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Strategic Planning, Product Positioning

and Customer Value Marketing


Theories Applications at Qantas Group

A Report By
Amit Singh
ID: c3099441

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Executive Summary

Qantas was founded in Queensland in 1920 as Queensland and Northern


Territory Aerial Services. It is twelfth largest and second oldest airline in the
world. Since Qantas was privatised in 1993, it has operated profitably in
international and domestic air services and a range of related businesses.
This report has attempted analyse and discuss some of the marketing
theories such as strategic planning, product positioning, and customer value
that Qantas has applied and what benefits it obtained strategically from
applying the theory in it marketing strategy.

Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue
in 2000 provided very steep challenges to Qantas for survival. Qantas
identified this changing environment and designed its business portfolio as
part of its strategic planning. This included purchase of Impulse airline, launch
of low-cost carriers like Australian Airlines and JetStar and expansion of non-
flying businesses such as catering travel and freight. Qantas also reviewed
and re-designed its business portfolio regularly to ensure its business portfolio
best fit the company’s strengths and weakness to opportunities in the
changing environment. This included cease operations of Impulse and
Australian airlines. Through these strategies planning Qantas successfully
competed with low-cost carriers and also to reduce the risk of cannibalisation
of the mainline carrier.

Qantas offer has many competitive advantages such as safety, schedules,


seat allocation, inflight services, oldest Australian airlines, spirit of Australia
and few others. However, Qantas has positioned its product only as ‘safety’
and ‘Spirit of Australia’ because these are the only differentiations that are
important, distinctive, superior, communicable, affordable, profitable, and most
importantly pre-emptive. Product positioning cannot be built on empty
promises. Qantas very few incidents during its 88 years history has built its
brand reputation as one of the world’s safety airline. Qantas has developed
reputation as ‘Spirit of Australia, mainly because Qantas has always assisted

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Australians during times of crisis. Qantas red kangaroo logo has provided a
strong brand recognition and image differentiation.

Qantas has created and delivered customer value by providing best possible
experience to customers before, during and after the flight. As customers are
value maximisers and they see product as complex bundles of benefits that
satisfy their needs, Qantas has augmented products benefits by having high
quality inflight services, seat allocation, convenient check in, Qantas Club,
holidays packages, car rental facilities and many more. Qantas brand
reputation for safety and spirit of Australia has also played a big role in
creating and delivering customer value.

In line with all above discussions, it can be concluded that Qantas has applied
strategic planning, product positioning and customer value marketing theories
very well in it marketing strategy. However, few safety incidents within last few
months, ongoing cost cutting, outsourced maintenance agreements and
ongoing disputes with personnel have all served to undertake not only
Qantas’s reputation for safety and engineering excellence, but also
confidence in the airline as a whole. So, it is time for Qantas to refocus on the
process of creating value to customers as well shareholders through strategic
planning. If shareholders value dominates, customer value is reduced and
consumers actively look for alternatives. If customer value dominates,
shareholders do not receive sufficient value in terms of dividends and capital
growth. Hence, Qantas needs to get the optimal balance between shareholder
value and customer value through strategic planning.

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Table of Contents
Executive Summary .........................................................................................II
Table of Contents........................................................................................... IV
1. Introduction ..................................................................................................1
1.1 Qantas Background ..............................................................................................1
1.2 Performance and Awards .....................................................................................2
1.3 Challenges............................................................................................................2
2. Strategic Planning........................................................................................2
2.2 Strategic Planning Theory....................................................................................2
2.3 Qantas Strategic Planning ....................................................................................4
3. Product Positioning ......................................................................................7
3.2 Positioning Theory...............................................................................................7
3.2 Qantas Product Positioning Strategies .................................................................8
4. Customer Value .........................................................................................12
4.1 Customer Value Theory .....................................................................................12
4.2 Qantas Customer Value .....................................................................................14
5. Conclusion and Recommendation .............................................................18
References ....................................................................................................20

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1. Introduction
The purpose of this report is to analyse and discuss some of the marketing
theories that Qantas has applied and what benefits it obtained strategically
from applying the theory in it marketing strategy. The report will focus on three
marketing theories in particular. They are strategic planning, product
positioning and customer value. The report will begin with information on
Qantas’s background, performances and challenges that it has faced. The
next three sections will discuss about strategic planning, product positioning
and customer value marketing theories in sequential order, and conclusion
and recommendation at the end. Each section provides theoretical concept
detail first, followed by analysis and discussion of how Qantas has applied the
theory and what benefits it have achieved.

