Research Articles Base: Ikea Case Studies

2          LITERATURE REVIEW             This chapter will focus on the various literatures and will be evaluated and reviewed; the subjects will concern the problem of the study, which is about loyalty programs of airline industries in Hong Kong. The sources will be based on other studies, journal articles, and books, all of which will be assessed in this chapter. The information that they give will help the researcher in assessing the information gathered from primary sources and therefore will be linked to each other regarding their conclusions. At the same time, such information from the literatures can also serve as guides for the discussions and the formulation of the conclusions. The assessment and information will thus be further discussed in the following chapters that will include the findings of the study. Overview of Cathay Pacific Cathay Pacific Airways is an international airline registered and based in Hong Kong, offering scheduled cargo and passenger services to over 90 destinations around the world. It vision is to make the airline the most admired in the world, ensuring safety comes first; providing service straight from the heart; encouraging product leadership; delivering superior financial returns and providing rewarding career opportunities.             Cathay Pacific has gone from strength to strength since its foundation in 1946.  In 1964 the airline carried its one-millionth passenger. Today it carries over a million passengers every month. By the year 2006, Cathay Pacific will have a fleet of more than 100 wide-bodied aircraft serving Hong Kong day and night.             Cathay Pacific was named “Airline of The Year” in 2003, distinguishing itself from other airlines with its unique “Service Straight from the Heart.” The airline has one of the highest load factors among full-service carriers. Cathay Pacific is a founding member of the oneworld alliance. Together with its member airlines, oneworld offers passengers flights to more than 570 destinations worldwide. Cathay Pacific Airways was founded in 1946 by two former World War II pilots who began operating on a charter basis using two war surplus DC3 ‘Dakotas’ flying between Hong Kong, Shanghai and Macao. In 1948, Swire acquire a management stake in the airline.             In 1959, Cathay Pacific was already flying to Japan, Taiwan and Australia; the airline acquired its first jet aircraft, the Convair 880M in 1962 and continued to build its regional route network. In 1970, the decision was taken to re-equip the fleet with Rolls-Royce powered Boeing aircraft, opening the way for long-haul flights and setting the airline on course for services to the Middle East in 1976, London in 1980, and Vancouver in 1983.             The airline’s expansion and modernization continued through the 1990s, as Cathay Pacific progressively replaced its L1011 TriStar regional fleet with Airbus A330s and A340s. Today, the airline’s passenger fleet includes Boeing 777-300 and -200 aircraft, B747-400 aircraft, and Airbus 340-600, 340-300, and 330-300 aircraft. Cathay Pacific was the Asian launch customer of the long-range A340-600. The airline also operates a dedicated fleet of Boeing 747-400F and 747-200F freighter aircraft.             In order for the company to ensure that their customers will be loyal to them, they are able to implement a loyalty program as part of their marketing strategy. These two loyalty programs are the Marco Polo Club馬可孛羅會 (known as “The Club”) and Asia Miles亞洲萬里通.  Members of “The Club” are automatically enrolled as Asia Miles members. Loyalty programs Loyalty programs have long been used as a mean of strengthening customer relationship.  Programs are designed to fit in different industries, such as airline, hospitality and banking industries, to retain their customers by rewarding their loyalty, so as to boost companies’ profits.  The concept of loyalty program started to appear in the 1950s, S&H Green Stamps and Raleigh cigarettes coupons adopted similar concept in encouraging repeat business; the more customers purchased, the greater the benefits.  On May 1, 1981, AAdvantage as a frequent flyer program of American Airlines was launched.  It was the first loyalty program introduced in airline industries, and was quickly followed by its competitors, such as United Airlines, Delta Air Lines and Trans World Airlines.  Frequent flyer programs offer members to redeem tickets, upgrade service class, or obtain free or discounted car rentals or hotel stays, or others products services through various linkages.  Today, frequent flyer programs are everywhere, being recognized as one of the most effective and successful marketing tools.  However, do these marketing programs really built loyalty to the airlines?  Or do they merely create a group of customers who simply want to be rewarded for their spending.  By identifying individual customers, frequent flyer programs designate customers with colorful names, for example, TrueBlue, Executive Club, Flying Dutchman and Frequent Flyer, then differentiate members into groups, for example, the four tiers in The Macro Polo Club, so that each membership has its own exclusivity and distinctive features.  Modeling of frequent flyer program is very important to the success of a company.  Should a company regard this program as a reward program?  Or should it be a loyalty program?  These questions also trigger the effectiveness of such program, and so as the sales generated through operating it.  