Conference%20Details

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Conference Details

• Research Papers 22 Nos
• ROMI in CRM - 4 Papers
• ROMI in Distribution and Firm Value - 4 Papers
• ROMI Measuring Returns - 4 Papers
• Return on Marketing Investment A Case Study of
  Domestic Airline Industry in India
• Long Term Impact - 2 Papers
• Services and ROMI - 2 Papers
• ROMI and Brand Management - 6 Papers
• Presentations 3 Nos
• International 14, Indian - 11

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RETURN ON MARKETING INVESTMENT A CASE STUDY OF
DOMESTIC AIRLINE INDUSTRY IN INDIA
Dr. S C Bansal Associate Professor, IIM, Lucknow
Dr. Mohammed Naved Khan Senior Lecturer,
Department of Business AdministrationFaculty of
Management Studies Research, AMU, Aligarh
Vippan Raj Dutt Manager (System/Maintenance), IT
Department, Indian Airlines, N Delhi
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Need for the Study

• Substantial Growth in Domestic Air Market
• Entry of Low Cost Carriers in 2003
• Pressure on all Airlines to Reduce Fares
• New Marketing Initiatives
• Need to Measure and Enhance Return on Marketing
  Investments

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Research Objectives

• Identify the customer equity drivers that have
  the greatest impact
• Compare performances of airlines on these drivers
• Attempt to project ROI from improvements in those
  drivers

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Airlines Studied

• Indian Airlines Alliance Air (IA)
• Jet Airways (Jet)
• Air Sahara (Sahara)
• Low Cost Carriers (LCC)
• Air Deccan
• Kingfisher
• SpiceJet

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Scheduled Domestic Carriers Full Service Carriers
IA Jet Sahara
Airline Code IC 9W S2
Start Date 1st Aug, 1953 5th May, 1993 3rd Dec, 1993
Aircrafts (Classic / Small) 61/6 43/8 19/7
Destinations (Domestic/Intl) 58/18 43/5 23/3
Daily Flights 250 285 124
Class of Flight Business / Economy Business / Economy Business / Economy
Market Share (Oct 2005) 29.6 35.5 12.4
Load Factor (Oct 2005) 66.1 72.1 72.7
Pax Carried 2004-05 (Mil) 7.1 8.0 2.3
Turnover 2004-05 ( Cr ) 5,363 4,400 2,317
Profit / Loss 2004-05 ( Cr ) 65.61 392 - 17.5
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Scheduled Domestic Carriers Low Cost Carriers
Air Deccan Kingfisher SpiceJet
Airline Code DN IT OS
Start Date Aug 2003 May 2005 May 2005
Aircrafts (Classic/ Small) 7 / 15 7 / 0 5 / 0
Destinations (Domestic) 57 12 11
Daily Flights 195 52 38
Class of Flight Economy Economy Economy
Market Share (Oct 2005) 11.6 6.0 4.7
Load Factor (Oct 2005) 74.1 54.1 88.1
Airline Positioning No Frill Airline Value Carrier Absolute LCC
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Conceptual Framework
Marketing Investment
Driver Improvement(s)
Improved Customer Perceptions
Increased Customer Attraction
Increased Customer Retention
Cost of Marketing Investment
Increased CLV
Increased Customer Equity
Return on Marketing Investment
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Return on Marketing Investment

• The Switching Matrix
• Provides the probabilities of brand choice for
  all future purchases by each customer.
• Customer Lifetime Value
• Net present value of a customers contribution
  stream
• Customer Equity
• Total of the discounted lifetime values summed
  over all of the firms current and potential
  customers.
• Return on Marketing Investment
• change in customer equitymarketing expenditure
• marketing
  expenditure

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Drivers of Customer Equity

• Value Equity
• Quality, Price, Convenience
• Brand Equity
• Brand image, Brand awareness, and Brand ethics
• Relationship Equity
• Frequent flyer programs and ongoing relationship
  maintenance activities

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Research Methodology

• Structured closed-ended questionnaire was used
• Analysis Performed
• Principal Component Analysis with Varimax
  Rotation
• Multinomial Logit Regression Analysis carried out
  on extracted components
• Airlines Performance Evaluated on Value, Brand
  Equity and Relationship Equity Drivers
• Brand Switching Matrix
• CLV, Customer Equity and ROMI calculated
• Tools Used
• SPSS Statistical Package
• MS-EXCEL Spreadsheet Program

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Limitations of the Study

• Limited number of domestic flights covered
• Feedback from passengers at a single airport i.e.
  IGI Airport, Delhi
• Marketing expenditure breakup of domestic
  airlines was not available
• Impact of market dynamics on customer equity is
  not covered
• CLV and ROMI calculations are based on
  assumptions, which may vary across the airlines