1.1 Qantas Background


Qantas is twelfth largest and second oldest airline in the world. It is also
Australia’s largest domestic and international airline (Qantas, 2008). It was
founded in Queensland in 1920 as Queensland and Northern Territory Aerial
Services Limited. The name Qantas is derived from the initial letters of the
words in this title. Since then, Qantas has played a key role in the
development of Australian and international aviation. Qantas was privatised in
March 1993 with British Airways taking 25% stakes in the airline for A$665
million.

Qantas’s main business is the transportation of passengers. It is recognised


as one of the world’s leading long distances airlines, having pioneered
services from Australia to North America and Europe. Qantas offers services
across a network covering 145 destinations in 37 countries. At 30 June 2008,
the Qantas Group operated a fleet of 224 aircraft, comprising Boeing 747s,
767s, 737s and 717s and Airbus A330s and A320s, Bombardier Dash 8s and
Bombardier Q400. The flying businesses of Qantas Group are grouped under
two major brands – Qantas and Jetstar. In addition to its Qantas and Jetstar
flying operations, the Qantas Group operates a diverse portfolio of airline-
related businesses. These include Qantas Engineering, Airports, Q Catering,
Qantas Freight and Qantas Holidays.

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1.2 Performance and Awards
For the full year ended 30 June 2008, Qantas reported a record profit before
tax of $1,408 million, a 46 per cent increase on the full year to 30 June 2007.
Net profit after tax, also a record, was $970 million (Qantas, 2008).

Qantas is Australia’s leading brands with a proud history of reliability, safety,


engineering excellence and outstanding customer service. Qantas was voted
the third best airline in the world in 2008 by research consultancy firm Skytrax.
Qantas is one of only two airlines to have been listed in the top five in the
world for six consecutive years. Some of the other awards include: WAEA
Avion Awards – best overall inflight entertainment (2002, 2003, 2005, 2006),
Sky Awards – best first class cellar, best business class sparking award
(2008).

1.3 Challenges
Since Qantas was privatized in 1993, it has operated profitably in international
and domestic air services and a range of related businesses (Bamber et. al,
2005). It is only because Qantas has successfully managed the challenges
that it has faced in past. Some of the challenges include: launch of low cost
carriers worldwide, and Virgin Blue and Impulse airlines in Australia increasing
competition, increasing fuel price leading to higher operating cost,
unpredictable factors like terrorism and natural disasters affecting airline
revenue (Firth, 2008). However, the report will only focus on challenged faced
by Qantas as result of launch of low cost carriers.

2. Strategic Planning
2.2 Strategic Planning Theory
Most organisations operate according to some sort of formal plans. These
usually include annual plans and long-term plans (Kotler et al., 2007). The
annual plans consist of the action plan, objectives, marketing strategy,
budgets and controls for the year. The long-terms plans deal with resources,
objectives, action plans and major factors affecting the organisation during
next 5-10 years period. So, these two plans basically focus on the current
business direction and its continuation. However, the market and consumer

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behaviours are dynamic in nature that always keeps changing with time. This
is where the role of strategic planning becomes vital as the strategic planning
helps the firm to adapt to take advantage of opportunities in its constantly
changing environment. According to Hamel and Prahalad (cited in Kotler et
al., 2007), the main purpose of strategic planning is to help companies
understand how they can compete for the future. To compete effectively, firms
not only must continually improve their operations but they frequently need to
reinvent themselves to remain differentiated and relevant. Strategic Planning
is defined as the process of developing and maintaining a strategic fit between
the organisation’s goals and capabilities and its changing marketing
opportunities (Kotler et al., 2007). It relies on developing a clear company
mission, setting supporting objectives, designing a sound business portfolio
and coordinating functional strategies as shown in Figure 1.