In the retail industries, according to the Center or Retail Management at Northwestern University, both business and consumers have recognized the value of loyalty programs.  Only 12% – 15% of customers are loyal to a single retailer.  But that small cadre of customers actually generate between 55% – 70% of company sales. However, being able to identify individual customers, to measure and to understand their individual behaviors and desires is of great importance to the success of a loyalty program.  Companies should also avoid developing loyalty programs with good intentions but unclear objectives. In order to acquire new customers, retain existing ones and increase their spending through loyalty programs, products and services provided should be shaped with objectives, and have their characteristics identified apparently.  Services are generally described as having four key characteristics: intangibility, simultaneity, variability and perishability.  Kotler, Anstrong, Saunders and Wong (1996) have given a contemporary definition of service in relationship management context: “A service is any activity benefit that one party can offer to another, which is essentially intangible and does not result in the ownership of anything.  Its production may or may not be tied to a physical product.”.  However, the airline industry definitely is a service provider; thus, loyalty marketing activities becomes part of service relationship management (RM).  During the course of managing relationship in the service sector, it is crucial for marketers to understand it is to strengthen the bonds between the service provider and the customer rather than to increase the number of transactions (Gordon, 1998, p.10) that is the heart of RM. Frequent-flyer programs alone cannot do trick for airlines What are the essences to loyalty marketing for airlines? Corsby and Johnson (2004), in American Marketing Association’s Marketing Management, talked about one of their clients discovering that, through repurchasing and cross-selling opportunities, a mere 1% increase in its customer loyalty index could increase the revenue by as much as 5%.  Indisputably, customer loyalty is an intangible corporate asset.  Numerous research studies have pointed to the same fact that – an increase in customer loyalty can increase profitability.  It is commonly accepted that the creation of loyal customers is the key to achieving consistently above-normal market performance.  Remember, satisfied customers are not necessarily loyal ones.  Consumer inertia and lack of choice in the market are often reasons why they are attached to a brand. Before one could start manage this intangible corporate asset (i.e. customer loyalty), one must be able to identify and understand the causal relationship (i.e. cause-and-effect) between its brand and its customers: <ul type="disc" style="MARGIN-TOP: 0in; MARGIN-BOTTOM: 0in"> <li class="MsoNormal">What are the touchpoints and attributes affecting customer attitudes and behaviours (attempts to rule out customers who are attached to the brand merely due to inertia)?</li> <li class="MsoNormal">What are the customers looking for in the products or services offered?</li> <li class="MsoNormal">How do these touchpoints and attributes influence vary over the different life stage of the customer relationship?  Among different customer segments?</li> <li class="MsoNormal">How can we influence these touchpoints and attributes?</li> <li class="MsoNormal">What is loyalty?  Repurchase, recommendation, sole source?</li> </ul> In causal relationship i.e. from various touchpoints to loyalty, there is a chain of effects attributes by different variables. Apart from the above, marketers should also dig deeper into the role of emotions in order to fully understand the causal relationship and map a holistic landscape on customer loyalty.  Behaviors, including purchase, are motivated by emotions.  Emotions, motivations, motions as well as rational interact with one another.  For instance, consumers are motivated to purchase if an emotional connection is established with the brand’s promise.  This rests with the emotional ability of consumers to grasp the benefits projected by a brand. Strategically speaking, there are three-M’s to the architecture of customer loyalty (Crosby and Johnson, 2004): Measure, Manage and Model – which help devise strategies for segmentation, distribution, pricing, positioning, communications etc.  Measurement – many companies are now adopting a simplified measurement on customer loyalty, some are now advocating surveys composed of only one or a few questions to assess the strength of customer relationships and provide direction and indication on how they might be approved.  However this is like diagnosing the reasons behind a fever simply by taking the patience’s temperature.  Customer loyalty is too complex to be measured by a single measure.  Customer loyalty is known to manifest itself in numerous ways, which all have economic consequences for the company including repurchase, recommend, sole source, etc. Measurement progress in the social sciences that multi-item indices tend to outperform single question indicators in terms of reliability and validity. A survey is done recently by Wharton School of the University of Pennsylvania, it shows that most companies have made little effort to identify areas of non-financial performance, e.g. customer loyalty, that might advance their chosen strategy.  Many companies avoid measuring such areas as they are hard to measure. Measurement, although hard to perform, is a critical enabler to performance.  