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Airline Wise Demographic Profile

Airlines IA Jet Sahara
LCC Total Gender Male
21 48 12 35 116
Female 2 12 8 10
32 Highest Matriculation or Below 1 1
1 2 5 Qualification Graduation
5 9 8 11 33 Post
Graduation 4 19 5 12 40
Professional 13 31 6 20 70 Age Group
Less than 21 1 3 3 0
7 21 to 40 12 40 10 32 94 41
to 60 10 13 6 10 39 Above 60
0 4 1 3 8 Annual Income Less
than 5 Lakhs 13 22 9 14 58 Bracket
5 to 10 Lakhs 7 21 3 16 47 10
to 20 Lakhs 2 11 2 7 22 20
to 50 Lakhs 1 4 3 7 15
Above 50 Lakhs 0 2 3 1
6 Nationality Indian 23 57 16 38 134
Rest of World 0 3 4 7
14 Domestic Flights 1 5 11 33 16 30
90 in last 1 Year 6 10 6 14 1
8 29 10 20 3 9 3 4
19 Above 20 3 4 0 3
10 Total 23 60 20 45 148
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Principal Component Analysis
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Airlines Performance on Value Equity Drivers
Airline Quality of Airline Price Competitiveness Airline Destination Schedule Value Equity
IA 3.48 3.34 3.52 3.45
Jet 4.07 3.29 3.49 3.61
Sahara 3.50 3.50 3.37 3.46
LCC 3.36 3.95 3.89 3.73
Total 3.63 3.54 3.59 3.59
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Airlines Performance on Brand Equity Drivers
Airline AMA ISA GCC ASCE HES IFP B Eqty
IA 2.79 2.93 3.55 2.93 3.17 3.31 3.11
Jet 2.87 2.58 3.13 2.38 3.16 3.71 2.97
Sahara 2.67 2.83 3.07 2.33 3.00 2.97 2.81
LCC 2.80 2.34 2.89 2.16 3.11 3.02 2.72
Total 2.79 2.63 3.13 2.41 3.11 3.28 2.89
AMA Airline Media Advertising ISA
Information Sent by Airline GCC Good
Corporate Citizen ASCE Active Sponsor of
Community Events HES High Ethical
Standards IFP Image Fits Personality
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Airlines Performance on Relationship Equity
Drivers
Airline FFP PF AP IAM MRS SC HLT RE
IA 2.21 2.62 3.38 1.97 2.14 2.69 3.41 2.63
Jet 2.31 3.11 3.18 2.13 2.16 2.56 3.58 2.72
Sahara 1.97 2.77 3.50 1.90 2.17 2.50 3.20 2.57
LCC 1.68 2.75 2.41 1.91 2.05 2.20 2.98 2.28
Total 2.03 2.84 3.05 1.99 2.12 2.47 3.29 2.54
FFP Frequent Flyer Programme PF
Preferential Treatment AP Airline
Procedures IAM Information About Me MRS
My Recognition as Special SC Sense of
Community HLT High Level of Trust RE
Relationship Equity
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Brand Switching Matrix
From From From From Retention of Market Share in Future
Airline IA Jet Sahara LCC Retention of Market Share in Future
To IA 46 11 19 18 94
To Jet 25 66 31 20 142
To Sahara 9 12 31 13 65
To LCC 20 11 19 49 99
To Total 100 100 100 100
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Airlines Customer Equity
Airline Average CLV ( CLV ) ( in INR ) Annual Passengers ( AP ) ( in Millions ) Customer Equity ( CE ) CLVAP ( in Crores of INR ) Ticketing, Sales and Promotion Expenditure ( ME ) ( in Crores of INR ) Return On Marketing Investment ( ROMI ) 0.1CE ME ME ( in )
IA 14,378 5.8 8,339.24 695.2 20
Jet 14,420 6.9 9,949.80 433.9 129
Sahara 6,095 1.9 1,158.05 201.7 - 43
LCC 6,538 0.15 98.07 1.5 553
Air Transport Statistics for the year
2003-2004 source www.dgca.nic.in Assumptions
Time Horizon 3 Years Discount Rate 10
Contribution Margin 15 Change in
Customer Equity 10 For ROMI Calc.
For CLV Calculation
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Implementation Issues

• Decision Support System
• What-if simulators to explore ROI of marketing
  expenditures
• Strategic guidance w.r.t. firms competitive
  position of Customer Equity Drivers
• Tracking Customer Equity
• Tracking of Customer Equity and its drivers at
  least twice per year to
• monitor competitive trends
• identify emerging threats and opportunities
• gauge progress of marketing initiatives

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THANK YOU!
vrdutt_at_indianairlines.co.in