Chen's Marketing review

When one is asking the question: Is Air Canada making a lot of profit ? People might think so since they consider Air Canada and Westjet asthe oligopoliers in the Canadian commerical aviation industry. However, the turth is far different —Air Canada reported losses on Q1 and Q2 during 2012, and a profit margin of only 0.8% ( that is, 0.008 times of its revenue) for quarter four of 2012. The questions arise on what causes the loss for Air Canada when they’re dominating the canadian aviation market.

What on earth contribute the low profit margin of Air Canada. Before knowing this, we need to figure out where our money for flight goes. The following ariticle address that only less than 10% of the ticket price on average can become the profit for an typical national airline.

http://money.cnn.com/magazines/fortune/storysupplement/airline_costs/

However, what the ariticle didn’t mention, is that the profit margin from first-class or business class are relatively much higher than economy class. The portion of costs of those tickets to airlines are not as high as what those “premium passengers” pay for, compared with economy class. Hence, many can realize that Air Canada is lacking thier focus: business class travelers.

Even though the business class on Air Canada’s aircrafts have been renovated, they may still not good enough to generate the value to customers and make them have a high willingness to pay. And the complaints on the service quality, including on-time rate, or if crew members are friendly, can be find on travelers’ review websites such as tripadvisor or skytrax. In comparsion, the emerging airlines such as Emirates or Qatar, are paying high attention to their busines class and have been aimed at providing excellent serivice to those highly profitable customers (business class traverls).

Therefore, Air Canada’s priority is to improve their business class product, from the process of booking, customers support, airport experience, in flight experience, and promoting their new proposition on being excellent. By doing this, they’ll raise customer’s willingness to pay and therefore receive higher profit, so they can increase the profit margin and increase the financial performance for the company as a whole.

People keep talks about the emerging market, and one of the biggest emering marketing, China, has atrrected many international companies’s attention. Many of those companies are very optimistic about the potential of Chinese market.

Is that always the turth? Does all the famous international companies make their sucesses in the Chinese market? The answer was “no” for the fact that “this statement is too abosulute”. However, when it comes to the leading consumer electironic corperation, Buestbuy, many people are surprised by their complete failure in Chinese market and asking if the oversea companies is really able to do well in chinese market.

The bestbuy store in Shanghai after shutting down (from the newsletter called 青年报)

The failure of Bestbuy in 2011 isn’t the end of the the story. Two years later, after MediaMarket, the electronic store lauched by Metro AG, the third largest wholesale&retailer in the world, which acquisitded all the locations of bestbuy in China, deceided to shutdown themselves. That is, the repetition of the story of Bestbuy.

What causes the two big retailer fails?

The answer is that both of them does not adjusted themselves properly to chinese market. Bestbuy simply copied the pattern that it was in the united steates, even if the store made a little bit change on consumers’ experience. However, the size of targeted consumers of bestbuy is relatively small, and most people prefer to bargin with the salesclerks and buy the products through the personal conversation, rather than the feeling of “be assisted by some experters who doesn’t communicate with you emotionally.” And the supply chain of the eletronic products are also different from the pattern in the US, and the size was not big enough to compete with the local retailers, such as Suning, Gome, to reduce its distribution costs. Bestbuy do realized this but still fail to find a approperate propostion in the market, and failures on addressing those issues resulted in the loss of those companies in the competitive market.

original post:

http://blogs.sas.com/content/hospitality/2012/05/03/customer-focused-hospitality-marketing-at-intercontinental-hotels-group/

As one of the world’s largest hotel chain group, IHG has made advances on the mobile devices on the hotel chain industries. While some of its main competitors, such as Hilton, Marriott, Accor have not even introduce their useful mobile apps “for some reasons”, the management team of IHG thinks that it’s a crucial thing to communicate and bulild the relation with them by introducing the apps of IHG that enables custemers to interact with IHG. This is more than simply booking the room via mobile apps: with their sophisticated reward program, Priority Club, IHG has built strong relations to its frequent guests; and the mobile app, as its said in the original blog, is one of the means to communicate with customers that does not show immediate effects. Some doubts if the hotel guests need a good functioned app, and many companies doubt this, such as Hilton or Accor, both of whom don’t even have a app on development.

Are app really effective? In my view, the answer is definately yes. In the long run, the consumers are dynamic to the hotel groups as the consumers tend to be within a certain age range and they’re getting older, young people will be a important potential market as hotel guests as they grow up. This generation tend to have thier own strong opinions and want to make decisions based on what they believe. Mobile apps is a effective method to apprach and commnicate with them, and introduce the value of the company to them.

