Đề tài: The application of marketing in air service of vietnam airlines

This thesis would not have been made possible without the help from many wonderful people who gave their supports in different ways. To them I would like to express my deepest gratitude and sincere appreciation. First of all, I am deeply indebted to my supervisor Asso. Prof., Dr Do Thi Loan, a senior lecturer and the Dean of the Post Graduate Studies Faculty of Hanoi Foreign Trade University, for her valuable instruction, corrections, comments, suggestions and enthusiasm during the development of my graduation thesis. Her guidance and encouragement have been invaluable to me and she will always be remembered as the key factor that influenced my career towards this path.

THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES

TABLE OF CONTENTS

ACKNOWLEDGEMENT III

LIST OF ABBREVIATIONS IV LIST OF CHARTS AND TABLES V INTRODUCTION VI

CHAPTER 1: AN OVERVIEW OF AIR SERVICE MARKETING 1

1.1 WHAT IS AIR SERVICE MARKETING? 1

1.1.1 Special features of air service 1

1.1.1.1 Intangibility 1

1.1.1.2 Inseparability 2

1.1.1.3 Heterogeneity 2

1.1.1.4 Perishability 3

1.1.1.5 Lack of ownership 3

1.1.2 Service and Marketing service 3

1.1.3 Marketing in air service 4

1.2 PROCEDURES OF DOING AIR SERVICE MARKETING 5

1.2.1 SWOT analysis 5

1.2.1.1 Strengths 5

1.2.1.2 Weaknesses 5

1.2.1.3 Opportunities 6

1.2.1.4 Threats 6

1.2.2 Doing market research 7

1.2.2.1 Finding out customers needs and wants 7

1.2.2.2 Segmenting markets 8

1.2.2.2.1 What is market segmentation? 8

1.2.2.2.2 Benefits of Segmentation 8

1.2.2.2.3 The process of Segmentation 9

1.2.2.3 Targeting market 10

1.2.3 Working out marketing mix strategies 11

1.2.3.1 Product Strategy 11

1.2.3.2 Price Strategy 13

1.2.3.3 Place Strategy 13

1.2.3.4 Promotion Strategy 14

1.2.3.5 People Strategy 16

1.2.3.6 Physical Evidence Strategy 18

1.2.3.7 Process Strategy 19

CHAPTER 2: ASSESSMENT OF THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES 20

2.1 AN OVERVIEW OF VIETNAM AIRLINES 20

2.1.1 Vietnam Airlines’ history 20

2.1.2 The status of Vietnam Airlines in the Region 23

2.2 THE APPLICATION OF “MARKETING IN AIR SERVICE” OF

VIETNAM AIRLINES 26

2.2.1 Studying Marketing environments 26

2.2.2 SWOT analysis 28

2.2.2.1 Strength 28

2.2.2.2 Weaknesses 29

2.2.2.3 Opportunities 30

2.2.2.4 Threats 32

2.2.3 Doing market research 34

2.2.3.1 How does Vietnam Airlines find out the customers’ needs and wants? 34 2.2.3.2 Market Segmentation 35

2.2.3.2.1 Broad Segmentation 35

2.2.3.2.2 Needs-based segmentations and segment identifications 36

2.2.4 Targeting Markets of Vietnam Airlines 38

2.2.5 Marketing Mix Strategies 39

2.2.5.1 Product Strategy 39

2.2.5.2 Price Strategy 44

2.2.5.3 Place Strategy (Distribution Network) 45

2.2.5.4 Promotion Strategy 47

2.2.5.5 People Strategy 51

2.2.5.6 Process Strategy 52

2.2.5.7 Physical Evidence strategy 53

2.2.6 Evaluation 53

2.2.6.1 Achievements 54

2.2.6.2 Drawbacks 55

CHAPTER 3: MARKETING SOLUTIONS TO IMPROVING VIETNAM AIRLINES’ SERVICE 58

3.1 MARKETING SOLUTIONS 58

3.1.1 Diversification and improvement of the quality of Vietnam airlines 58

3.1.2 Enhancement of air service marketing and promotion activities 59

3.2 RECOMMENDATIONS 60

3.2.1 For the Government 60

3.2.2 For Vietnam Airlines 62

 Company interview (Directly) 63

 Questionnaire 64

CONCLUSION 69

APPENDIX 74

This thesis would not have been made possible without the help frommany wonderful people who gave their supports in different ways To them

I would like to express my deepest gratitude and sincere appreciation

First of all, I am deeply indebted to my supervisor Asso Prof., Dr DoThi Loan, a senior lecturer and the Dean of the Post Graduate StudiesFaculty of Hanoi Foreign Trade University, for her valuable instruction,corrections, comments, suggestions and enthusiasm during the development

of my graduation thesis Her guidance and encouragement have beeninvaluable to me and she will always be remembered as the key factor thatinfluenced my career towards this path

Second, I am especially grateful to the lecturers of the English Facultywho provided me with a basic knowledge that is absolutely important inwriting the thesis

I would also like to extend warmest thanks to all staff of the VietnamAirlines and the Civil Aviation Administration of Vietnam (CVVA) whosupplied me with valuable data

Third, throughout my hard working days, I was blessed with a great deal

of support from my family I am forever thankful to my admired parents fortheir love, understanding, and endless patience and for supporting me in all

my endeavors

Finally, my last thanks go to all my classmates and former BBEgraduates of the Foreign Trade University, for their encouragement andsupport whilst I was working on the completion of this work

List of abbreviations SWOT : Strength, weakness, opportunity, threat

ATL : Above the line

BTL : Below the line

CAAV : Civil Association Administration of Vietnam

VNA : Vietnam Airlines

WTO : World Trade Organization

SARS : Serve Acute Respiratory Syndrome

HCMC : Ho Chi Minh City

AVOD : Audio/Video on demand

RTW : Round the world

VFF : Vietnam Football Federation

7ps : Price, Place, Promotion, Product, People, Physical

Evidence, Process

UK : United Kingdom

USa : The United Stated of America

PEST : Political, Economic, Socio-cultural and Technological

ICAO : International Civil Aviation Organization

IATA : International Aviation Transport Association

CRS : Computer Reservation System

GPS : Global Distribution System

List of Charts and tables

Table 2 1: Vietnam Airlines' competitors 23

Table 2 2: Market Share of Vietnam Airlines 29

Table 2 3: Key competitors and competitive strategies 33

Table 2 4: Roundtrip prices 37

Table 2 5: Evaluating passengers' taste Source: Vietnam Airlines market survey .42

