Coursework Assignment 1

BSM822 Marketing Strategy

Marketing Plan and Supporting Activities to Gain and Sustain

Competitive Advantage for KLM

[1401575]

Robert Gordon University

Aberdeen Business School

9. January. 2017

Word count: 4983

Executive summary:

The airline industry has evidenced a significant growth. Since the 1980’s

the industry is growing 5% annually. However, this growth has also lead

to a high intensity of competition between airlines. Especially low-cost

carriers (LCC’s) are becoming popular among passengers.

The purpose of this report is to present a marketing plan for the launch of

a new long-haul low-cost service for KLM. The report seeks to present the

marketing elements that are associated with the new service by assessing

different fundamentals such as; the current market situation, the internal

environment of KLM, trends, buyer behaviour, the marketing mix and also

the implementation and control elements.

In order to present a solid plan that can be effective an extensive amount

of research has been done by the use of, books, websites, journals and

industry reports.

Findings indicate that there is an opportunity for KLM to launch the new

service since the demand for air travel is increasing especially LCC’s are

becoming a trend as budget-conscious passengers appear to a valuable

target market.

However, the process of the launch has to be carefully managed. Firstly,

the industry is regularly affected by external factors whereas KLM has

some weaknesses that need to be considered to mitigate risks.

Nevertheless, findings furthermore indicate that passengers are

influenced by price and route rather than the brand of the airline and it is,

therefore, crucial to consider the elements of the marketing mix as these

can make a difference. Lastly, the implementation and control process is

also significant for KLM to achieve the expected results.

Therefore, it has been recommended to assess the capabilities by assess

the value chain of KLM and also assess whether KLM has any valuable

resources that can be utilised within the process.

Table of Contents

List of Figures..........................................................................................i

List of Tables .......................................................................................... ii

1.0 Introduction ...................................................................................1

1.1 Background ......................................................................................1

1.2 Proposed service ...............................................................................2

2.0 Market Analysis ..............................................................................2

2.1 Market size .......................................................................................2

2.2 PESTEL Analysis................................................................................3

2.1.1 Political/Legal.................................................................................3

2.1.2 Economic ......................................................................................4

2.1.3 Social ...........................................................................................6

2.1.4 Technology/Environmental ...............................................................7

2.1.5 Remarks of the PESTEL ...................................................................7

2.2 SWOT Analysis ..................................................................................7

2.2.1 Strengths ......................................................................................7

2.2.2 Weakness ......................................................................................8

2.2.3 Opportunities .................................................................................9

2.2.4 Threats ....................................................................................... 10

2.3 Trends ............................................................................................ 10

2.4 Buyer behaviour ............................................................................. 11

2.5 Competitor analysis ........................................................................ 12

3.0 SMART Objectives ........................................................................ 13

3.1 Target audience .............................................................................. 13

3.1.1 Frequent flyers ............................................................................. 14

3.1.2 Business travellers ........................................................................ 14

3.1.3 Budget-Conscious travellers ........................................................... 15

3.2 Targeting strategy .......................................................................... 15

3.3 Positioning ..................................................................................... 16

3.3.1 Positioning statement .................................................................... 17

4.0 New Service Marketing Mix .......................................................... 18

4.1 Product .......................................................................................... 18

4.2 Price .............................................................................................. 19

4.3 Place ............................................................................................. 21

4.4 Promotion ...................................................................................... 21

4.4.1 Budget .................................................................................................................. 23

4.4.2 Marketing communication mix ........................................................................ 24

4.5 People......................................................................................... 25

4.6 Process ....................................................................................... 25

4.7 Psychical Evidence ...................................................................... 26

5.0 Implementation ........................................................................... 27

5.1 Mckinsey 7s Framework.................................................................. 27

5.1.1 Style........................................................................................... 27

5.1.2 Skills .......................................................................................... 27

5.1.3 Systems ...................................................................................... 28

5.1.4 Structure ..................................................................................... 28

5.1.5 Staff ........................................................................................... 28

5.1.6 Strategy ...................................................................................... 28

5.1.7 Shared values .............................................................................. 29

6.0 Control ........................................................................................... 29

6.1 Feedback ....................................................................................... 29

6.2 Sales Activity .................................................................................. 30

6.3 Meetings ........................................................................................ 30

7.0 Conclusion ...................................................................................... 30

8.0 Recommendations .......................................................................... 31

References ........................................................................................... 32

Bibliography ......................................................................................... 43

Appendix A – PESTEL Analysis KLM...................................................... 44

Appendix B - SWOT analysis KLM ......................................................... 45

Appendix C – Competitor analysis KLM ................................................ 46

i

List of Figures

Figure 1 - Annual growth airline industry (ICAO 2015; Author 2016). ...............3

Figure 2 - GDP growth rate Europe (Eurostat 2016; Author 2016). ...................6

Figure 3 - ASK per region (CAPA 2015). .......................................................8

Figure 4 - Financial performance of KLM .......................................................9

Figure 5- Maslow's hierarchy of needs (Maslow 1987). .................................. 12

Figure 6 - Strategic clock KLM (Carlisle and Faulkner 2005; Author 2016). ...... 17

ii

List of Tables

Table 1 - An overview of events affecting the airline industry over the years

(OAG 2011; Author 2016). .........................................................................5

Table 2 - Positioning statement ................................................................. 17

Table 3 - One way short-haul flight costs (Vlucht-vertraagd.nl 2011). ............. 21

Table 4 - Hierarchy-of-effects model (Kotler and Keller 2012; Author 2016). ... 23

Table 5 – Task-objective for KLM (Kotler and Keller 2012; Author 2016). ........ 24

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1.0 Introduction

The airline industry has evidenced a significant increase in competition.