Business unit,
product & market
level

Setting Planning,
Defining company Designing Marketing &
the company goals and business other
mission objectives portfolio functional
strategies

Figure 1 – Steps in Strategic Planning (Kotler et al., 2007)

At corporate level, the company first outlines its overall purpose and mission
of accomplishment through a mission statement. This mission statement is
then translated into detailed supporting objectives outlining how company
intends to accomplish its mission. Guided by the company’s mission and
objectives, the company now selects its business portfolio (business units and
products) that best fit the company’s strengths and weakness to opportunities
in the changing environment. Each business unit has a separate mission and
objectives and can be planned independent of other business unit. In turn,
each business unit prepares detailed marketing and other plans in line with
company’s mission and objectives. For a complex organisation, strategic
planning occurs at different levels of the organisations. A hierarchy of
strategies is shown in Figure 2.

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Figure 2 – The Strategic Hierarchy (Ngo, 2008)

2.3 Qantas Strategic Planning


These have been turbulent times for the Australian airline industry since 2000.
It has been confronted with a marked decline in international tourism in the
aftermath of the September 2001 terrorist attacks in the United States, and
more recently in 2003, traffic loss attributable to the war in Iraq and severe
acute respiratory syndrome outbreaks in parts of Asia and Canada (Kain and
Webb, 2003). In addition to these, a significant worldwide trend in rapid
emergence of low-cost carriers was observed. Australian airline industry was
not immune to this, two low-cost carriers namely Impulse and Virgin Blue
airlines were launched in 2000. Qantas immediately felt the growing popularity
of discount air travel and reduced its fare to match start-up deals. But as
Qantas had higher overheads, the fare reductions challenged Qantas
(Bamber et al., 2005). To protect itself from the impact caused by the spread
of discount airlines in domestic and overseas markets, Qantas applied a
significant market strategic analysis and planning as discussed below.

Because of the low fare war, Qantas mission to be a leading provider of air
transport and related services in the Asia- pacific region (Firth, 2008) was
under threat. Against the background of low fare war, Qantas took over
Impulse in November 2001 and derived savings from utilising Impulse's low-

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operating cost, all-economy class Boeing 717 aircraft and streamlined
staffing/work practice arrangements (Kain and Webb, 2003). The collapse of
Ansett in September 2001 left a large gap in the market, which Qantas and
Virgin Blue moved quickly to fill. After Ansett’s collapse Qantas held more
than 80 percent market share. But the Virgin Blue’s aggressive expansion
based on lower costs, which were 30-40 percent less than Qantas’s, helped
Virgin Blue to win about one third of the domestic markets within three years
(Bamber et al., 2005).

To respond to this competitive threat from Virgin Blue and to restrict Virgin
Blue and other carriers from taking more than 35 percent of domestic market
Qantas launched JetStar, low cost carrier, on 25 May 2004 and ceased
operation of Impulse airline (Harcourt, 2004). JetStar had mission to provide
consistent low fares to Australian, New Zealand and Asian leisure travelers.
JetStar’s business performed to plan in its first year to capture over 10 percent
of domestic market and contributed more than A$19 million before tax profits
in its first six months (Kotler et al., 2007). Thus, establishment of low cost
carrier (JetStar) allowed Qantas to compete with Virgin Blue on price,
especially in growing leisure markets, whilst Qantas as a full service airline to
concentrate on business markets. Qantas intended to force Virgin Blue to
respond either by reducing costs to compete with JetStar or by increasing
costs to compete with Qantas in the corporate market. This strategy, using
two brands to target different markets, aimed to close the gap at the lower end
of the domestic market and also to reduce the risk of cannibalisation of the
mainline carrier.