Table 3 1: Action plan for 2006 60

Chart 3.1: Good aspects of Vietnam Airlines service.’ service .65

Chart 3.2: Aspects which VNA needs improving 66

Chart 3.3: Passengers Favorite Airlines.’ service .68

1 Why I choose this topic

The sixth Party Congress marked a turning point in the process ofeconomic development of our nation The country’s reform that began inthe late 1986s and started generating results in the early 1990s createdbreakthrough changes in attitudes towards economy and what constitutes amodern state What Vietnam has gained from the Doi Moi process ispractically immeasurable More important than any other things, however,

is that the most significant achievement over the last 20 years was thatVietnam has successfully changed from its centrally planned economy into

a socialist-oriented market economy

Thanks to the renovation process and the open door policies of recentyears, Vietnam’s tourism and civil aviation industries have grown rapidlyand recorded encouraging successes Tourism development has helped theair industry to grow, and the development of the air industry ensures animportant means of transport for tourism The number of foreign visitors toVietnam in the past few years has continued to increase, and those arriving

by air account for well over 50 percent of them

At present, the concept of marketing has been widely applied inmanufacturing sector in Vietnam Nevertheless, the concept of marketingservice in general and marketing air service in particular are quite new Infact, many services industries such as airlines have traditionally appliedmarketing to their operations less than manufacturing firms It cannot bedenied that marketing is an important activity for any business that wishes

to become and remain competitive and successful This is certainly thecase in the rapid changing airlines industry, especially Vietnam Airlines.However, there remains much room to improve in the application ofmarketing to air service of Vietnam Airlines This is the reason why Ichoose this topic for my graduation thesis in the hope of making somerecommendations to improve the efficiency of Vietnam Airlines

2 Research Methodology

- Collecting data primary from doing field research, direct interviewsand surveys in Vietnam Airlines and secondary data from text books andreference books concerned

- Using different methods for study, comprising of analysis,comparison and generalization

- Analyzing based on the marketing rules, processing and summarizingthe collected data

- Using online survey via email

3 Focus of the study

The focus of the thesis is on theoretical framework of marketing serviceand marketing air service and the assessment of the application ofmarketing air service strategy of Vietnam Airlines

4 Structure of the thesis

Apart from the introduction and conclusion, the thesis is divided intothree chapters:

Chapter 1: An overview of air service marketing.

Chapter 2: Assessment of the applications of marketing in air service of Vietnam Airlines.

Chapter 3: Marketing solutions to improving services of Vietnam Airlines

CHAPTER 1

An overview of air service marketing

Since 1980s, in the UK more people are employed in the service sectorthan in all other sectors of the economy put together It is the same in theUSA and in most Western economies In Britain, income from servicescontributes more than any other sectors to the Gross National Product, andincome from selling services overseas, called ‘invisible earnings’ plays anincreasingly important role in the balance of trade Since that time, servicehas grown considerably and has received much attention There are anumber of factors which make services different from physical goods.Marketing applied in service including has developed accordingly

1.1 WHAT IS AIR SERVICE MARKETING?

1.1.1 Special features of air service

Unlike goods, services in general and air service in particular cannot beseen, touched, smelt, tasted, tried on for size or stored on a shelf They areintangible Services own some special features that often have a significanteffect on marketing strategies These features of services result inmarketing mix decisions that are substantially different from those relating

to the marketing of goods It must be concerned with factors such asintangibility, inseparability, perish ability, heterogeneity and ownershipwhen implementing marketing strategy

1.1.1.1 Intangibility

Air services are intangible, that means services cannot be seen, tasted,felt, heard or smelt before the purchase decision Some marketing authorseven say that the basic difference between goods and services is theintangibility Air services do not have real, physical presence as a productdoes For instance, prior to boarding an airplane, airline passengers havenothing but an airline ticket and the promise of safe transportation to theirdestination Although services are intangible, the experience customers

obtaining from the service has an impact on how they will perceive from.What can the customers achieve from the customer service? The answer isthe location, the inner presentation or the environment of where they arepurchasing the service? In fact, a professional working environment, thehearty welcome of the staff or even the security of the airline will providecues as to how well it is run

1.1.1.2 Inseparability

The production and consumption of services are inseparable.Inseparability means that the consumers have direct experience of theproduction of the service The task of satisfying customers for the provider

of a service is in many ways much more difficult than it is for themanufacture of a product In service industries everything has to be rightfrom first time, all the time, any mistake can prove very costly in terms oflosing customers To take advantage of a bus service, both you and the busmust make the journey at the same time Air service is similar, in most airservices; both service providers and the customers must be present for thetransaction to occur Customer-employees are part of the product Thesimultaneous occurrence of production, purchase and consumption of someservices contrasts starkly with the lengthy time scale which can separate theproduction, purchase and consumption of a product

1.1.1.3 Heterogeneity

Products are often made in batches while services are never identical.The human element ensures that services will be highly heterogeneous,which simply means varied There are so many aviation firms within nationbut how the customers choose among them? In traveling by plane theservice quality may differ from the first time you traveled by that airline tothe second, because the airhostess is more or less experienced Thus, thereare several causes of variability First of all, services are produced andconsumed simultaneously, which limits quality control Secondly, the highdegree of contact between the service providers and the guests means thatproduct consistency bases on the service providers’ skills and performance

1.1.1.5 Lack of ownership

Ownership is not available in service since customer can not own andstore service like a product When a consumer buys a service he does notusually receive ownership of anything intangible Services are used or hiredfor a period of time Buying an air ticket to Australia, say, the service willprolong within 13 hours but the customers want and expect excellentservice for that long journey Air service buyers are therefore buying onlyaccess to the air plane or use of seats on the plane

1.1.2 Service and Marketing service

In general meaning, a product is something that is developed,manufactured, grown or extracted in exposure to the use of the buyer Aservice, on the other hand, is a non-material equivalent of a good Serviceprovision has been defined as an economic activity that does not result inownership, and this is what differentiates it from providing physical good.It’s claimed to be a process that creates benefits by facilitating a change incustomers, a change in their physical possessions or a change in theirintangible assets The standard definition of a service is that provided bythe American Marketing Association, which says: “Services are activities,benefits or satisfactions which are offered for sale or are provided in

connection with the sale of goods” Then William Stanton modified thisdefinition to: “Those separately identifiable, essentially intangible activitieswhich provide want satisfaction and which are not necessarily tied to thesales of a product or another service To provide a service may or may notrequire the use of tangible goods However, when such use is required,there is no transfer of the title to those tangible goods” And how aboutmarketing these services?