Due to the rising demand of low-cost carriers (LCC), other types of

airlines such as full-service carriers are under pressure (Borenstein 2011).

Also, KLM is experiencing difficulties to compete (Stothard 2014).

This report aims to present a marketing plan for KLM for the launch of a

new low-cost long-haul service. The report will focus on the development

of the service and the relevant marking concepts associated.

1.1 Background

KLM is the national carrier of the Netherlands and established on 7th

October 1919. In 1920 the airline operated its first flight between

Amsterdam and London, in the years thereafter the airline evidenced a

significant growth. Since 2004, KLM is part of the Air France-KLM group

as result of a merger between Air France and KLM (AirFranceKLM 2015).

The headquarters of the airline is based in Amstelveen, whereas the main

hub is Amsterdam from which the airline operates 71 direct flights to

Europe and 67 intercontinental flights with a fleet of 199 aircraft (KLM

2015). Furthermore, the core business is the transportation of passengers

with the offering of two products involving economy and the World

Business class (KLM 2015).

The mission of the airline is to retain market position by producing

innovative products for customers and providing a safe service whilst

focussing on sustainability (KLM 2015). In 2015, KLM registered a net

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profit of €118 million (CAPA 2016) and carried 28,5 million passengers

(KLM 2015).

1.2 Proposed service

The proposed service is the launch of a new low-cost long-haul service for

KLM with flights between The Netherlands, USA, North America, Middle

East and Africa with a high-quality service by utilising a modern fleet.

2.0 Market Analysis

2.1 Market size

The airline industry is significantly growing; its annual growth rate is 5%

since 1980 with the demand for business and leisure travel increasing

(Boeing 2015). In 2015 airlines combined carried 3.4 billion passengers

(World Bank 2015). However, growth is expected to increase to 6.7% in

2016 (IATA 2015). Nevertheless, LCC’s are gaining the most from this

growth as they are growing 10.3% annually (Boeing 2015).

However, the industry is linked to the global economy and this has an

impact on the size of the market (figure 1), Nevertheless, evidence

suggests that the size will increase as airlines will transport more

passengers in the future (ICAO 2015).

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Figure 1 - Annual growth airline industry (ICAO 2015; Author 2016).

2.2 PESTEL Analysis

The PESTEL framework (appendix A p. 44) can help to understand the key

drivers of change and indicate trends within the airline industry, by

signifying drivers of change and influences KLM has to deal with (Johnson

et al. 2014).

2.1.1 Political/Legal

Political and legal factors have a significant impact on the airline industry

since the industry is exposed to different rules and regulations (Johnson

et al. 2014). The main priority remains the safety of passengers (IATA

2016). Therefore, there is a high degree of interference by diverse

organisations on different layers. For example, local governments, the

International Air Travel Association (IATA) or the International Aviation

Civil Organisation (ICAO) are all responsible for making the industry safe

whilst efficient (IATA 2016; ICAO 2016).

-2%

0%

2%

4%

6%

8%

10%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Annual passenger increase - Airline industry

Annual passenger increase - Airline industry

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The main events that changed the airline industry are the deregulation

and the open skies agreement. Firstly, in 1993 the single market Act 1986

was introduced, resulting in an open market and deregulation of the

industry (Burghhouwt et al. 2015). Additionally, the open skies

agreement in 2007 allowed airlines to operate flights freely between the

USA and Europe (Mayor and Tol 2009). While it has allowed airlines to

move freely, it, however has also increased the level of competition.

It can be claimed that rules and regulations within the airline industry are

changing due to the interference of different governmental bodies and

therefore, the airline industry is a regulated industry. Nevertheless, it

seems that the trend is moving towards fewer regulations (Vasigh et al.

2014).

2.1.2 Economic

Holloway (2012) argues that the airline industry is an industry where at

one stage it benefits from significant growths and on the other hand,

experiences declining rates. The decline is, however, often caused by

external factors.

For instance, the 9/11 attacks caused a decline in the demand for air

travel due to safety concerns among passengers leading to an average

decrease of 3% (OAG 2011). Furthermore, data from IATA (2008)

suggests that international air transport evidenced a decreased of 9%

globally after the economic crisis of 2008, the worst performance of the

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industry since the 9/11 attacks (OAG 2011). Table 1 highlights the events

that have had an impact on the airline industry, including recovery period.

Table 1 - An overview of events affecting the airline industry over the years (OAG 2011; Author 2016).