Even in the short period, the app can futhur consolidate the relation with loyal customers as they can have esalier access to the information about the hotel on thier mobiles than on laptops. However, the problem is that overall in the short run the mobile app may be not effective enough to generate immediate profit, and some hotel chains are short-sighted and failed to even introduce apps. However, in the future, IHG will get first-mover advantage on this growing trend.

The business world is always a dynamic environment, and a business leader can’t always hold the leading position in a competitive market unless the business constantly adapt to the changing environment. Cathay Pacific has made several decisions that has brought about many innovations and expansion for this company, and survived the economic recession that resulted in lower demand for air travel from 2008.

With a lower demand, Cathay Pacific also faced threats from new entrants to the market. Hong Kong Airlines, which has the same base airport as Cathay Pacific does, started to expand their routes which directly compete with Cathay Pacific from 2008, when Cathay Pacific just merged Dragonair, another Hong Kong based airline.

These problems started to bother Cathay Pacific and made them rethink about their Business strategies. While the global airlines market was shrinking during the recession, the demands for air travel from mainland China has been growing since then. Cathay Pacific realized passengers from Mainland China can be extremely profitable when the local demand from Hong Kong stagnated. After knowing this segment, Cathay Pacific schedule more frequent flights to China, and took advantages of their newly-merged subsidiary, Dragonair, which already has many flights within Asia, especially 400 flights per week from Mainland-Hong Kong, in order to attract transit passengers from Mainland China. In order to offset their weakness as a “stranger” to mainland’s airline industry, Cathay Pacific decided to hold 19.7% shares of Air China, the national flag airline of China; and Air China also cross hold about 30% shares of Cathay Pacific. These make it much easier for Cathay Pacific to build relation with authorities in China.

Dragonair’s network helps to connect Cathay Pacific with more long haul flights.

They also use more specific segment by cities to implement their strategies. For example, for flights to big cities such as Beijing, where most passengers are business travelers, they have more available business seats, and high frequency that provides flexible time for passengers to choose. In contrast, for secondary cities such as Chengdu, Xiamen, Wuhan, they tend to have less business class seats since the consumers are generally price sensitive. So the different strategies helps Cathay Pacific to operate at the best efficiency.

According to their 2011’s annual report’s segment information, (http://downloads.cathaypacific.com/cx/investor/annualreports/2011_annual-report_en.pdf), about 50% of revenue are from China region. Therefore, the targeted market strategy contributes to a high portion of revenue for the company.

(to be continued for the next blog, which will talk about how their new service creates the “added value” for their products i.e. Innovating with targeting)

Tradeoff between morality and profits: Marking dominates the beauty products industry

Yes, it’s an astonishing fact, but it’s true ——the skincare products you are using might make your skin even worse. According to my own experience and previous research, many companies in beauty industry are operating in an unhealthy and immoral way.

The common fact is that skincare and cosmetic industry allocates large portion of their budget on marking.  However, many of the companies solely pay attention to their marketing strategies and doing Under current legislation, the ingredients of beauty products can have negative effects to human’s skin. One may doubt if the regulator, such as FDA, will prohibit the use of harmful ingredients to skincare products.  But according to Federal Food, Drug, and Cosmetic Act (FD&C Act), FDA only regulates if the ingredient is poisonous, i.e. seriously “harmful” to human.

Due to such a loosen regulation, many companies legitimately promote their products by using immoral ways: they hire film stars to make advertisements, showing their vivid image on the advertisement and making people buy their products for their wrong assumption from the advertisement; however, what really important to customer, is unimportant to those companies. For example, LA MER, a high end product of Estee Lauder, are said to be “dramatically effective for skin”. This product is sold at an extraordinary high price. In their advertisement, they use a story of Aviation Doctor who burned his skin and “magically” use Algae Extract with other combination to recover his burned skin. This advertisement is persuasive since people believe the authority of a doctor, and their elaborately advertising videos make the product attractive. However, according to the report of an ingredient of the product, it used microcrystalline wax to fill out the tiny wrinkle and makes the skin looks “smooth” (like the floor after waxed) for a short period. More immorally, it used multiple extract that prove to be Irritating to skin.

Even though this is a small part of the beauty industry, but it refelcts the current problem for the industry. The skincare companies solely focus on improve their business only by marketing strategies, and ignores the moral part.

Data from: CosDNA.com