There are different marketing service definitions by many famouseconomists such as Philip Kotler- John Bowen James Makens definemarketing service as “ a social and managerial process by whichindividuals and groups obtain what they need and want through creatingand exchanging products and value with other” In addition, according toAmerican Marketing Association, marketing service is defined as: “Anorganizational function and a set of processes for creating, communicatingand delivering values to customers and for managing customer relationships

in ways that benefit the organization and its stakeholders” Thus, it can besaid that marketing service refers to the marketing of activities andprocesses rather than objects, creating benefits and values to customers

1.1.3 Marketing in air service

Marketing in air service is part of marketing service bearing thecharacteristics of marketing service Some aspects of air service marketingcan be described as “consumer marketing”, in the sense that they aretargeted at the individual or the family group Marketing an air servicemeans converting available seats into revenue seats It is the revenueproducing side of the air carrier operating statement; it interactshorizontally across any departments and vertically through all the tiers ofthe organizations In order to be globally known, an airline has todetermine passengers’ needs and wants, formulate strategies and providetotal customer satisfaction collecting in the same time feed back on itsperformance The marketing objective is to create value for a potential

ticket buyer in open competition with similar offerings In the airlineindustry, the value is created through corporate and brand image For thisreason, airlines invest huge sums of money in corporate advertising anddeveloping brands which tend to distinguish from others

1.2 PROCEDURES OF DOING AIR SERVICE MARKETING.

1.2.1 SWOT analysis

SWOT analysis is a very necessary step that can not beskipped It is regarded as an evaluation of the existing of any industry

SWOT stands for Strengths, Weaknesses Opportunities and Threats By

studying and analyzing SWOT, the company will have useful data to workout optimal marketing strategies

1.2.1.1 Strengths

Every organization has some strength In some cases this is obvious.The Strengths, hence, can be considered as anything that is favorabletowards the business, for example Bangkok airways take advantages of theinternational network of Thai airways, Eva Air, Silk air, Malaysia Airlinesare strongly potential ones, and Vietnam airline has comprehensivecompetition in the market

To analyze the strengths of an air service, ask the following questions.The answers will indicate the sources of strength

 Does the air service have strong brands?

 Is the air promotion effective?

 How has the air service withstood international competition?

 What can the air service do better than any others?

to attack from every new player For instance, the weakness of Thaiairways is based on schedules of Thai airways International and transitflights of two different airlines does not have advantage as operating planes

of one airlines, or because of geographical position of airports, Malaysiaairlines is not convenient to have transit flights to Cambodia

To analyze the weaknesses of a company, ask the following questions.The answers will indicate the sources of weakness

 Is the air promotion effective?

 Will the air service be able to stand price pressure fromcompetitors?

 Is the air service losing out to competitors on the technology front?

1.2.1.3 Opportunities

All organizations have some opportunities that they can gain from.Keeping in mind what have been listed as the company strengths, it cannow influence the opportunities for the business These can be seen astargets to achieve and exploit in the future for example safety and goodservice creating a good reputation for the air service

To analyze the opportunities for a bank, ask the following questions.The answers will indicate the opportunities

 What is the competitive position of the air service?

 Can the air service spread its wings internationally?

 Can the quality of operations, services management be improvedwithout incurring serious cost?

increasing competition, possible relocation costs due to poor locationcurrently held, end of season approaching (if you depend on hot weather,etc), existing product becoming unfashionable or unpopular, etc

To analyze the threats, ask the following questions The answer willindicate the threats

 Are international competitors eating away market share?

 Are employees adequately trained and motivated?

 Is the air service spread too thin?

Successful SWOT analysis should follow simple rules First, it isrealistic about the strengths and weaknesses of the organization Second,analysis should distinguish between where the organization is today andwhere it could be in the future Third, the analysis is specific, short andsimple Fourth, it is necessary to analyze in relation to other competitors

1.2.2 Doing market research

1.2.2.1 Finding out customers needs and wants

Any firms or organizations in general and air service in particularwishing to achieve a profitable and durable penetration of a market mustbase on its marketing strategy upon a thorough understanding of customerneeds and wants Studying customers’ desire is so important for everybusiness and firms First of all, it can help the manager establish the basicrequirements of their customers and then assist them in modifying theirproduct specification as circumstances change Secondly, it will assist them

in decision-making in a route-based context Customers’ needs are to get tothe right destination safety and on time, to be served well, quickly andenthusiastically Therefore, basing on the study of customers’ desires,airline firms day by day design travel products and services that satisfycustomers Better understand customers’ needs and wants will bringsuccess for airline firms

1.2.2.2 Segmenting markets

1.2.2.2.1 What is market segmentation?

The variation in customers’ responses to a marketing mix can be traced

to differences in buying habits, in ways in which the good or service isused, or in motives for buying Customer-oriented marketers take thesedifferences into consideration but they can not afford to design a differentmarketing mix for every customer Consequently, most marketers operatebetween the extremes of one marketing mix for all and a different one foreach customer To do so involves market segmentation, a process ofdividing the total market for a good or service into several smaller,internally homogeneous groups The essence of segmentation is that themembers of each group are similar with respect to the factors that influencedemand A major element in a company’s success is the ability to segmentits market effectively

1.2.2.2.2 Benefits of Segmentation

Benefits of Segmentation are as follows:

- Early isolation of a previously unidentified or ignored segment cancreate the first- mover advantage

- By identifying the requirements of individual segments, an airlinecan target those whose distinctive capabilities can serve effectivelyand efficiently and whose cost structure allows it to serve mostprofitably

- Deferential pricing based on the elasticity of different marketssegments allows airlines to capture more revenue that could beachieved using a single fare set at a higher level than the more price-elastic segments of demand would be prepared to accept