The gross domestic product (GDP) is a useful tool to analyse trends within

the airline industry. The GDP refers to the value of all the goods and

services produced in a one-year time frame within a domestic economy

containing elements such as; spending, export and government spending

(Hollensen 2011). Figure 2, demonstrates the GDP growth of Europe since

KLM is located within Europe this can be helpful. In 2009 and 2012 the

industry experienced negative growth rates of -4.4% and -0.5%

Event Year Event scale Recovery Period

WTC Attack US September 2001 High 12-36 months

First SARS alerts Hong-

Kong

March 2003 Medium 3-12 months

SARS China January 2005 Medium 3-12 months

Earthquake China May 2008 Low Up to 3 months

Banking Crisis 2008 High 12-36 months

Swine Flu Mexico April 2009 Low Up to 3 months

Volcanic Ash Iceland April 2010 Low Up to 3 months

Quake, Tsunami and

nuclear plant explosion

Japan

March 2011 Low Up to 3 months

Hurricane Sandy USA October 2012 Low Up to 3 months

Flight MH370 lost March 2014 Low Up to 3 months

Flight MH17 shot down July 2014 Low Up to 3 months

Ebola 2014 Low Up to 3 months

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respectively. It could be claimed that when there is a positive growth rate

the demand for air travel will increase whereas a negative growth rate will

lead to a decrease in demand (Suryani et al. 2010).

Figure 2 - GDP growth rate Europe (Eurostat 2016; Author 2016).

2.1.3 Social

Newer generations are likely to spend more on travel as opposed to older

generations (Barton et al. 2013). Besides, the demand for LCC’s is

increasing while passengers are demanding good quality service at the

same time (Borenstein 2011).

For airlines, these changes are essential to target passengers as it

requires them to understand the different demands across business or

economy class by recognising different preferences among passengers

(Akartunali et al. 2013; Johnson et al. 2014). However, external factors

influence the demand for air travel since patterns change (section 2.1.2).

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP growth europe

GDP growth europe

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2.1.4 Technology/Environmental

Applying technology assists airlines with gaining competitive advantage,

as it helps to reduce operational costs. Within the airline industry,

technology is applied to reduce high fuel consumption, since new types of

aircraft consume less fuel (Brueckner and Pai 2007).

Additionally, due to the high fuel consumption and political pressure, the

environment is an important aspect (Gegg, Budd and Ison 2014). The

industry aims to reduce Co2 emission, therefore, a recent strategy has

been introduced to reduce 25% of fuel consumption and Co2 emission

(IATA 2016).

2.1.5 Remarks of the PESTEL

The key drivers of change are the external forces. Despite being

uncontrollable it could be argued that KLM must pay attention to them

when making strategic decisions. For example, events that influence the

industry occur regularly and therefore, KLM must be aware of them and

aim to reduce the risk.

2.2 SWOT Analysis

A SWOT analysis (Appendix B p. 45) can help KLM to identify positive and

negative factors and be able to build a strategy to launch the new service

(Gao and Peng 2011).

2.2.1 Strengths

In contrast to the other two large airlines from Europe; Lufthansa and

International Airlines group (IAG), KLM has a balanced network. Figure 3

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demonstrates the available seat kilometres (ASK) per region. The ASK is

used to measure the flights carrying capacity (CAPA 2013). It can be

evidenced that the ASK for Europe, Asia Pacific and North-America is

22%. Whereas Latin America is 17% and Africa 13%. Moreover, other

airlines are dependent on European and North-American passengers

(CAPA 2015). It could be claimed that having a balanced network can be

valuable in targeting passengers across different regions, by identifying

areas that transport the most passengers (Kotler and Armstrong 2014).

Figure 3 - ASK per region (CAPA 2015).

2.2.2 Weakness

The financial position of the airline is a weakness (figure 4). KLM has only

managed twice in the last ten years to make a profit (CAPA 2015) due to

the impact of external factors (section 2.2).

Furthermore, KLM reduced its debt from €6.5 billion in December 2011 to

€4.3 billion in 2015. Despite being capable of reducing debts, it can be

argued that KLM is limited in terms of spending on future projects

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(Hottentrott & Peters 2012). Nevertheless, KLM has a budget of €2.2

million to invest which seems sufficient to launch a new service,

considering the fact that it has already resources available (CAPA 2015

*2011 accounting year changed (Euro in million).

Figure 4 - Financial performance of KLM

2.2.3 Opportunities

Millennials will spend more on travel while expecting better service

(section 2.1.3). KLM’s long-term strategy includes the replacement of its

fleet, with newer aircraft (CAPA 2015). Not only will this result in more

efficiency (Section 2.1.4), but it will also provide the opportunity to

enhance customers experience.

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Additionally, there is also an opportunity to enter the LCC market due to

the fact competition by LCC’s is increasing, it could be claimed that there

is demand for LCC’s (Borenstein 2011).

2.2.4 Threats

A significant threat is the competition from LCC’s and the competition by

Gulf carriers on long-haul and short-haul flights. While LCC’s are offering

cheaper prices, Gulf carriers offer better service, this, however, makes it

challenging to attract passengers (Stothard 2014) as they may fly with

competitors or are loyal to them (Solomon et al. 2012).

Similarly, unions are a threat for KLM as they attempt to influence

decisions that seem to disadvantage staff. This has often resulted in

strikes and resistance by staff (KLM 2016).

