Tigerair Australia versus Jet Star - Case Study Example

Tigerair Australia versus Jet Star Name Institution Tigerair Australia versus Jet Star Executive Summary Aviation industry has faced a stiff competition in the recent years due to entry of a number of low cost airlines. A fierce competition has not only been created between the premium airlines and low-cost airlines, but also among airlines companies. Even though the situation has created a new challenge to Airline Company managers to re-evaluate their strategies, it has presented consumer with the varieties of services to choose from. Therefore, this report will compare and contrast Tigerair Australia and Jet Star airline based on the segmentation, competition, product, service, price, promotion and placement. To bring the discussion into context, the paper will give the background overview of the two airline companies including year of establishment and financial trends. The paper will then define the segment into which the two companies operate and their attributes. In addition, the report will compare marketing mix strategies of the two companies such product features, pricing, promotion and placement strategies which give them competitive advantages. Table of Contents Tigerair Australia versus Jet Star 2 Executive Summary 2 Table of Contents 3 1.0 Introduction 4 2.0 Company Overview: Tigerair Australia and Jet Star 5 3.0 Segmentation 6 4.0 Competition 7 5.0 Service 9 6.0 Price 10 7.0 Promotion 11 8.0 Placement 13 9.0 Summary and Conclusion 13 10.0 References 14 1.0 Introduction Australian airline industry has faced fragile trends in recent years as a result of various factors. Economic fluctuation, fluctuating oil prices, rising terrorism has influenced the performance of the airline industry negatively (IBISWorld, 2014). As a result, companies have experienced low demand of passengers using air travel hence low profits. The situation has forced airline managers to rethink their strategies on how to reduce the risks brought about by these factors. Whyte, Prideaux & Sakata (2012, p.2210) contended that while some players have done away with unprofitable routes, others have adopted low-cost airlines to attract price conscious consumers. Similarly, new players have observed new opportunities in the low-cost segment and have made an entry since it is predicted the category has potential growth. According to IBISWorld (2014), stiff competition and demand growth is projected to inspire the industry profits, with which is anticipated to annualize from 2.9 to 3.3 percent from 2013 through to 2018. Australian low-cost airlines are also to contribute a large part of the profits which is projected to be $17.2 billion in 2018. Based on the information, this report will compare some of the industry players, Tigerair Australia and Jet Star airline, in terms of the segmentation, competition, product, service, price, promotion and placement. 2.0 Company Overview: Tigerair Australia and Jet Star Tiger air is an Australian Airline company operating in a low-cost segment. The company was established in 2007 in Melbourne, Australia with its headquarters being at the Melbourne Airport (Tigerair, 2015). The company was first a subsidiary of Tiger Airways Singapore formed to compete with Qantas’s subsidiary Jetstar and Virgin Australia. Today, the low-cost company is a full subsidiary of the Virgin Australia after Tiger Airways Singapore sold it. The company was sold in 2008 during the global economic crisis in which it was hit by high fuel and operation costs. Again, the company abandoned some routes such as Avalon in 2011 and it resumed in 2012 (Whyte, Prideaux & Sakata, 2012, p.218). Tiger air (2015) stated that the company has now grown and operates various domestic routes from its base including Adelaide, Canberra, Brisbane, Alice Springs, Darwin, Mackay, Sydney, Gold Coast and Newcastle. Jetstar is a low-cost airline company with head office in Melbourne, Australia (Jetstar Airways, 2015). The company was started in 2003 and has expanded and now operates both domestic and regional routes. According to Jetstar Airways (2015) some of its domestic destination includes Perth, Gold Coast, Sydney, Brisbane, Perth, Auckland, Adelaide and Cairns. It has its sister companies such as Jetstar Asia, Jetstar Japan, Jetstar Pacific and Jetstar Hong Kong which operates in their respective countries and regions (Rourke, 2012). For Instance, Jetstar Asia serves Burma, Malaysia, Cambodia, Thailand, Vietnam, Philippines, China, Taiwan and Japan. Passengers from Australia can connect to sister companies using Qantas. The company wholly acquired by Qantas, and developed to neutralize Virgin Blue’s threat of dominating low-cost segment (Jetstar Airways, 2015). While Qantas operates in premium market, Jetstar forms brand strategy in low-cost segment. Jetstar is a major competitor with Tigerair Australia in low-cost market. 