In addition, Qantas also expanded other non-flying businesses such as travel,


catering and freight by acquiring other businesses to expand its existing
operations (Kotler et al., 2007). Qantas also launched its new wholly owned,
low-cost international subsidiary, Australian Airlines, in October 2002 to
compete with low-cost carriers in overseas markets. The airline was
established to serve markets from which Qantas and other airlines had
withdrawn and to service inbound tourists from Asia. Australian Airlines

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provides all economy, full-service flights and reportedly has operating costs
some 30 per cent lower than Qantas's international operations (Kain and
Webb, 2003). As part of strategy to focus on two strong brands – Qantas and
JetStar – Australian Airlines was ceased operation in July 2006 (Qantas,
2008).

It can be concluded from above discussions that strategic planning played a


vital role in Qantas success and survival. The strategic planning started with
mission of Qantas to be a leading provider of air transport. To accomplish this
Qantas identified the changing worldwide trend in rapid emergence of low-
cost carriers in airline industry. Guided with this, Qantas designed its business

Qantas
Qantas
Engineer
Qantas ing
Defence
Service Qantas
Holidays

Qantas JetStar

JetStar Group Asia


Limited

Airports Qantas
Freight
Qantas
Catering
Qantas
Link

Figure 3 – Qantas Business Portfolio (Strategic Business Units)


portfolio. This included purchase of Impulse airline, launch of Australian
Airlines, JetStar and expansion of non-flying businesses such as catering,

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travel and freight. Each of these strategic business units within the Qantas
business portfolio had separate mission and objective such as JetStar mission
was to provide consistent low fares to Australian, New Zealand and Asian
leisure travellers. Qantas also reviewed and re-designed its business portfolio
regularly to ensure its business portfolio best fit the company’s strengths and
weakness to opportunities in the changing environment. This included cease
operations of Impulse and Australian airlines. Qantas Group current business
portfolio is shown in Figure 3. Finally, Qantas used the marketing strategy to
use two brands Qantas and JetStar to target different consumers groups in
airline industry.

3. Product Positioning
3.2 Positioning Theory
Product position is the way the product is defined by consumers on important
attributes – the place that product occupies in consumers’ minds relative to
competing products (Kotler et al., 2007). In other words, a product’s position is
the complex set of perceptions, impressions and feelings that consumers hold
for the product compared with the competing product. Consumers position
products with or without the help of marketers and use product position while
making a buying decision. So, it important for marketers to select and
communicate product position that will give their products the greatest
advantage in the targeted markets. Positioning a product has three steps:
identifying possible competitive advantages, selecting the right competitive
advantages, and communicating and delivering chosen position to the market
(Kotler et al., 2007).

Identifying possible competitive advantages: Consumers typically choose


products and services that give them the greatest value. If a company can
position itself as providing superior value to selected target markets either by
offering lower prices than competitors or by providing more benefits, it gains
competitive advantages. Thus, positioning begins with actually differentiating
the company’s offer so that it gives consumers more value than a competitor’s
offer. A company offer can be differentiated along lines of product, services,
personnel and image.

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Selecting the right competitive advantages: If a company offer has more than
one competitive advantages, then it should only promote differences that are
important, distinctive, superior, communicable, pre-emptive, affordable and
profitable. A company should generally avoid underpositioning,
overpositioning and confused positioning errors.

Communicating and delivering chosen position to the market: Once a


company has decided on a product position, it must first deliver that position
and design appropriate marketing mixes to communicate the desired position
to the targeted consumers. Once the desired position is built, the company
must maintain the position through consistent performance, close monitoring
and adaptation over time to match changes in consumer needs and
competitors’ strategies.

3.2 Qantas Product Positioning Strategies

The first step of positioning strategies is to identify possible competitive


advantages. Qantas has many opportunities for differentiating its offer and
gain competitive advantage against its competitor Virgin Blue through product
and service differentiation. As Qantas is a leading provider of air transport, the
core benefit that a customer will receive is ‘time-critical transport’. However,
the Qantas brand, which is highly associated with safety along with high
quality in-flight entertainment services, food and beverage service, convenient
flight booking system, plane seating configuration, and frequent and on time
plane schedules they all provide core benefit to consumers. Qantas is
Australia’s largest airline serving Australian since 1920 while Virgin Blue was
only launched in 2000 can be also used to differentiate Qantas offer against
Virgin Blue. Qantas’s product and service differentiation is shown in Figure 4.