2.3 Trends

Flying low-cost has become a trend over the last few years. Due to the

rise of LCC’s passengers have more choice between airlines. On the other

hand, airlines have used information from passengers better as part of

the flying cheap strategy to attract more passengers by reducing prices

(Thomas 2011). However, it seems that passenger expectations have

increased due to the fact their experiences when buying products, for

instance, have improved and therefore, they expect better service (PWC

2015).

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2.4 Buyer behaviour

Buying behaviour involves a study of what, when, where and how many

times people buy a good or service (Kotler and Keller 2012). Human

needs are ranked from most to least important and people satisfy the

most important needs before satisfying the other needs (Maslow 1954)

Therefore, buyer behaviour can help to understand what motivates

passengers (figure 5).

For passengers the most influential needs are the price with the best

route, hence the brand of the airline is less relevant, moreover,

passengers focus on luxuries such as extra legroom or in-flight

entertainment once basic needs are satisfied (Rose et al. 2005; Warburg,

Bhat and Adler 2006).

It could be argued that self-esteem motivates passengers as opposed to

other factors as the needs of passengers reflect status and therefore, the

products offered by airlines are key in attracting passengers. On the other

hand, the first three needs (psychological needs, safety needs and social

needs) can be considered as less relevant as it can be said that the

purchase of a ticket is motivated by factors that cause satisfaction, rather

than completely based on needs (Herzberg 1966; Kotler and Keller 2012).

In this case, price and route are satisfiers that lead to purchase.

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Figure 5- Maslow's hierarchy of needs (Maslow 1987).

2.5 Competitor analysis

Appendix C p. 46 highlights the competitors for KLM. Despite a difference

in service offered, the fact that the competition within the airline industry

is high suggests that airlines are aiming at the same type of passengers

(Johnson et al. 2014).

The fact that Lufthansa, British airways, Emirates and Qatar airways are

more concentrating on luxury passengers they are the competitors to

avoid. It can be said that if they launch a low-cost service it can affect

their brand image (Dall’Olmo et al. 2014). Conversely, KLM does not offer

a first class product (KLM 2016), therefore, it might be said that the

airline is not focussed on luxury travel and it has less impact on the brand

image (Pina et al. 2010).

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Since Easyjet and Ryanair are focussed on low-cost travel they are the

future competitors, this due to the fact they have the resources and the

ability to respond rapidly as opposed to luxury focussed airlines (Kotler

and Keller 2012).

3.0 SMART Objectives

The marketing objectives for the first year of the new service are as follows:

1. To raise brand awareness among air travellers by achieving an

average load factor of 50% - 60% depended on the season and

routes within the first year of operations.

2. Increase European market share to 5% of the new service within

the first year of operations.

3. Inform target audience about service quality and the competitive

advantage by using diverse communication tools leading to an

increase in sales of 10% within the first three months of operations

4. Increase sales by another 10% after 9 months of operation by

launching a loyalty membership program.

5. To deliver high-quality service within the low-cost segment by being

among the top 10 low-cost airlines mentioned in market surveys in

a one-year time frame.

3.1 Target audience

Segmentation and targeting helps to find and define the user whereas

positioning refers to the positioning the product in the mind of the

consumer (Ries and Trout 1982; Kotler and Armstrong 2014).

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Due to changing demands of passengers, it is challenging to customise

products based on class seating since there is a lack of motivation and

needs it could, therefore, be argued that it depends on the behaviour of

passengers (Teichert et al. 2008) such as occasions, user or loyalty

status, that defines the target market (Cross et al. 2015; Kotler and

Armstrong 2014).

3.1.1 Frequent flyers

This are passengers that fly regularly and have different motives such as

business or holidays. However, they are loyal to a specific airline due to

the opportunity to collect frequent flyer miles in exchange for free flights

in the future (Etemad-Sajadi et al. 2016). Therefore, airlines are able to

discourage them from switching, whereas, in addition, they are also less

price sensitive and therefore, challenging to attract (Liu 2007; Sayman

and Stephan 2014).

3.1.2 Business travellers

Business travellers also fly frequently but expectations are based on

scheduling convenience (Martinez-Garcia et al. 2012). There is, however,

a difference between the type of business travellers, as self-employed

business travellers are flying less in business class and it can be claimed

that they are price sensitive (Mason 2005). While, when companies

purchase tickets on behalf of employees for business purposes, they are

less price sensitive and thus easier to convince (Vlachos and Lin 2014).

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3.1.3 Budget-Conscious travellers

Budget-conscious passengers are infrequent travellers and as a result,

have limited knowledge about the brand of the airline and therefore, use

price as satisfaction (Akartunali et al. 2013). This confirms why LCC’s are

attractive (Borenstein 2011). However, a drawback of price sensitive

passengers is that they perceive airlines as equal and select the cheapest

option (Brueckner et al. 2013).

3.2 Targeting strategy

Budget-conscious passengers are the most appropriate target market for

KLM. The fact that LCC’s are growing suggests that this segment is

growing (Borenstein 2011) and therefore, is in the growth stage of the

product lifecycle (PLC) (Trott 2012). Despite increased competition most

LCC’s are operating short-haul routes whereas this service will focus on

long-haul routes (Dobruszkes 2013).