3.0 Segmentation According to Teichert, Shehu &Von Wartburg (2008, p.227) market segmentation is defined as a marketing strategy that entails separating a wide market being targeted into divisions of businesses or consumers who are thought to have some common interests, priorities and needs, and developing and adopting strategies and approaches to reach them. In a nutshell, segmentation describes customers’ preferences. There are several types of segmentation used industry players consisting of geographic segmentation, demographic, behavioral, psychographic, occasional and cultural segmentations, and segmentation based on benefits (Teichert, Shehu &Von Wartburg, 2008, p.229). However, the company normally chooses the most relevant segmentation which reflects the appropriate attributes of a customer which the product or a service can satisfy. Vela & García (2010, p.241) stated that segmentation is important because it enable a company to focus important attribute of a customer so as to satisfy. Segmentation is also making the business to focus on an attribute without distractions. Both Tiger and Jetstar have segmented their market into low-cost. Cost is a behavioral and psychographic factor. Teichert, Shehu & Von Wartburg (2008, p.230) posited that behavioral segmentation separates customers into division based on their knowledge, usage rate, and attitude towards, response, readiness stage and loyalty status to a product or service. In the recent years, the business environment has witnessed a continuing trend of economic fluctuation reducing the demand for air travel (Sarker, Hossan & Zaman, 2012, p.264). The situation has made a good number of consumers more price-conscious. In the process, more have formed a positive attitude towards low-cost airline with quality service. Sarker, Hossan & Zaman (2012, p.165) went ahead to claim that the usage rate of low-cost airline has also gone up as families try to reduce the cost of living. In Addition, customers want to identify with companies which provide excellent service, but at a low price. Companies with such status have more loyal customers, which is advantageous in the quest to gain market share. Psychographic factors which stand out are normally the lifestyle and social status (Teichert, Shehu & Von Wartburg, 2008, p.229). While Tiger uses only psychographic segmentation, Jetstar uses both behavioral and psychographic segmentation. Both Tigerair Australia and Jetstar have capitalized on the attitudes and usage rates towards low-cost airlines in the wake of economic fluctuations. According to Newman (2007), tiger air Australia offers only single-class economy in all its aircrafts, Airbus A319 and A320 which is considered general low-cost plane. However, Jetstar has further segmented its core segment into including business and economy classes (Jetstar Airways, 2015). Jetstar serves Business Class services on its aircraft particularly A330-200. The cabin used as a Business Class is integrated with 38 leather premium seats same as that of global economy class of Qantas of local business class (Jetstar Airways, 2015). The service also includes beverages, meals and onboard entertainment. On the other hand, economy class offers buys on board services option for beverages and food. The business class represents psychographic segmentation because it caters for lower middle class lifestyle style and social status needs. The class can be used by businessmen or leisure travel consumers. 4.0 Competition In marketing, competition is defined as the rivalry amongst businesses attempting to achieve organizational objectives like increasing their profits, increasing volume of sale and growing their market share through marketing mix such as product, promotion, price and distribution (placement) (Kemp & Hanemaaijer, 2004). Competition can either be categorized as direct or indirect. Competition is good for businesses because it offers an opportunity for the creating thinking and to grow the business. Perceived competition has helped Tigerair Australia and Jetstar to strategize and develop products and service which maximizes consumer needs. Damon (2010) claimed that the competition in the Australian low-cost segment has gone a notch higher after fully acquisition of Tigerair Australia by Virgin Australian. The competition between Jetstar and Tiger air Australia Australian is similar to that of their parent owners Qantas and Virgin Australia in premium segment (Dunn, 2009). These two companies compete based on product and pricing and placement differentiation strategies. Whilst Tigerair Australia only provides beverages and food, Jetstar provides beverages and food and iPads with internet to its customers to enable browse and connect with friends while on board. The two airlines have a stiff competition based on price. Both try to lower prices so as to attract more customers. For instance, in 2007 when Tiger announced A$79.98 price for its first destination, Melbourne to Darwin, Jetstar reacted about the same destination with immediate reduction of its price to A$79 (Murphy, 2007). According to Damon (2010).Another price competition between the two companies was observed on Melbourne- Gold Coast when Tiger started charging the A$49.95, and Jetstar reacted by reducing its price to A$39. The battle for a low price was again taken to Melbourne-Launceston route when tiger its fare as A$39.95, and Jetstar stated A$29. The price wars continue as companies struggle to dominate the domestic low-cost market segment. Dalton (2010) asserted that Tigerair Australia and Jetstar also compete for market entry as they look to maximize their returns. When one company enters a new market, the rival also makes entry. Over the years, Tigerair Australia and Jetstar have operated in a form of duopoly where just two companies have a strong competition (IBISWorld, 2014). However, deregulation could increase more