1.2.2.2.3 The process of Segmentation

Markets are sometimes segmented intuitively, that is, a marketer relies

on experience and judgment to make a decision about the segments thatexist in a market and how much potential each offers Others follow thelead of competitors The steps involved in segmenting a market in anorganization are:

- Identify the current and potential wants that exist within a market

- Identify characteristics that distinguish among the segments

- Determining the size of the segments and how well they are beingsatisfied

The marketers can base on many criteria to segment the market such as:

- Demographic segmentation

Age: Segmenting customers according to age bands is very

common Children are clearly different to retired people

Income: For many products income levels can be a sure

discriminator For instance, a ticket to Hawaii is not suitable tosomeone who has low standard of living or low income

Social class: Segmentation by social class is used very

frequently by consumer marketers It will often be used instead

of the income and educational variable since it incorporatesaspects of both, together with additional sociological conceptsabout dividing people into groups There are many levels: A.Upper Middle Class, B Middle Class, and C1 Lower MiddleClass, C2 Skilled working Class, D Working Class, E Thosepeople who at the lowest levels of subsistence

- Geographic segmentation

- Benefit segmentation

- Behavior segmentation

- Geo-demographic segmentation

of the company and its products with the market segment or segmentsexhibiting the most suitable needs and priorities This is the process oftargeting which is the next logical step after segmentation

When selecting the most appropriate segments to target, the marketer hasthe broad strategies to choose from

 Mass Marketing: One product for the whole market Sometimes

called undifferentiated marketing this involves selling one product to theentire market, or at least to a very large proportion of it Mass marketinghas to focus on what is similar in the needs of customers rather than onwhat is different and must develop a product and marketing program thataims to appeal to most buyers

 Selective marketing: Several segments targeted with a different

marketing mix offered to each segment A selective marketing strategy will

be followed by most medium and large sized companies It involvescovering several or even all the segments of the market, but in contrast tomass marketing will offer a different marketing mix carefully designed tomeet the needs of each segment served Most of the large car manufacturerssell a range of models designed to cover most market segments

 Niche marketing: Concentration of the resources on one small part

of the market Often most suited to the strengths of small companies, niche

marketing involves concentrating the organization’s resources on just onesmall segment, or at most a small number of tiny segments These smallsegments are called “niches” Such a strategy makes a lot of sense for smallcompanies for two reasons Firstly, they can concentrate their limitedresources on being one of the best suppliers in a precise market Secondly,many niches are ignored by large companies because they are notconsidered to represent a sufficiently worthwhile opportunity The smallcompany may therefore find that it faces less competition from largecompanies in carefully chosen niche markets

1.2.3 Working out marketing mix strategies

Services are different from product in marketing strategy because of itsown characteristics In order to manage these features, service marketersshould develop the 7Ps framework Beside product, price, place andpromotion, now we have three more Ps which are people, process, andphysical evidence As marketing in air service is a component part ofmarketing services, 7Ps are also applied in marketing strategies

1.2.3.1 Product Strategy

Like manufacturing businesses, good service-providers use marketing toposition strongly in chosen target markets However, as services differ fromtangible products, they often require additional marketing approaches In aproduct business, products are fairly standardized and can sit on shelveswaiting for customers But in service business, the customers and front-lineservice employees interact to create the service, therefore the skills of thefront-line service employees; service production and support processesbacking these employees are needed

A product is anything that can be offered to a market for attention,acquisition, use, or consumption that might satisfy a want and need Itincludes physical objects, services, places, organization and ideas Ofcourse, there must be much more to a product than the glib statement

 Potential Product

According to Levitt the potential product includes “Everything thatmight be done to attract and hold customers” Even for the most basic andmature of products and services, alert marketers have to discover new ways

of marketing the products or services more attractive to buyers Successfulcompanies will therefore manage the products or services very carefully.They will appreciate that customers buy holes rather than drills, and thatsome additional benefits must be provided to attract customers incompetitive markets Far sighted air service will therefore put much effort

Price discrimination is practiced by many service businesses Railattracts a lot of businesses with their saver tickets Airlines have standbytickets, which can be sold very cheaply to people who are prepared to waitand take the risk that a sear may not be available

There is one potential problem which can result from the use of theprice discrimination weapon If full price customers begin to feel that theyare being treated unfairly in relation to cut price customers they may decide

to switch to the cut price service or to another service provider where theirstatus will be better preserved In case first class passenger will expect toencounter visible benefits in return for their expensive ticket They willexpect a much higher quality service, failing which they may take theirbusiness to a competing airline

1.2.3.3 Place Strategy

As an element of the marketing mix, place or distribution involves thosemanagement tasks concerned with making the product available andaccessible to buyers and potential buyers

Distributing the product in air service refers to all aspects of the linkbetween the airline, as producers, and the final customers Air services areperishable, and can not be stored for sale later This affects the distribution

of air service, as they must be marketed in a way that minimizes lostcapacities (ex empty seats on the airplane, or a long waiting list) There aretwo types of channel of distribution: direct and indirect distribution Directdistribution involves distributing directly from a supplier to the customers;equally, indirect distribution involves distributing product by the use of anintermediary

Airlines sometimes sell direct to the retail customer However, mostlythey do not On the passenger side of their business, airlines widely employthe services of travel agents Indeed, in many markets, 80% or more oftickets are sold in this way On the cargo side, most airlines find thatalmost all of their capacity is sold through intermediaries known as airfreight forwarders There are various channels of distribution but the mostcommon way is direct dealing with the retail customers which results inobviating the commission

1.2.3.4 Promotion Strategy

The fourth “P” in the marketing mix refers to “promotion”, which is themost visible element in the marketing mix, because advertising and otherpromotional activities are the primary means of communication withtourists in target markets The purpose of promotion is to create andincrease awareness of a business’ products or services and involvescommunicating with prospective clients There are two main categories of

promotion: above the line and below the line Above the line (ATL) is anadvertising technique using mass media to promote brands Major above-the-line techniques include TV and radio advertising, print advertising andinternet banner ads, newspapers, magazines, radio, and outdoor activities.This type of communication is conventional in nature and is considered

impersonal to customers It differs from Below the line (BTL), which

believes in unconventional brand-building strategies such as direct mail, mail, personal selling, sales promotion, public relations, and trade fairs and

exhibitions Each of promotion elements can influence perceived images ofair service