Apart from Qantas image associated with safety records, the Qantas brand
image has also been associated with ‘the Spirit of Australia’. The Qantas
brand is synonymous with Australia and is regarded as part of the fabric of the
country (Brandstrategy, 2008). Qantas red kangaroo logo has provided a
strong brand recognition and image differentiation.

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Safety Record
Schedules Meals

Australia’s Australia’s
Oldest Time-critical Largest
Airlines Transport Airlines

In-flight
Services Seat
Allocation
Flight Booking System

Figure 4 – Qantas Product and Service Differentiation

The second step of positioning strategies is to select the right competitive


advantages: Qantas offer has many competitive advantages as discussed in
previous section and shown in Figure 4. So, Qantas needs to decide how
many differences to promote and which one so that it does not overposition,
underposition or confused position its product. Qantas should only promote
differences that are meaningful and worthy whilst meeting the selection
criteria requirements like important, distinctive, superior, communicable, pre-
emptive, affordable and profitable. Qantas product differentiation selecting
criteria matrix is shown in Table 1.

The attribute like high quality meals, inflight services, and seat allocation may
be important to some travellers while not so important for others. None of
these attributes are pre-emptive either that is the competitor can easily copy
the attribute. This is not to suggest that pre-emptive is the most critical
selecting criteria. Qantas is the oldest and largest airline in Australia, no
competitor can copy this but still Qantas does not product position as the
oldest and largest airline as these attributes are not important to most
travellers. Similarly, attributes like schedules, flight booking system, and time
critical transport are important to most travellers but yet again Qantas product

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positioning is not along the line of these attributes simply because these
attributes are not pre-emptive. Competitors can easily copy these attributes
and it will be no longer competitive advantage to Qantas. In other words,
Qantas needs to do a very careful assessment selection of attributes that will
be promoted as product positioning.

Table 1 – Qantas Product Positioning Selecting Criteria Matrix

Product Product Positioning Selecting Criteria


Differences Important Distinctive Superior Communicable Pre- Affordable Profitable
emptive
Time
Critical √ √ √ √ X √ √
Meals √, X √ √ √ X √ X
Inflight
Services √, X √ √ √ X √ X
Safety
Records √ √ √ √ √ √ √
Largest
Airlines X √ √ √ X √ X
Seat
Allocation √, X √ √ √ X √ X
Oldest
Airline X √ √ √ √ √ X
Schedules √ √ √ √ X √ √
Spirit of
Australia √ √ √ √ √ √ √
Flight
Booking √ √ √ √ X √ √
System
Note: √ = Yes, X = No

It can be seen in Table 1 that ‘Safety records’ and ‘Spirit of Australia’ are the
only two attributes that meet all the selection criteria requirements. Qantas

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competitor, Virgin Blue, cannot implant these attributes in the public’s mind
overnight using advertisements. According Unisys (2008) study Qantas ranks
in the top four most trusted airlines in Asia- Pacific region. The study also
found that safety is the most important factor to build trust in an airline. So,
Qantas is quite right to select ‘Safety records’ and ‘Spirit of Australia’ as its
brand image for product positioning.

The third step of positioning strategies is to communicate and delivering


chosen position to the market. Let us examine how Qantas is doing this.
Before Qantas starts communicating its brand image as ‘Safety’ and ‘Spirit of
Australia’, Qantas must first deliver these positions. Product positioning
cannot be built on empty promises. Qantas has some fatal incidents during
World War II while operating on behalf of Allied military force (Wikipedia,
2008). The last fatal incident suffered by Qantas was in 1951. Since then, only
few minor incidents have been reported in 1960, 1999 and 2008. This is an
outstanding safety records considering the number of fatal accidents that
other major airlines in world have gone through in last 88 years history of
Qantas. Because of this Qantas has reputation for safety and safety is a pillar
of its brand.