In contrast to the other identified segments, budget-conscious passengers

meet the objectives of the service. Therefore, the most suitable strategy

is differentiated marketing. According to Schlegelmilch (2016),

differentiated marketing consists of a company offering more brands

within their portfolio whilst targeting different segments. While it might be

argued that a concentrated strategy would be appropriate, the current

segments of KLM involve frequent and business passengers already.

Besides, this service will focus on budget-conscious passengers

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specifically with the purpose to offer better and attractive products in

contrast to the competition (Porter 1980).

3.3 Positioning

Positioning aims to make products visible, create recognition and provide

value (Ostaseviciute and Sliburtye 2008). (Figure 6) illustrates the current

position of KLM in contrast to competitors (Bowman and Faulkner 1997)

and suggests other positions available while helping to focus on

passengers instead of costs (Johnson et al. 2014).

It could be claimed that KLM is located at position 1 which is

differentiation, this position consists of the passengers receiving high-

quality products at which the high price meets the quality (Shakshsir

2014). However, positioning can be achieved by differentiating attributes

(Kapferer 2012). One of the attributes of differentiation for the new

service is based on price quality, therefore, in terms of positioning KLM

must shift to hybrid. The hybrid strategy offers consumers with high

added value for a lower price in contrast to competitors. Therefore, the

unique value proposition is more for less (Shakshsir 2014).

It could be said that the hybrid strategy is an opportunity to differentiate

as opposed to competitors and to gain competitive advantage (Porter

1980; Chan and Mauborgne 2005).

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Figure 6 - Strategic clock KLM (Carlisle and Faulkner 2005; Author 2016).

3.3.1 Positioning statement

A positioning statement summarises the positioning strategy by

communicating the value to the consumer (Barton 2015). Table 2

presents the positioning statement for the new service.

“To travellers who are budget conscious, KLM is the airline that

provides your long journey with additional value than any other airline

because it offers the lowest prices with a customer oriented approach”

Table 2 - Positioning statement

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4.0 New Service Marketing Mix

4.1 Product

The service will involve cheap long-haul flights, aiming to satisfy

passengers by providing customer focused service where possible such as

before and during the flight.

However, in contrast to products, services have different characteristics

(Trott 2012). Firstly, services are intangible, it is impossible to feel, touch

or taste the service. Likewise, services are heterogeneous and depend on

human interaction. Additionally, services are produced and consumed

simultaneous and as a result, depend on the interaction between

consumers and providers. Lastly, services are perishable which indicates

that it is impossible to save, store, resell or return a service (Trott 2012).

Therefore, to develop the service, the characteristics are crucial as it can

be claimed that during the development stage of the new product

development process (NPD) this is challenging as opposed to a product

due to differences, hence involvement of the users is crucial for a service

to be successful (Gremyr et al. 2010). Therefore, for the development of

the service, passengers should be involved in gaining ideas by market

research, as co-creators, during the development process and the testing

stage (Nambisian (2002). However, this is not sufficient unless it is

understood how passengers evaluate services.

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Parasuraman et al. (1985) suggest that consumers judge services based

on 5 aspects; reliability, responsiveness, assurance, empathy and

tangibles.

In terms of reliability, KLM must ensure that it delivers the promised

value, and is capable of handling problems of passengers. When it comes

to responsiveness, information towards passengers is crucial at every

stage of the process. Additionally, KLM must be prepared to respond to

the requests of passengers. Even so, assurance is also key, staff should

be able to let customers feel safe and must have the ability to answer

questions. Empathy for this service will include dealing in a caring manner

and understand passenger needs.

Lastly, in terms of tangibles staff has to have a professional appearance.

While aircraft should be well maintained.

4.2 Price

Pricing depends on diverse factors, for instance, market or environmental

factors (Hollesen 2011). It may be argued that due to flying being a

service and perishable (Guo et al. 2013) the pricing strategy for airlines

depends on the availability of seats, demand, competitors and operational

costs (Li et al. 2014).

The airline industry is as an oligopolistic industry (Cento 2009) as it is

dominated by a few airlines (Dunne et al. 2013). Despite a significant

level of competition, it can be said that competition depends on the

routes, as large airlines have close competitors but besides there are also

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smaller airlines operating similar routes (Gailey et al. 2012). Hence,

pricing is influenced by uncertain external factors that are difficult to

predict. Table 3 provides the costs involved for short-haul flights however,

different factors such as demand or fuel are challenging to predict (Button

2009). For example, prices on routes with high demand are increased

whereas, on routes with low demand prices are decreased, thus prices are

elastic (Granados, Gupta and Kauffman 2012).

Therefore, the best possible pricing strategy is discriminatory pricing as

passengers will be charged differently for the same service (Dai, Liu and

Serfes 2014). The service should charge a minimum of €350 for a return

ticket and price adjusted based on demand. However, it will be crucial to

create perceived value during the buyer process to convince passengers

(Beneke et al. 2013).

Estimated costs per passenger

(one way, short distance)

Aircraft costs/lease €20.00

Fuel €8.20

Air traffic control fees €2.69

Crew €1.64

Catering €1.67

Airport security fees €12.94

Handling charges €14.94

Parking fees €0.67

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Table 3 - One way short-haul flight costs (Vlucht-vertraagd.nl 2011).