 Above the line : Advertising

Exhibit 1.1: Thai airways Source: Thai Airways website

Exhibit 1.2: Malaysia airlines Source: Malaysia airlines website

Exhibit 1.3:Virgin Blue Airlines Source: Virgin Blue Airlines website

Advertising is the activity which includes adverts on the television,radio and cinema as well as print adverts in newspapers, magazines anddirectories It also includes roadside posters, usually referred to as “outdooradvertising” Advertising objectives can be classified by their aim: inform,persuade or remind Informative air service advertising is generally used toincrease awareness of new products, features or quantity For example,when an airline open a new route, its management often run full pageadvertisement informing the market about new service

 Below the line

In recent years “below the line” activities have been growing at a muchfaster rate than “above the line” advertising “Below the line” includes

many activities such as: Personal selling, Sales promotion and Public Relations Personal selling involves an interpersonal influence and

information-exchange process There are seven general steps in the

personal selling process: prospecting and qualifying, pre-approach,approach, presentation and demonstration, handling objections, closing, andfollow-up Personal selling does provide a measurement of effectivenessbecause a more immediate response is received by the salesperson from thecustomer Another advantage of personal selling is that salespeople canshape the information presented to fit the needs of the customer

Sales promotions are short-term incentives used to encourage

consumers to purchase a product or service There are three basic

categories of sales promotion: consumer, trade, and business Consumer

promotion tools include such items as free samples, coupons, rebates, pricepacks, premiums, patronage rewards, point-of-purchase Trade-promotiontools include discounts and allowances directed at wholesalers andretailers Business-promotion tools include conventions and trade shows.Sales promotion has several advantages over other promotional tools in that

it can produce a more immediate consumer response, attract more attentionand create product awareness, measure the results, and increase short-termsales

Public relation is the third promotional tool An organization builds

positive public relations with various groups by obtaining favorablepublicity, establishing a good corporate image, and handling or heading offunfavorable rumors, stories, and events Organizations have at theirdisposal a variety of tools, such as press releases, product publicity, officialcommunications, lobbying, and counseling to develop image Publicrelations tools are effective in developing a positive attitude toward theorganization and can enhance the credibility of a product

1.2.3.5 People Strategy

People are the most important element of any service or experience.Services tend to be produced and consumed at the same moment, andaspects of the customer experience are altered to meet the “individualneeds” of the person consuming it Most of us can think of a situation

be a significant factor in their decision to buy from that company again.Customers who receive poor service, or simply form the impression that

“this company isn’t really interested in me, they’re more concerned aboutthemselves” will soon label that company as uncaring, and will begin tosearch elsewhere for a supplier So, it is the reason why this fifth “P” is sonecessary and vital for all businesses This is seen as the most important

“P” in air service For instance, British Airways has invested in a majorstaff training program called “Putting People First” Their marketingresearch had shown beyond any doubt that staff attitude towards andtreatment of customers strongly affected sales The objective of the trainingprogram was to help staff concentrates on the two most important aspects

of company performance-satisfying the customer and beating thecompetition Theodore Levitt puts this in a more erudite way when hestates: “If marketing is about anything it is about achieving customer-getting distinction by differentiating what you do and how you operate Allelse is derivative of that and only that”

Everybody in the organization must focus on giving the customers whatthey want and doing it better than the competition, and in service industriesthis often boils down to the way staff treat customers In service industries

in general even the little things like offering the customers a nice cup offreshly ground coffee whilst they are visiting the solicitor or beingmeasured for a new suit can make all the difference

1.2.3.6 Physical Evidence Strategy

Physical evidence is the material part of a service Strictly speakingthere are no physical attributes to a service, so a consumer tends to rely onmaterial cues There are many examples of physical evidence, includingsome of the following:

 Internet/ Web pages

 Paperwork ( such as invoices, tickets and dispatch notes)

Some organizations depend heavily upon physical evidence as a means

of marketing communications, for example tourism attractions and resorts(e.g Disney World), air service (ex Thai airways, British Airways) parceland mail services (e.g UPS trucks), and large banks and insurancecompanies (e.g Lloyds of London)

Physical Evidence is the element of the service mix which allows theconsumer again to make judgments on the organization If you walk into arestaurant your expectations is a clean and friendly environment On anaircraft if you travel first class you expect enough room to be able to liedown!

Physical evidence is an essential ingredient of the service mix; consumerswill make perceptions based on their sight of the service provision whichwill have an impact on the organizations perceptual plan of the service

1.2.3.7 Process Strategy

Process is another element of the extended marketing mix, or 7P’s.There are a number of perceptions of the concept of process within thebusiness and marketing literature Process is an element of service that seesthe customer experiencing an organization’s offering It’s best viewed assomething that your customer participates in at different points in time

Booking flight on the Internet-the process begins with you visiting an airline’s website You enter details of your flights and book them Your ticket/booking reference arrives by e-mail or post You catch your flight on time, and arrive refreshed at your destination This is all part of the

marketing process

CHAPTER 2 Assessment of the application of

marketing in air service of Vietnam

Airlines

2.1 AN OVER VIEW OF VIETNAM AIRLINES

2.1.1 Vietnam Airlines’ history

The Vietnam Civil Aviation was officially formed on January 15th, 1956

by a Government decree Stemming from the national military body, itschief responsibility at the time was to promote economic development inthe North and provide military aid in the South During the first years ofoperation, the whole aviation branch of Vietnam owned only several lightand medium turbine prop aircraft such as the IL-1, AN-2 and Aero-45.After 1975, responding to a demand for economic development andnational security, the General Department of Vietnam Civil Aviation wasestablished on February, 11th

, 1976

Exhibit 2.1: Ho Chi Minh in Vietnam

Airline’s plane on his trip Source: Heritages Magazine

During the 70s and 80s, the feet of Vietnam Civil Aviation wasfurnished with new aircraft such as IL18, DC-6 International route werealso inaugurated, including those to Laos, Cambodia, Malaysia, andSingapore On April 12th, 1980, Vietnam Civil Aviation became an officialmember of the International Civil Aviation Organization