Qantas has also developed reputation as ‘Spirit of Australia, mainly because


Qantas has always assisted Australians during times of crisis – both in
Australia and abroad (Qantas, 2008). In recent years, Qantas responded to
the October 2002 bombings in Bali by carrying more than 4,500 people home
to Australia. In 2004, Qantas assisted with relief efforts following the Boxing
Day earthquake and tsunami, which devastated parts of South East Asia. The
airline operated special flights to Thailand, the Maldives and Sri Lanka to
deliver medical personnel and supplies and evacuate people to Australia, and
flew medical and charitable supplies free of charge. When Cyclone Larry
destroyed parts of North Queensland in April 2005, Qantas operated a special
flight to carry more than 120 volunteer tradesmen and emergency services
personnel to Cairns to help rebuild homes and essential services. Qantas has
also established ‘Sharing the Spirit’ program in 2004 to discover and foster
young Australian talent in a diverse range of creative fields.

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The Qantas has been communicating its ‘Spirit of Australia’ brand image
through its red kangaroo logo. Kangaroo is national animal of Australia and
Kangaroo represent Australia in world. In addition, Qantas has also been
communicating ‘Spirit of Australia’ brand image through various charity and
community work, and supporting Australian sports. Qantas is the naming
rights sponsor of two of Australia’s premier national sporting teams – the
Qantas Wallabies and Qantas Socceroos. There is no greater testament to
represent Qantas’s the 'Spirit of Australia’ image in their hugely successful 'I
Still Call Australia Home’ advertising campaigns.

4. Customer Value
4.1 Customer Value Theory
Consumers have needs of various kinds. This is the most basic concept
around which marketing revolves. Consumers satisfy their needs with
products and services. But consumers usually find a broad range of products
and services that might satisfy a given need. There is when the role of
customer value becomes vital. Consumers make their buying decision based
on their perceptions of the value that various products and services provide.
The concept of product is not limited to physical objects. The importance of
physical goods lies not much in owing them as in the benefits they provide.
Consumers view products as bundles of benefits and they buy the product
that give them the best bundle for their money. In other words, consumers
choose the marketing offer that they believe gives them the most value. The
consumers are value maximisers. So, really is a customer value?

Customer value is the difference between the prospective customer’s


evaluation of all the benefits and all costs of an offering as compared to the
perceived alternatives (Kotler et al., 2007). This is also called customer
delivered value. Any company can create customer value by selling their
products and services for free or at reduced price. However, this is not called
customer value. Customer value is about creating and delivering values to
customers while managing profitability for the company at the same time.
Determinants of customer delivered value are shown in Figure 5.

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Figure 5 – Determinants of Customer Delivered Value (Kotler et al., 2007)
Total customer value is the perceived monetary value of the bundle of
economic, functional and psychological benefits customers expect from a
given market offering. Similarly, total customer cost is the bundle of costs
customers expect to in occur in evaluating, obtaining and disposing of the
given markets offering. Customer will buy the marketing offer that the
customer believe delivers highest customer value after taking into account of
both total customer value (benefits) and total customer cost (costs). Branding
is an important part of product and branding add customer value. Brand name
allows customers to associate benefits that they receive from the product and
to differentiate the product from those of competitors. After purchasing, the
customer makes some assessment of the value they think they have received
from the product, and this judgment will influence their satisfaction and future

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buying behavior. Understanding of these concept are very important to
marketers as it provide they opportunity to assess the total customer value
and total customer cost associated with each competitor’s offer to how their
offer rates in the buyer’s mind. If their offer value is poorly rated in customer’s
mind then marketers can increase the offer value rating by increasing the
benefits associated with product (total customer value) or by decreasing total
customer cost. On the other hand, if marketer is aware that their offer value
is highly rated in customer’s mind then marketer can charge a premium over
the competitor’s offer.