players in the market. So far Jetstar still have a competitive advantage due to factors like large market share, government patronage and large financial base. IBISWorld (2014) claimed that Jetstar leads the market with 22% market share in low-cost domestic market, while Tiger's market share trails at 4%. Jetstar is a full subsidiary of Qantas which is a national career hence it receives government support and backings. The company also rides on success as a result of large financial base. 5.0 Service Drummond & Ensor (2014) argued that in marketing, service is described as intangible item including providing transport, consulting, mechanics, human resource, teaching and customer service among others. Park (2007, p.238) also claimed that some of the unique attributes of service comprise of intangibility, inseparability, inconsistency, involvement and inventory. The truth is that service is considered intangible because they cannot be touched. Service is also inseparable because the offer must be there to render such service. In the airline industry, pilot, cabin crew and air hostess must be present to offer services to customers. The services are also inconsistent because they are often unique (Park, 2007, p.238, p.240). In this instance, service offered by Tigerair Australia are unique from those offered by Jetstar. In the recent years service has become important part of business because transaction in every industry involves service. Service is therefore important in meetings the needs of consumers; it makes people feel better than before. In return, the company is able to maximize its shareholders’ returns (Park, 2007, p.241). The company uses differentiation and marketing as perceived service strategies so as to create customer perception. The marketing department of Tigerair Australia and Jet star often designs marketing mix which creates perception about the service offered by them. The departments market the company as low-cost airline with high quality service. An example is the Jetstar which use a brand mantra “Australia's Number one Low-Cost Airline’ to create customer perception of their prices (Jetstar Airways, 2015). On the other hand, Tigerair Australia uses the brand mantra “The Low Fare Revolution" in marketing its services (Tigerair, 2015). However, other aspect of their marketing could is the differentiation of what they offer. For instance, while Tigerair Australia offer soft drinks, snacks, wine and beer for purchase while on board, Jetstar offer the same plus iPads to its customers for entertainment. Jetstar Airways (2015) maintained that the iPads are loaded with magazines, movies, music and games for customers to choose. When Jetstar is marketed using these services attributes customers who like entertainment will probably prefer their service to that of Tigerair Australia. This is because some customer comfort using best lounge, food and entertainment. 6.0 Price Drummond & Ensor (2014) defined price as the amount of compensation or payment given by a consumer to acquire a product or service. In this perspective, price is the fare of travelling from one place to another. There are five major pricing strategies used by managers today comprising of premium pricing, penetration pricing, price skimming, economy pricing and psychological pricing (Nagle & Holden, 2002). Pricing strategies are important to an airline company because it determines the value of your service. In addition, pricing strategies are important to an airline company as a marketing mix because they help in creating a competitive advantage over the rivals. Both the two brand Tigerair Australia and Jet Star use different pricing strategies to gain competitive advantage. Generally, the companies use economy pricing strategy whereby their prices are kept low to attract price-sensitive customers (Russell, 2007). For that reason, the two airline companies are referred to as low-cost airlines. Even though, prices are controlled by International Air Transport Association companies set their prices which are in the range of the regulatory body. Seongseop & Prideaux (2005, p.351) opined that three things determine prices of an airline including cost margin, market demand and supply and competition. Cost plus margin entails production cost and profit margin. However, even after using economy pricing, the two companies still use penetration pricing and psychological pricing. Generally, they are low-cost companies, but due to competition, each of them normally tries to lower the prices further hoping that the customer will notice and get attracted. Similarly, they use psychological pricing such as $99 instead of $100. Nagle & Holden (2002) affirmed that the majority of customers will fall for such price because they look at it as a discount of $1. For example, when Tiger plying Melbourne-Darwin route it announced A$79.99 as its price (Damon, 2010). Jetstar which was already serving the same immediately reduced it’s to A$79 to counter its competitor. The example shows both penetration pricing and psychological pricing. 