4.3 Place

Place is the location where the passenger can purchase the ticket (Gordon

2012). Considering the operational costs for third parties when it comes

to selling tickets (Ng 2015), tickets should be sold exclusively online

through the website (Shon, Chen and Chang 2003). Moreover, it could be

argued that the process of booking might be easier as opposed to booking

with a travel agency as the involvement of an intermediary leads to

inefficiency (Chaffey 2015).

However, in contrast to competitor’s distribution channels, selling tickets

will be challenging. Therefore, additional value must be created by the

effective use of attributes such as search engines and a website that is

user-friendly and using additional channels such as social media for direct

selling (Mangold and Faulds 2009).

4.4 Promotion

The purpose of promotion is to inform, persuade or remind consumers

about the product by using different tools (Hollesen 2011; Kotler and

Keller 2012). The aim of communication for KLM is to create awareness

(Table 4). Therefore, the objective of the message is to obtain new

passengers by creating awareness among air travellers and make them

Landing rights €3.80

Noise tax €2.00

Total €68.55

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aware of KLM’s new service while increasing awareness among budget

conscious travellers (Kotler and Keller 2012).

To select the right communication tools a message has to be developed

that is easily understood by budget conscious travellers (Keller 2016)

which aimed at information appeal. According to Kotler and Keller (2012),

information appeal is based on the benefits of a service. Therefore, the

message aims to focus on the relation between service quality and price.

It will be communicated by integrated communication channels (Kotler

and Keller 2012) since it is more effective as opposed to personal

communication or mass communication channels (Batra and Keller 2016).

Awareness Make budget travellers aware of the

new service and achieve an average

load factor between 50 – 60 within

the first year depended on the route

and season.

Knowledge Target audience has no or limited

knowledge about the new service,

KLM must identify the amount of

people with minimum knowledge and

create band knowledge.

Liking Target audience is familiar with KLM,

identify how they feel about the

brand, in case it is unfavourable

identify the reason and communicate

the new quality.

Preference Target audience is aware of the

service but does not prefer it. KLM

must build consumer preferences.

1401575 – Marketing strategy Page 23

Conviction Target audience may like the new

service but is not convinced to buy it.

KLM must convince people to choose

them.

Purchase Convince the target audience to

purchase tickets by offering a low

price

Table 4 - Hierarchy-of-effects model (Kotler and Keller 2012; Author 2016).

4.4.1 Budget

The budgeting technique applied to determine communication tools is the

objective-and-task method (table 5) as this technique develops budgets based

on specific objectives and the costs associated to perform them (Petit and

Mcenaliy 1985; Kotler and Keller 2012).

Establish the amount of

passengers’ yearly

Current yearly passenger average of

KLM is 20 million (KLM 2016),

therefore, the target is to attract at

least 5% which is 1 million passengers

a year.

Determine the percentage of

passengers that should be

reached

The aim is to reach 80% by

advertising (800.000 people).

Determine the amount of

passengers that should be

persuaded to fly with the new

airline.

Expected that 25% of people that are

aware of the airline (200.000), will fly

once with 20%, 40.000 becoming

loyal

Determine advertising

impressions associated to 1%

trial rate.

It is estimated that 50 advertising

exposures will lead to 10% of trial

rate.

Consider the amount of gross

rating points (GRP) that have to

be acquired.

20 exposures to 80% of the target

market = 1600 (GRP).

1401575 – Marketing strategy Page 24

Table 5 – Objective-task-method for KLM (Kotler and Keller 2012; Author 2016).

4.4.2 Marketing communication mix

The availability of media is diverse in countries (Hollensen 2014). It can

be argued that therefore, marketing budget should be allocated across

different modes of communications (Kotler and Keller 2012).

Advertising can help KLM to create awareness (Barroso and Llobet 2012).

Radio and TV have a strong effect to create awareness due to its

expressiveness and pervasiveness as opposed to printed advertising and

therefore are appropriate, moreover, it also reaches a wider target

audience (Batra and Keller 2016).

It could be argued that social media is also suitable as it allows online

conversations such as chats via forums or social media websites (Chaffey

2015; Hollensen 2014). This provides an opportunity to exchange a two-

way dialogue between passengers and KLM (Mangold and Faulds 2009).

Moreover, it is valuable for word-of-mouth marketing (Kotler and Keller

2012). Despite being less effective as opposed to traditional advertising, it

attracts new customers (Batra and Keller 2016).

Additionally, personal e-mails are three times more effective and

therefore, should be used to persuade people (Li and Kannan 2014).

Establish budget based on GRP

average

The average price of a GRP is

estimated at €3000 therefore, the

budget is estimated to €4,800.000

(€3000 x 1600).

1401575 – Marketing strategy Page 25

However, the timing of the message is significant, therefore, campaigns

must be launched prior to holiday seasons to increase effectiveness

(Hollensen 2014).

4.5 People

The staff is crucial as they will deliver the service on behave of KLM (Goi

2015). KLM’s current staff base is well educated and trained as they are a

4-star airline (Skytrax 2016).

It can be said that training of staff is important since staff must be

passenger oriented to retain passengers (Huang and Sarigollu 2014).