4.2 Qantas Customer Value

Let us examine how Qantas is creating and delivering customer value while
making profit at the same time. When a customer buys a Qantas air ticket for
Hong Kong, the customer receives a Qantas air ticket and a seat on a plane
as product and service. Qantas’s competitor Virgin Blue can provide an air
ticket and a seat on a plane. So, the real question is why would a customer
buy Qantas air ticket? From customers’ perspective, they are not just after the
air ticket and a seat on a plane and customers tend to see product as complex
bundles of benefits that satisfy their needs. Customers are after value that
they can receive before, during and after the flight. Some consumers might
buy air ticket from supplier who has better flight booking system and
convenient check in facilities. Some other consumers might buy air ticket
from supplier who has better in-flight services, are more reliable and has
better safety records. Similarly, other group of consumers might buy air ticket
from supplier who has car rental facilities at the airport. To consumer, these
augmented benefits become an important part of the total product value and
will contribute to their choice of airline for their purchase of air ticket.

Qantas is well capitalised on augmented benefits that it provides to customer


for creating and delivering customer value. Qantas website www.qantas.com
has been recently awarded best website customer experience by Global
Reviews (Qantas, 2008). E-ticket and QucickCheck facilities are available at
domestic airports allowing check-in to complete in less than 60 seconds for

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customers without baggage. Customers use kiosks to access and review their
booking, select a preferred seat if available and to obtain a boarding pass.
Qantas has also opened Qantas meeting room at Sydney and Melbourne
terminals. Customers who expect service before flight can join Qantas Club.
For holiday lover customers, Qantas has a dedicated Qantas Holidays branch
that sells holiday packages to destinations throughout Australia and around
the world. Frequent flyer scheme is there for customers who like the idea of
receiving a bonus points from flying with Qantas. Best first class cellar and
best business class luxury awards in 2008, and best overall inflight
entertainment and service award by WAEA Avion from 2002 to 2006 are very
good indication for customers who are after inflight services. Qantas also has
car rental facilities available from airport to make customers experience better
after the flight. In other words, Qantas has designed their product and found
ways to augment it in order to create and deliver bundle of benefits that will
provide the greatest value for consumers. Every customer will find matching
benefits from the bundle of Qantas’s benefits that will satisfy their need.

Figure 6 – Qantas Airline Augmented Benefits (Ngo, 2008)

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This is important because value that customer assigns to a benefit may be
different for different customers. Qantas brand reputation for safety and spirit
of Australia has also played a big role in creating and delivering customer
value. Qantas air ticket benefits associated with customer value are
summarised in Figure 6.

Now let us examine what customer value Qantas is delivering against it


competitor Virgin Blue using determinants of customer value. For value
column, ‘10’ represents best value and ‘0’ represents worst value. Similarly,
for cost column ‘10’ represents most expensive and ‘0’ represents least
expensive. Beginning with image value, a reasonable customer will highly rate
Qantas image because of its brand reputation for safety and spirit of Australia
while Virgin Blue is still searching for brand representation. Hence, 8 point has
been allocated to Qantas and 3 point to Virgin Blue for image value as shown
in Figure 7. Similarly, Qantas has highly rated personal value, service value
and product value because of its high quality call centre, inflight service, and
reliability and safety of its operation. Virgin Blue, on the other hand, being a
low cost carrier does not provide good quality services and reliable
operations. Points have been allocated accordingly for personal value, service
value and product value categories for Qantas and Virgin Blue, and are shown
in Figure 7.

Psychic, energy and time costs will be identical and very minimal for both
Qantas and Virgin Blue because customer can obtain air ticket price by calling
travel agents or by looking at company websites. Accordingly, 1 point has
been allocated for these categories. The actual air ticket cost for Qantas is
quite high as compared to Virgin Blue. Hence, 8 points has been allocated for
Qantas and 4.5 points for Virgin Blue. Point allocations for all determinant of
customer delivered value is shown in Figure 7.

It can be seen from Figure 7 that Qantas has customer value 11.5 points more
than its competitor Virgin Blue. But it does not mean that customer will always
buy Qantas ticket. Customers operate under various constraints and they are
after different benefits. For example if customers considers ticket price being

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the only factor, then they are more likely to buy tickets from Virgin Blue.
However, customer delivered value is a useful framework that applies to many
situations and yields rich insights. It has implications for both Qantas and
Virgin Blue. For Virgin Blue, if they want to compete with Qantas they need to
increase their customer value. Virgin Blue can do this either by increasing
total customer value (benefits) or by reducing total customer cost. There is
nothing much Virgin can do to reduce total customer cost because it is already
the least expensive. Hence, Virgin need to focus on augmenting their offer’s
product, services, personnel and image benefits.