7.0 Promotion According to Williams et al., (2010, p.26) Promotion is defined as the mode of which companies raise awareness concerning their brand or service to the consumer so as to generate sales. Promotion has various attributes including separability, inconsistency and involvement (Alcheva, Cai & Zhao, 2009, p.14). The separability attribute holds that the marketer must not be there for promotion to happen. For instance, promotion in form of advertising can be carried on a billboard erected near the road to create brand awareness. Similarly, they can be sent to TV stations to air them. The inconsistency attribute implies that promotion must be unique and different from that of competitors to able to convince customers that your company actually provides different but unique services which can effectively satisfy their needs (Ferrell & Hartline, 2011). Promotion is important for airline brands because it offers information to customers, it raises demand and differentiate services offered by companies. Both Tigerair Australia and Jetstar have embraced different promotion strategies to create customer perception. Tigerair Australia prefers advertising and publicity to market its product. Sarker, Hossan & Zaman (2012, p.168) contended that the company has run various adverts in the brochures, newspapers, billboards and magazines in Australia to create awareness of its low pricing and quality services. Tigerair Australia also has a TV series, called Air Ways which was created to showcase its services to consumers (Tigerair, 2015). In contrast, Jetstar favours advertising and sponsorship. The company advertises its services in magazines, newspapers, billboards and newsletters. Jetstar also attracts customers through sponsors of various sporting events in Australia and beyond. Today, Jetstar sponsors Gold Coast Titans club which plays in National Rugby League of Australia (Jetstar Airways, 2015). In 2008, the company was also sponsoring national rugby league of Australia. Jetstar had used celebs to market its products in the past. For example, between 2004 and 2006, Magda Szubanski who is an actress used to company’s mascot (Jetstar Airways, 2015). 8.0 Placement Place is defined as the means of getting products via a distribution channel to where customers can access your product or service (Kapferer, 2012). It is one of the four components in the marketing mix. Place has two attributes including direct and indirect methods. Direct attributes involves company employees delivering products to customer such as own outlets, website and telephone among others (Drummond & Ensor, 2014). On the contrary, indirect involves the use of intermediaries to make sales. Place is important because it enable companies to easily provide customers with its products or service. Ferrell & Hartline (2011) stated that a company with many and easily accessible places has a higher competitive advantage compared to one with few and less accessible one. Both Tigerair Australia and Jetstar have a similar place where they serve their customers which includes their bases both in Melbourne, and other airports such as Brisbane, Cairns and Sydney. However, Jetstar has an extra place (Gold Coast Airport) compared to Tiger which it uses to serve its customers. Other place used by the two companies is Telephone and website. Due to that, one extra place Jetstar remains the best brand with more customers’ awareness. 9.0 Summary and Conclusion The report is an outcome of the comparison between Tigerair Australia and Jetstar. The report has unearthed several strategies used by these two companies to outdo each other in the Australian low-cost airline market. From the report, product and service differentiation has come out as the major strategy used by these companies to gain competitive advantage. Both Tigerair Australia and Jetstar have different product or service they offer. Similarly, the two companies have tried to differentiate their prices to attract more customers on their sides. The report has also established the some differences in the promotion and place strategies. However, from the report, Jetstar is found to have better strategies compared to Tigerair Australia. While Tigerair Australia has a single cabin class, Jetstar has two including business class and economy class. This means it uses two segmentation strategies including behavioral and psychographic segmentation. Through its promotional mode (sponsoring rugby sports) Jetstar has attracted a large customer base compared to Tigerair Australia. Jetstar has also an extra place (Gold Coast Airport) where its customer can access tickets and others service. The report has found out good strategies used by two companies, however, it recommends the use of loyalty programs just like their parent companies if they intend to retain their customers. 10.0 References Alcheva, V., Cai, Y., & Zhao, L. (2009). Cause related marketing: how does a cause-related marketing strategy shape consumer perception, attitude and behavior? Kristianstad University College, 1-37. Dalton, N. (2010). Tiger flies into Cairns. Cairns. Damon, K. (2010). Cut-price Tiger Airways builds up fleet. The Australian. Dunn, G. (2009). Special report low cost carriers: Ready for battle. Airline Business, 56-62 Drummond, G., & Ensor, J. (2014). Introduction to marketing concepts. UK: Oxford University Press. Ferrell, O., & Hartline, M. (2011). Marketing strategy. Mason, OH: South-Western Cengage Learning. IBISWorld. (2014). IBISWorld Industry Report I4902: Domestic Airlines in Australia, Retrieved 15th May 2015, Jetstar Airways. (2015) Jetstar Airways Official Website. 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Journal of Applied Business and Economics, 11(2), 25-39. Read More