Nonetheless, there is scope for improvement in areas such as enthusiasm

and attitudes toward customer, interaction with customers, friendliness

and hospitality and lastly quality consistency among staff as these score 3

stars on average, while it should be aimed to score 4 stars (Skytrax

2016). Excellent customer experience will lead to positive word of mouth

whereas word of mouth can also be improved by the airline choosing staff

that reflects the brand image, and it can be ensured that employees are

motivated and service quality is consistent (Hartline and Jones 1996;

Sweeney et al. 2014).

4.6 Process

The process of the service refers to the activities, mechanisms and

procedures by which passengers will acquire the service (Rafiq and

Ahmed 1995; Kotler and Armstrong 2014). The process should be simple,

from the time the passenger books until their flight’s depart and arrive.

1401575 – Marketing strategy Page 26

This, for instance, will require a strong booking system that will deliver

passengers with their required service that passengers pay for. These

systems involve online channels such as social media, online information

through the website, but also the IT infrastructure and scheduling

systems. Besides, one of the most used inventory systems used in the

airline industry is Amadeus, this will allow KLM to manage flights and

helps to sell tickets based on the right price and demand (Amadeaus

2016).

4.7 Psychical Evidence

Due to the fact the airline offers a service, the psychical elements are

significant to impress passengers (Hollensen 2014). It could be claimed

that KLM must use its current logo since it is easy to recognise and

remember. Additionally, the airline uses blue colour and therefore, it is

easy to recognise since staff uniforms and aircraft have the same colours

and it seems to create a positive atmosphere that can contribute to the

new service (Kotler and Armstrong 2014)

Moreover, the layout of the cabin has to be convenient for instance by the

use of convenient seats or more legroom, moreover, aircraft should be

well maintained in order to provide customers, the best overall

experience. This process should make sure that the passenger is provided

with additional value to enhance their experience.

1401575 – Marketing strategy Page 27

5.0 Implementation

Implementation can be defined as transforming marketing strategies and

plans into actions to accomplish the strategic marketing objectives (Kotler

and Armstrong 2014), strong implementation can assist KLM in being

successful (Banoma 1985).

5.1 Mckinsey 7s Framework

Mckinsey 7s framework can assist KLM in achieving an effective

implementation since all the factors are interrelated (Bryan 2008).

5.1.1 Style

Style is the culture within the organisation and the way tasks are

completed (Bryan 2008). The leadership style during the process is crucial

since only 30% of the companies are successful when it comes to change

(Keller and Aiken 2009). The most suitable leadership style for KLM is

transformational leadership since it aims at changing employees and

seeks to enhance performance (Northouse 2013). However, management

must make sure to have the trust of employees and therefore, they must

implement an open door policy in which employees can approach

management (Kotter 1995).

5.1.2 Skills

The skill sets of organisations determine how KLM works (Bryan 2008). It

could be said that an effective training program is required for a high-

quality service, therefore an annual assessment must be performed to see

whether training meets the standard (Johnson et al. 2014).

1401575 – Marketing strategy Page 28

5.1.3 Systems

Proper procedures and systems are essential for the way the KLM works

(Bryan 2008). It could be said that customer relationship management

systems are crucial as this can help KLM to gather data regarding

passengers (Chaffey 2015), moreover, Amadeus is also an important

system as it indicates demand (Amadeus 2016). Lastly, selection of

people should be based on strong selection criteria and only people

capable of providing the promised service must be hired (section 4.5).

5.1.4 Structure

KLM has an executive team in which each department is under the

responsibility of one person (KLM 2016). However, for the new service,

the organisation has to appoint someone who is responsible for low-cost

flight operations as this would be more suitable to make sure employees

are not confused on who has authority (Bryan 2008).

5.1.5 Staff

Incentive schemes should be introduced to motivate staff and conversely,

regular staff meetings with staff that does not perform should also be

held (Bryan 2008).

5.1.6 Strategy

The strategy is to gain competitive advantage. Nonetheless, the strategy

has to meet the mission of the organisation (Kanagal 2016). Therefore,

KLM has to ensure that enough money, sufficient aircraft and the right

people are available (Kotler and Armstrong 2014).

1401575 – Marketing strategy Page 29

5.1.7 Shared values

KLM must assess the current organisational culture and identify whether

everyone has the same vision and is trying best to achieve the values

(Bryan 2008). The current environment within the company is weak due

to the uncertainty among employees (section 2.2.2). It could be claimed

that this must be fixed to share the same vision.

6.0 Control

The control process refers to controls applied to evaluate the marketing

strategies and plans and take corrective actions where required (Kotler

and Armstrong 2014).

6.1 Feedback

The control process should involve different indicators. Firstly, it is

significant to ask feedback from passengers that have used the service to

measure quality, this can be achieved by asking them to fill in a

questionnaire (Johnson et al. 2014), this can help highlight common

problems experienced and fix them.

Additionally, the airline should use market share as a control tool,

however, it should set milestones to reach 2,5% of its market share at

the half way stage of the marketing plan as this can indicate KLM’s

position and whether corrective actions are required (Lynch 2012).

1401575 – Marketing strategy Page 30

6.2 Sales Activity

Measuring sales activity, on the other hand, is also significant, therefore,

sales targets must be established and compared against actual sales

figures to identify whether the promotion strategy is effective (Dyson

2010).