Figure 7 – Qantas Airline Customer Delivered Value

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For Qantas, it is important to understand that customers value their offer more
than Virgin Blue so that they can charge a premium over Virgin Blue. This is
exactly what Qantas is doing and this explains why Qantas ticket is expensive
than the Virgin Blue. However, Qantas needs to be aware that if it charges too
much premium then customers might decide that the high price of Qantas
can’t be justified and that a competing Virgin Blue offer provides better value.

5. Conclusion and Recommendation


Qantas was founded in Queensland in 1920 as Queensland and Northern
Territory Aerial Services. It is twelfth largest and second oldest airline in the
world. Since Qantas was privatised in 1993, it has operated profitably in
international and domestic air services and a range of related businesses.
This report has attempted analyse and discuss some of the marketing
theories such as strategic planning, product positioning, and customer value
that Qantas has applied and what benefits it obtained strategically from
applying the theory in it marketing strategy.

Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue
in 2000 provided very steep challenges to Qantas for survival. Qantas
identified this changing environment and designed its business portfolio as
part of its strategic planning. This included purchase of Impulse airline, launch
of low-cost carriers like Australian Airlines and JetStar and expansion of non-
flying businesses such as catering travel and freight. Qantas also reviewed
and re-designed its business portfolio regularly to ensure its business portfolio
best fit the company’s strengths and weakness to opportunities in the
changing environment. This included cease operations of Impulse and
Australian airlines. Through these strategies planning Qantas successfully
competed with low-cost carriers and also to reduce the risk of cannibalisation
of the mainline carrier.

Qantas offer has many competitive advantages such as safety, schedules,


seat allocation, inflight services, oldest Australian airlines, spirit of Australia
and few others. However, Qantas has positioned its product only as ‘safety’
and ‘Spirit of Australia’ because these are the only differentiations that are

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important, distinctive, superior, communicable, affordable, profitable, and most
importantly pre-emptive. Product positioning cannot be built on empty
promises. Qantas very few incidents during its 88 years history has built its
brand reputation as one of the world’s safety airline. Qantas has developed
reputation as ‘Spirit of Australia, mainly because Qantas has always assisted
Australians during times of crisis. Qantas red kangaroo logo has provided a
strong brand recognition and image differentiation.

Qantas has created and delivered customer value by providing best possible
experience to customers before, during and after the flight. As customers are
value maximisers and they see product as complex bundles of benefits that
satisfy their needs, Qantas has augmented products benefits by having high
quality inflight services, seat allocation, convenient check in, Qantas Club,
holidays packages, car rental facilities and many more. Qantas brand
reputation for safety and spirit of Australia has also played a big role in
creating and delivering customer value.

In line with all above discussions, it can be concluded that Qantas has applied
strategic planning, product positioning and customer value marketing theories
very well in it marketing strategy. However, few safety incidents within last few
months, ongoing cost cutting, outsourced maintenance agreements and
ongoing disputes with personnel have all served to undertake not only
Qantas’s reputation for safety and engineering excellence, but also
confidence in the airline as a whole (Hogan, 2008). So, it is time for Qantas to
refocus on the process of creating value to customers as well shareholders
through strategic planning. If shareholders value dominates, customer value is
reduced and consumers actively look for alternatives. If customer value
dominates, shareholders do not receive sufficient value in terms of dividends
and capital growth. Hence, Qantas needs to get the optimal balance between
shareholder value and customer value through strategic planning.

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References

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Airlines Product and Labor Market Strategic Choices: Australian Perspectives,
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Brandstrategy (2008) Brand therapy: Qantas, viewed 17 November 2008,


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2008, http://www.smartcompany.com.au/Premium-Articles/Top-
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Qantas (2008) Qantas at a Glance, viewed 11 November 2008,
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http://en.wikipedia.org/wiki/Qantas

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