Vietnam Airlines Corporation was established in April 1993 when 20other aviation businesses were combined, forming a single entity under theCivil Aviation Authority of Vietnam Since then, the airline was grownexponentially It has transformed itself from a small, relativelyinexperienced operator of former Soviet Block aircraft into the proud owner

of a modern fleet of Airbus and Boeing planes flown by highly trainedprofessionals In 2003, Vietnam Airlines (VNA) rented two Boeing 777-200ER planes and took delivery of the first two of four newly purchased777s It also ordered five large Airbus 321s, of which four were delivered.Vietnam airlines now operates 37 aircraft, including six Boeing 777-200ERs, four Boeing 767-300s, six Airbus 321s, 10 Airbus 320s, nine ATR72s and two Fokker 70s

As well as expanding and upgrading its fleet, Vietnam Airlines hasinvested time and energy into the expansion of the route network From theearly 90s, the airline designed its flights in a hub-spoke network with 3main connecting cities: Hanoi, Danang, and Ho Chi Minh City VNA nowoperates 22 domestic routes between 15 destinations and offer internationalconnections from Hanoi and Ho Chi Minh City to 38 cities around theworld The airline network is divided into 4 main groups: The NortheastAsia Group, including flights linking Hanoi and Ho Chi Minh City tocapitals and major cities in Japan, China, South Korea, Hong Kong andTaiwan, operated with the Boeing 767 and Boeing 777, the ASEAN andSouthern Asia Group, offering flights front Vietnam to Malaysia,Singapore, Thailand, the Philippines, Indonesia, Russia and Australia.Vietnam airlines also offer flights, through cooperation with other airlines,

to Manila, San Francisco and Los Angeles

In the year 2003 alone, Vietnam airlines expanded network extensively:

it initiated a direct route to Paris from Hanoi and Ho Chi Minh City(previously, the route involved a transit) and established regular flightsbetween Hanoi and Siem Reap and between Ho Chi Minh City andFukuoka In the autumn of 2003, VNA reintroduced flights connecting

Another part of VNA development strategy has been the improvement

of the services offered to the customers To this end, VNA has expandedand consolidated its sales network (currently has 28 branch offices andthousands of sales agents around the world) and has joined various globalsales systems like Gabriel II Reservation System, AMADEUS, ABACUS,and IFINI

VNA has worked hard to raise the quality of its in-flight food and services,and to mark the huge changes that its corporation has undertaken over thepast decade, in 2002, VNA took on a new corporate motif, the golden lotus.Since the beginning of 2003 VNA has worked with the NationalAdministration of Tourism and the Ministry of Trade to organizeadvertising and promotion activities in many countries, including this year,Germany, Japan and U.K

In 2004, Vietnam Airlines carried over five million passengers, of whomover 2.8 million flew on our domestic routes and over 2.2 million travelledinternationally Vietnam Airlines also carried over 77,000 tons of cargo The image of the airline has been further reinforced with the launching

of Vietnam Airline’s new corporate identity, the Golden Lotus, in 2002,and the installation of the Airline’s frequent flyer program “Golden LotusPlus” in 2003

2.1.2 The status of Vietnam Airlines in the Region

Table 2 1: Vietnam Airlines' competitors

Airlines Key

facts-competitive advantages

Competing competitive strategy- tactical marketing International

markets-airlines

.Asia’ service.s No 7 in revenuesand No 3 in profit

.E-Business as source ofadvantage

.The world biggest airlinealliance

.One of air travel hubs inSouth East Asia

.Low cost strategy.Competing on South EastAsia, Australia

.Highly frequent services

to Vietnam.Offer holiday packagetours to Thai destinations.Low price

.Distribution includes line booking andticketing offices

on-Singapore Airlines

.The most advancedairlines owing youngest,most modern fleet

.Consistent profitability.Asia’ service.s No 3 in revenues,but No 1 in profit

.Winners of many servicequality awards as the bestairlines in Asia Pacificand in the world

.E-business is a sourcefor maximizing businessand customer benefits.Member of Star Alliance,the world’ service.s biggestairline alliance

.Focus differentiationstrategy

.Competing on Asia,Australia, Europe, NorthAmerica

.Highly frequent services

to Vietnam.High Price.Distribution via onlinebooking, payment andticketing offices

Cathay Pacific

.One of the mostadvanced airlines owningyoungest fleet

.Asia’ service.s no.6 in revenues,and No.2 in profit

.One of the 2 leading airline in Asia-Pacific( the other is Singapore).One world alliancemember

e-.Focus differentiationstrategy

.Daily service to Vietnam.Offer extra benefits viafree

.Distribution via onlinebooking payment andticketing offices

China Southern

Airlines

.Largest airline in China.Mainly focus ondomestic flying network.Young and modern fleet

of 110 aircraft in whichmost of them underfinance and operationleases

.Low cost strategy.Competing routes: China.Highly frequent service

to Vietnam.Offer low incentivespackage tours to china.Distribution via onlinebooking and ticketingoffices

Korean Air

.Young and modern fleet

of 100 aircraft.Fly to 84 cities in 29nations

.Sky team airline alliancemember

.Low cost strategy.Competing routes:Korea, North America.3 flights/week toVietnam

.Distribution via ticketingoffices

Japan Airlines

.Ranked 3rd in revenueover the world

.The huge fleet of 280aircraft

.Wide range of flightnetwork, to 30 countriesand 196 airports in theworld

.Japan is busy hubs ofAsia to America

.Focus differentiationstrategy

.Competing routes: Japan,North America

.3 flights/week toVietnam

.Distributing via onlinebooking ticketing andticketing offices

Malaysia Airlines

.Had received manyawards for its service Bad affected since 1997.MAS’ service.s fleet comprising

100 aircrafts mainlyincluding B747, B777,A330

.77 internationaldestinations

.Focused low coststrategy

.Competition routes:North East Asia, Europeand Australia

.1 flight/week service toVietnam

.Distribution via ticketingoffices

Philippines Airlines

.Small fleet of 21 aircraftbut new and modern.Begin embracing e-commerce

.International destinationsare mainly in Asia

.Focused cost strategywith heavy ticketdiscounting to counteractwith downturn in travel

