Lecture 2:

AVA10004!
Aviation Marketing!
!
Segmentation - Part 1

1
Agenda !
➢ The Theory!
➢ Segmentation!
➢ Targeting!
➢ Positioning !
!
➢ The Practice of STP in Airlines
Why segment
➢ Can one size fit all?!
➢ No one thing can be appealing to everyone in the
world. !
➢ Consumer- and business markets are so diversified
from each other!
➢Culture!
➢History!
➢Size and corporate features !
➢Preferences
What is Market Segmentation?
Segmentation is one of the most basic responsibilities of
Marketing
Market Segmentation in Simple Terms
• Segmentation is used by a business to target its products
and services at the right customers!
!
• Its about producing products and services that meet the
customers needs and wants
Segmentation Defined by Academics
➢ Dividing a market into direct groups of buyers who might
require separate products or marketing mixes; the
process of classifying customers into groups with different
needs, characteristics or behavior (Kotler et al, 2006)!
!
➢ Market segmentation involves grouping consumers or
business customers within a market into smaller
segments based on similarities in needs, attitudes or
behavior that marketing can address (Wood, 2004).
What is Market Segmentation?
In today’s business environment, your prospective and existing
customers, have multiple choices to meet their needs. Therefore,
business success often boils down to effective market segmentation,
identification, and sizing!
!
Segmentation is a process designed to cluster prospective and current
customers into different groups so that each group comprises individuals
that share a similar level of interest in the same or comparable set of
needs!
!
Segmentation matters if you want to:!
!
1. Tailor your offer (product, channel, touch point, price, and
communication) more precisely to different groups based on their needs!
!
2. Understand the economic value and economic potential of each group
Types of Market Segmentation
Traditionally marketing has focused on 4 main types of
segments:
Types of Market Segmentation
• Segmentation is used by a business to targets its products
and services at the right customers!
• Its about producing products and services that meet the
customers needs and wants
Airline Segmentation - “Old School” First Class

WHAT DO YOU
NOTICE??
Airline Segmentation - “Old School” First Class

• Sure there are stereotypes: !

• “Chill Lounge” lounge on PanAm B747!
• beer and jagermeister service on Lufthansa!
• Swiss Airlines serving cheese!!!
!
• But every customer looks the same:!
• Middle aged!
• Single Male / Couple / Businessman!
• Well to do, with money!
• Suits!

TIMES HAVE CHANGED……..

Airline Segmentation - “Old School”
• Historically (before I started
working in airlines), segments
were based on cabin i.e. First,
Business and Economy!
!
• Notice I didn't put any customers
in these “new” airline pictures!!!!!
Airline Segmentation - “Recent School”
• Airlines started segmenting in the 1970s, particularly around
price and fare rules!
!
• This new airline practice was less about offering customers
in each segment what they needed or wanted, it was more
about extracting the most revenue (yield) from each
passenger!
!
• Fare Rules included:!
!
• Minimum Stay!
• Maximum Stay!
• Advance Purchase!
• No Saturday night stay
Airline Segmentation - Airline Models
• In the (late) 1970s we also saw the
emergence of Low Cost Carriers
(LCC’s), with SouthWest airlines
targeting the low fare, no frills market
segment!
!
• From this we have seen a multitude of
airlines emerge trying to target specific
segments:!
!
• Premium Business only airline e.g.
SilverJet, MAXJet, EOS Airlines!
• Leisure Holiday airlines e.g. Monarch
Airlines, Rouge!
• ULCC’s e.g. Spirit Airlines, RyanAir
Airline Segmentation - “Recent School”
• In the 1990’s, airlines started to segment their
customers based on purpose of travel!
!
• This saw the emergence of terms such as :!
!
• Business Traveller!
• Leisure Traveller!
• Visit Friends and Relatives (VFR)
• ?
• ?
Airline Segmentation - “New School”
• But by the 2000’s, this evolved even further :
 Airline Segmentation - “New School”
• Typically every modern airline develops their own “unique” set of
segments!
!
• For example at Etihad Airways they have the following segments : !
!
• Business Traveller - could be flying in business or economy
class; rarely in First class, typically return trip; Mon-Fri travel
no weekends; high yield; books last minute; usually 1 pax per
booking!
• Price Sensitive Leisure - economy only; return or one way;
travel any day any time of day; low yield; books early; can be
1, 2, or more pax per booking; back packer or young couple!
• Quality Focused Leisure : business and sometimes first
class; typically return trip; travel any day any time of day; high
yield; books early; usually 1 or 2 pax; grey nomad couple or
high net worth individual!
• Targeted segments, such as Labour, Religious, Marine,
Students, etc
 Airline Segmentation - “New School”
• And if the airline is sophisticated, they then use these segments to inform
and direct their business decisions:!
!
• Marketing - how you market; to whom you market to; where you
conduct your marketing!
!
• Price and Products - how you develop your fares and fare rules; what
products your bundle / unbundle; what is your service proposition
onboard!
!
• New Routes - what is the segment mix of a new route; which informs
potential yield and future profitability; which aircraft to use on the route!
!
• Travel Agent Contracts - what segments does the travel agent sell to;
informs the level of incentive paid by airline to agent
SEGMENTATION HAS BECOME A BUSINESS TOOL
…..ITS NO LONGER JUST ABOUT MARKETING
Criteria for effective segmentation
➢ Homogeneous: !
➢ Customers should be as similar as possible with respect to their
likely responses to marketing mix variables and their segmenting
dimensions!
➢ Substantiality: !
➢ There is a demand in the market that is underserved, large and
profitable enough !
➢ Measurability: !
➢ Size and purchase power can be measured, you know that those
people/organisations can afford your products !
➢ Actionability: !
➢ that fit into your organisation’s strategic objectives and strengths
 Segmentation Data Sources
• The process begins with data capture from various sources:!
!
• Frequent Flyer Program : this is the “perfect world” data,
that is usually owned by the airline!
!
• Bookings / PNRs : again usually good data, but is often
owned by the GDS and airlines have to pay for it (even if its
data from your airlines bookings!!)!
!
• Market Data : usually provided by third parties, such as
airports, GDS, government bodies, search engines
 Frequent Flyer Programs
• Most airlines begin the segmentation process by using their
own data captured from their Frequent Flyer Program (FFP)!
!
• The data is free and rich in detail !
!
• You know FFP members names, gender, email address,
phone number, flying habits by route and cabin!
!
• Sometimes you may even know their age, where they live,
job title, income, spending power!
!
• You could even know who their partner is, how many
children they have
 Frequent Flyer Programs - QANTAS
• And FFPs are a
profitable
business for
most airlines!
!
• At QANTAS the
FFP made more
profit than all
International flying
in FY 2019!
!
• Over 12 million QF
FFP members
Factors affecting FFP Segmentation
High Proportion FFP% Low Proportion FFP%

Short Haul Long Haul

Domestic International
Legacy LCC

Established New Entrant

• For example on a MEL-SYD flight, QANTAS would have around
80% of their passengers as FFP members!
!
• On the other hand, on a MEL-AUH flight, Etihad would only
have around 20% of their passengers as FFP members
Why segment? In Summary…..
➢ Enables: !
➢better understanding your customers in the segments
identified!
➢effective response to their needs !
➢which segments to target for marketing activities, and in
what order!
➢how to create a meaningful and competitively distinctive
position in the minds of customers in each targeted
segments!
➢creation of niche markets for your to serve and have a
competitive advantage

SEGMENTATION HAS BECOME A BUSINESS TOOL

…..ITS NO LONGER JUST ABOUT MARKETING