6.3 Meetings

Lastly, management of each department must meet every two months to

discuss the activities, sales and areas of improvement. A useful tool that

can be applied market-based scorecard this can help to provide a

balanced view of financial and non-financial elements indicating areas that

can be improved where new opportunities arise (Kaplan and Norton

1996).

7.0 Conclusion

All things considered, there is a high intensity of competition in the airline

industry. The expected growth and increasing presence of LCC’s suggest

that there is an opportunity for KLM to launch a new low-cost long-haul

service for budget conscious travellers. It could be claimed that KLM can

increase its current position. Nevertheless, the success of the service

depends on various elements that must be managed carefully such as the

price, quality, communication tools but also the implementation and

control process is significant while on the other hand, internal and

external forces should be taken into account when introducing the new

service to mitigate risk.

1401575 – Marketing strategy Page 31

8.0 Recommendations

It can be recommended to assess current capabilities by evaluating the

internal environment by the use of the value chain analysis to see

whether these are sufficient. Additionally, a VRIO analysis can help to

identify whether the airline has competitive resources that can be utilised.

1401575 – Marketing strategy Page 32

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Appendix A – PESTEL Analysis KLM

Political/Legal Social

• Deregulation

• Open Skies

• Safety

• Shifts in travel preferences among

generations.

Economic

• Terrorists attacks

• Disasters

• GDP growth

• Oil prices

Technological/Environmental

• Bio Fuel

• Reducing of fuel consumption

1401575 – Marketing strategy Page 45

Appendix B - SWOT analysis KLM

Strengths Weakness

• Balanced network

• Two airports among world’s best

airports

• Relatively known brand (ranked 24th

among top 100 airlines).

• Different partners

• Difficulties in retaining profits

• Debt

Opportunities Threats

• Increase/Start LCC operations.

• Working more together with

different SkyTeam partners by Joint

ventures.

• Enhance customer experience and

gain efficiency by induction of new

aircrafts

• Competition

• Changing consumer demands

• Brand loyalty among consumers

• Internal conflicts

• Uncertain oil prices

1401575 – Marketing strategy Page 46

Appendix C – Competitor

analysis KLM

Competitor Lufthansa British Airways (IAG) Ryanair Easyjet Emirates Qatar Airways

Objectives Become the leading

aviation company

globally (Lufthansa

2016).

• Become the

most admired

airline.

• Invest in

product

improvement

• Grow presence

in key global

cities (BA

2015).

Become Europe’s

biggest scheduled

airline (Ryanair

2016).

Deliver market

leading innovative

customer service

(Easyjet 2016).

N/A Being Excellent in

everything they do

(Qatar airways

2016).

Strengths • Owns strong

brands such

as Swiss and

Austrian.

• Financially

strong.

• Owns strong

brands with

strong strategy

and

characteristic

such as Iberia

and Vueling.

• Iberia is strong

in the LCC

Segment

• Low Fares

• Largest

short-haul

carrier within

Europe

• Low-Fares

• Strong

European

network

(growing)

• Strong-brand

• Strong brand

• Young fleet

age

• Backed by

government

• 5-star airline

• Strong brand

• Significant

growing

network

Weakness Slow response in the

LCC segment.

Small Asian market. Weak Brand

perception by

customers.

Profits depend on

seasons

Limited market

growth due to high

competition.

Limited market

growth due to high

competition.

1401575 – Marketing strategy Page 47

Price High end High end Cheap Cheap High end High end

Product Luxury air travel Luxury air travel Low-cost air travel Low-cost air travel Luxury air travel Luxury air travel

Place • Based in

Cologne,

Germany

• online

• travel

agencies.

• Flight

comparison

websites

• Based in

Harmondsworth,

UK

• Online sales

• travel agencies.

• Flight

comparison

websites

• Based in

Dublin,

Ireland

• Online sales

• Operations

mainly from

second-tier

airports

• Based in

Luton, UK

• Online sales

• Travel agents

• Flight

comparison

websites

• Based in

Dubai

• Online sales

• Travel agents

• Flight

comparison

websites

• Based in

Qatar

• Online sales

• Travel agents

• Flight

comparison

websites

People Well skilled and

educated

Well skilled and

educated

Skilled and

educated

Well Skilled and

educated

Highly skilled,

trained and educated

Highly skilled,

trained and educated

Promotions • Social media

• Direct

Marketing

• Advertisement

• Sports

sponsorships

• Flyers and

brochures

• Events

• Loyalty

programs

• Website

•

• Social media

• Direct Marketing

• Advertisement

• sponsorships

• Flyers and

brochures

• Events

• Loyalty

programs

• Website

• Social media

• Employee

controversies

• Social media

• Direct

marketing

• Advertisement

• Social media

• Direct

Marketing

• Advertisement

• sponsorships

• Flyers and

brochures

• Events

• Loyalty

programs

• Flight

comparison

websites

• Website

• Celebrities

• Social media

• Direct

Marketing

• Advertisement

• sponsorships

• Flyers and

brochures

• Events

• Loyalty

programs

• Flight

comparison

websites

• Website

• Celebrities