Philippines

.Competitive routes:South East Asia andAustralasia

.Daily service to Vietnam.Distribution via onlinebooking

Air France

.Europe’ service.s leading airlines

in terms of passengercarried

.Ranked 3rd worldwide ininternational passengertransport

.Huge fleet of 363modern and streamlinedaircraft

.SkyTeam airline alliancemember

.Focused differentiationstrategy

.Competing routes:France and otherEuropean destinations.Medium price

.Distribution via onlinebooking

Qantas

.World leading longdistance airlines

.11th largest airlinesworldwide in terms ofRevenue per kilometers.Operate 193 aircraft,flying to 135 destinations

in 77 nations.Proud history ofreliability, safety,engineering excellenceand customer service

.Focus differentiationstrategy

.Code sharing withVietnam airlines

.Distribution via onlinebooking, payment andGeneral Sales Agent

.Member of One World

.Focus cost strategy.Competing route:America

.Own modern and hi-techmanagement system

Domestic

Pacific Airlines

.Vietnam Airlines hold40% stake in the airline.Currently hold 14.4%

domestic market.Small fleet of 4 short andmedium haul aircrafts.Reputation for on-timedomestic services

.Focused cost strategy.Services to high trafficdestinations

.Lower prices.Distribution via ticketingoffices in big cities andtravel agent network

Sources: Euro monitor 2004, Airlines’ websites, VNAT website, VNA data)

The starting point of Vietnam economy in general and air service inparticular are low and new compared with that of the world Nonetheless,thanks to its tremendous efforts, fast-moving reforms and by “taking theshort-cut”, VNA has caught up with the general development impetus,narrowing the gap with the region and the world According to the globalairlines ranking, VNA can be ranked the fifth among ASEAN members,after Malaysia, Thailand, Singapore and Indonesia Five other members ofthe grouping are Brunei, Cambodia, Laos, Myanmar and the Philippines.Vietnam Airlines has set a target of having upper seat in the region in thenext 5 years To achieve this target, the country hopes to serve 10 million

by 2010 throughout a strategically developed network of long haul flightsand local and regional connections With so many changes under its wings,Vietnam Airlines now looks forward to further integrating in the world ofglobal aviation and to establish itself as a truly regional air carrier ofchoice

of law These events help Vietnam Airlines attract foreign sightseeing andinvestment into the country Moreover, Vietnam also engaged in bilateraland multilateral aviation and agreements with many countries such as theUS… The war on terrorism assisted in making Vietnam stand out as a safedestination The passengers can put all their faith in Vietnam Airlines,because its air security is currently standing at the top ten nations Finally,the country’s new rule on visa exemption for travelers from ASEAN, Japan,France etc results in increasing number of incoming visitors.

 Economic

GDP per capita in Vietnam remained less than USD 500 a year Thus,air travel is too expensive for most Vietnamese However with the economyconstantly growing in the past decade, and is expected to continue in thecoming years, Vietnamese income has increased remarkably by 34% overthe period 1999-2003 According to the Vietnam Airlines’ statistics, theamount of travelers who are inbound or outbound Vietnam has beenremarkably increasing The Vietnamese Government’s efforts to promoteforeign investment and tourism have increasingly attracted internationalvisitors which counted about 2.5 million in 2003 The weakenedVietnamese currency also made Vietnam more economical destination for

travel inbound or outbound Vietnam (Vietnam Airlines) Moreover, the

Government has given great support in developing and pushingsocialization of education, science, culture, public health, sport events, etc.More and more training programs coordinated with foreign organizationsespecially Australia has brought potential passengers into Vietnam via theroute Vietnam-Sydney, Vietnam-Melbourne Besides, Vietnamparticipation in regional and international cultural activities like ASIAD,Tiger cup, etc has created opportunities for Vietnam Airlines to get morepassengers

 Vietnam Airlines services reflect the Vietnam cultural identity such

as foods, Vietnamese language, the friendliness of cabin crew etc thatVietnamese travelers are proud of and foreign travelers may wish toexperience

 For the last 5 years, Vietnam Airlines enjoyed a fast growth at about12-16% a year International operation is the main driving force behind thisgrowth, with an annual growth rate of 18%, compared to that of domesticmarket 7%

 Vietnam Airlines was in good financial situation for the last fiveyears, despite the negative growth in profit in 2003 due the SARS outbreak,rising fuel costs and weakened Vietnamese Dong

 Vietnam Airline dominates the domestic air travel with 85.6%market share in 2004 It also holds 40% share of international passenger’straffic from/to Vietnam This is a really strength as is takes strong share ininternational routes from or to North Asia, South East Asia and Australiawhere the market is hotly competitively filled with strong airlines such asJapan Airlines, Singapore Airlines, and Cathay Pacific

 Vietnam Airlines has become an international airline with 19 branchoffices and thousands of agents worldwide The share of internationalmarket in its business has gradually increased from about 38.6% to 48.3%

of its business The company also have nationwide network of sales officeand sales agents

 Vietnam Airlines has joined ICAO (International Civil AviationOrganization) and IATA (International Aviation Transport Association) sothat it can cooperate with other airlines to operate code-sharing flights

 Vietnam Airlines has signed co-operative agreements withinternational leading airlines such as JAL, Cathay Pacific, Qantas for jointservices, revenue pooling and interline traffic

Table 2 2: Market Share of Vietnam Airlines

Firstly, the reason that is very easy to see is the weakness of the

supervisory system In our decrees and laws, supervision at state-ownedenterprises is often described by just seven lines compared to hundreds ofpages within entire legal documents The laws generally state that stateemployees and state-owned companies that violate the law are to bepunished under the law

Meanwhile, state-owned corporations operate in an unstable manner.Responsibility and powers are not clear between the management board andthe general director Sometimes both sides fight each other Executivedirectors said that they have to report everything to management boards,

while management boards say they have no real power Secondly, the

domestic tourism market has been developing fast in the past years howeverits pace is still unstable whilst the promotion activities to attract foreigntourists has been taken slowly and they are not effective, thus the amount

of passengers flying with Vietnam Airlines is considerably decreased In addition, Fuel provided by the aviation fuel company is three times as

expensive as that of the world price due to high tariff Vietnam Airlines’network is still so small and less well-known It’s partly due to the high

advertising cost Thirdly, in terms of platform and port, Vietnam Airlines

hasn’t had a reasonable design for the passengers Besides, the airlift is notsuitable to absolutely exploit all planes “Delay” situation is one of themain issues need to be overcome

