. 2, 1981} 148-154.
Kiechel, Walter, "The Decline of the Experience Curve," Fortune, 104, #7 (Oct. 5,1981)
139-146.
Kiechel, Walter, "Three (or Four, or More) Ways to Win," Fortune, 104, #8 (Oct 19,
1981) 181-188.
Mason, J. Barry and Mayer, Morris L., "Bank Management and Strategic Planning for
the 198ffs" Long Range Planning 12, #4 (Aug. 1979) 35-41.
~United Airlines Takes a Flight Into Silence," Business Week 49 (April 13, 1981).

ABOUT THE AUTHORS

RONALD ZALLOCCO is an assistant professor of marketing at Cleve~

land State University. He received his undergraduate and masters
degrees from the University of Washington, and his D~B.A. from the
Kent State University. Dr. Zallocco has published in the Journal of the
Academy of Marketing Science previously, as well as in other academic
journals. He also has a book of readings in market segmentation pub-
lished by the American Marketing Association.

DONALD SCOTTON is Chariman and Professor of Marketing and

Quantitative Business Analysis at Cleveland State University. He has
served on the faculties of the University of Illinois and the University of
Detroit. His business experience includes retail and sales management,
 ZALLOCCO, SCOTTON AND JERESKO 416

marketing planning and research, operation of sales incentive plans, and

commercial banking. He has published numerous articles and mono-
graphs. Among his business cases are those included in fifteen text
books.

DAVID A. JERESKO received his undergraduate and masters degrees

from Cleveland State University. Mr. Jeresko is a former bank execu-
tive who is currently self~employed.