Finally, Vietnam Airlines’ aircrafts are leased and the fleet is small in

term of quantity therefore the flight schedule is not secured and VNA couldnot foresee and prepare for unexpected changes Despite of quite goodservice in flight, it has not come up with the international standard quality.While Vietnam Airlines would like to have more air lines to all nations,most of Vietnam air-hostess can only speak English and especially theservice is not good It’s also one of the weaknesses need to be quicklysurmounted

2.2.2.3 Opportunities

Aviation is one of the important economic sectors in Vietnam’smodernization, especially in the context of its pending accession to theWTO For the last few years, Vietnam Airlines has developed in terms ofscale, speed and growth From now until the end of 2007, one of the keytasks of the company is to open a new direct flight to the United States.This flight will be an important means to strengthen and expandinternational cooperation by meeting the travel demands of enterprises andoverseas Vietnamese living in the US

Many preparations must be made for the opening of this transoceanicline, including the enhancement of planes Presently, VNA has 38 planes,most of which are modern Boeing and Airbus This number has not metdemands for domestic, regional, and European flights To solve theshortage of planes, the Prime Minister has approved VNA’s plan to buy tenAirbus 321s and four Boeing 787s He has also allowed the company todevelop a project to buy or hire ten additional Boeing 787 planes, to

research the possibility of purchasing Airbus 350 and to research thepossibility of hiring more Boeing 777-200 ERs These steps take initiative

in meeting the company’s development demand in the 2010-2020 periods

In its domestic transportation plan, VNA will submit to the Prime Minister

a proposal to buy five more ATR72s for domestic lines

With plans to open a new direct flight to the US and to strongly developits modern aircraft, Vietnam Airlines has been affirming its image in theinternational aviation transportation market, earning the prestigious right to

be the national airline company

In addition, the national flag carrier has put Vietnam Airlines’ firstleased Boeing 777 into commercial operation on international routes Itlaunched a direct Hanoi-Paris service in June and a non-stop Ho Chi MinhCity-Paris service in July, using Boeing 777s The success of this deal andbusiness cooperation between Boeing and Vietnam Airlines will lureinvestors and business from the US and other nations

2.2.2.4 Threats

The second half of 2003 was fluctuated by events related to control ofthe Airline With the economic slowdown continuing to weaken the traveland tourism industry, consumer demand was further dampened by theglobal terrorist alerts, the worsening situation in Iraq in this year leading tothe eventual war, and at the end of the financial year, the sudden anddevastating outbreak of the Severe Acute Respiratory Syndrome (SARS) inAsia The outlook for the industry was rather uncertain

Vietnam Airlines dominates the domestic market and its only minorcompetitor Pacific Airlines On international routes, Vietnam Airlines has

to compete with world’s leading airlines However, the operations of flightsbetween destinations are bound by aviation agreements between countrieswhich are in favor the national flag airlines (Company interview) Thus, thedetermination of key competitors is narrowing to the narrowly definedsegment i.e the specific routes Table 3 summaries the key competitors on

key competing markets with their generic strategies In just over two years,four foreign cheap airlines have conquered Vietnam’s airline market.Vietnam’s airlines have missed their chance and have to face fiercecompetition with foreign airlines With an average ticket price of around 70USD, excluding airport fees, for a Hanoi – Singapore one way flight, and

50 USD for a one-way ticket between Hanoi and Bangkok, low-costcarriers Tiger Airway and Thai Air Asia have made a breakthrough inVietnam’s airline market This is the first time for those who are not rich tohave chance to fly abroad Many Vietnamese have never used domesticairline services but they now have the chance to access low-cost foreignairlines, with undreamed-of one-way ticket of 6-25 USD Meanwhile, ticketprices for Vietnam airlines domestic flights are still very high Low-costforeign airlines meet the demands of low-income people

Recognizing the potential of Vietnam’s airline market, low-cost foreignairlines continue opening more air routes in Vietnam and working outstrategies to attract passengers with competitive airfares Whilst foreignlow-cost airlines are seeking potential markets and initially succeeding inconquering the Vietnamese market, Vietnam’s airlines are missing businessopportunities Vietnam Airlines announced its intention turn Vasco into alow-cost airway but it has not made a specific plan yet In addition, thetraditional routes of Vietnam Airlines are also facing fierce competitionwith low-cost flights

Overall, on all routes Vietnam Airlines has to compete with strongercompetitors who have competitive advantage in bigger fleet, wider marketcoverage, alliance membership, information technology deployment in e-business and higher perception of quality

Table 2 3: Key competitors and competitive strategies

Generic strategies

Cost leadership

or focused cost strategy

Differentiation or focused differentiation strategies Key competing

markets

South East Asia

and Australia

Thai Airways, Malaysia Airlines Garuda

Singapore Airlines, Cathay Pacific

Cathay Pacific, JAL, Singapore Airlines

Europe Malaysia Airlines Air France, LufthansaSingapore

Airlines, Cathay PacificNorth America China Airlines, Korea Air Singapore Airlines, Cathay Pacific United Airlines

Source: International civil aviation organization website

2.2.3 Doing market research

2.2.3.1 How does Vietnam Airlines find out the customers’ needs and wants?

According to one survey, we know much more about what VietnamAirlines has done and what it has not done yet Here are some customers’comments about the Vietnam Airlines service:

“ We flew recently from Paris to HCM and Hanoi During our stay we took several internal flights before flying back to Paris We had quite positive experiences, clean planes, good food, friendly crew, good service.”1

“ We flew to Vietnam in June and in total boarded 4 different flights We were very happy with the service, meals and cleanliness of the aircraft On our way home we were delayed in HCMC for 2 hours and the cabin crew served dinner at the terminal, then we were served another meal shortly after take off We would fly with them again and thought they were good value.” 2

“SYD-SGN-SYD Economy Boeing 777-200ER This is the second time I have flown Vietnam Airlines to SGN in the last 3 years for leisure purposes Both times the aircraft have left and arrived on time On board

1Frans Van Viem’s comment_ Source: Vietnam Airlines’ navigation log

2 Elizabeth Richardson’s comment_ Source: Vietnam Airlines’ navigation log