Research was done to discern differences among companies that used strategic measurement to manage performance and those that did not found that measurement-managed organizations have much stronger results than other organizations: 1) about 83% of measurement-managed companies are in the top third of their industry vs. 52% for non-measurement-managed companies; 2) about 80% of measurement-managed companies realize a three-year positive return on investments vs. 45% for non-measurement-managed companies. Right measures also critical.  Customer measures must be in sync with your company vision, mission and strategy.  This will help ensure alignment in the organization and a common focus on your strategy. In order to maximize profitability, organization must align activities (e.g. advertising, communications, call centre, front line etc.) to the customer loyalty causal factors.  A consumer-centric organization can ensure cross-functional alignment to the customer loyalty priorities.  For instance, marketing, engineering, procurement, human resources and finance teams must get together to discuss and decide on the optimization of the company’s resources in order to achieve customer loyalty. 3          RESEARCH METHODOLOGIES Before deciding which method to be adopted in doing this research, we have to look at characteristics, pros and cons of such method.  The source of the information and the manner in which data are collected could make significant difference to the effectiveness of the research.  Data could be obtained from two sources, primary or secondary.  Primary data refers to information collected originally and directly by the researcher on the variables of interest for the specific purpose of the study.  Examples of primary sources are from individuals, focus groups, etc.  Data gathered through existing sources are called secondary data.  That is, they are data that already exist and do not have to be collected originally by the researcher.  Some secondary sources of data are statistical bulletins, government publications, data available from previous research, websites publications etc.  We would now take a look at how primary data could be collected.  Primary data consists of qualitative and quantitative data. Qualitative data can be obtained through many sources, and the most common and most effective ways are to perform in-depth interviews, films and videotapes, participant or no participant observations, case studies, projective tests, etc. Description of the matter under study is the main focus of qualitative research and a range of techniques can be used to interpret, decode, translate, crack patterns, and analyze the meaning of phenomena that occur.  Quantitative data can be obtained mainly through questionnaire. Data collection can be obtained in a number of ways, in different settings and from different sources.  Data collection methods include interviews (mainly two types – face-to-face interviews, telephone interviews); questionnaires (personally administered, sent through the mail, or electronically administered); observation of individuals and events (with or without videotaping or audio recording); and various motivational techniques such as projective tests.  Observing the public and phenomena, performing interviews, and administrating questionnaires are the three most common data collection methods in survey research.  Although interviewing has the advantage of flexibility in terms of making adaptation and changing the questions on the course the researcher proceeds with the interviews, questionnaires have the advantage of obtaining data more efficiently in terms of time, energy, and costs.  The advantage of performing unobtrusive methods of data collection such as its extraction from company records is namely enhancement of accuracy.  The selection of data collection methods depends on the facilities available to the researcher, the degree of accuracy required by the projects, the expertise of the researcher, the time span of the study, and other costs and resources associated with and available for the data gathering.  3.1       Observational surveys Whereas interviews and questionnaires bring out responses from the subjects, it is also possible to collect information without asking questions to respondents.  People can be observed in their natural work environment or in the lab setting, so that their activities or behaviors in specific could be recorded and analyzed.  Observational surveys could generally gather data which is more reliable as it is free from respondent bias.  It is comparatively easier to note the affluence of environmental factors on behavioral outcomes.  For example, a hot summer afternoon do have a bearing on the sales of product, say ice cream or hot drinks, behavioral patterns might be seen with changes in factors.  Hence, if changes in factors do not lead to meaningful patterns, which means those factors should not be counted as variables in such research.  Further, it is easier to observe certain groups of respondents, for example, very young kids, directors and chief executive officers, as information might be difficult to be obtained.  However, observational surveys have limitations, since it is necessary to be physically present, and often for extended periods of time.  This approach, as compared with others, is much slower, tedious and expensive.  Also, due to the long periods of observation, tiredness of observers may trigger the collection of data, which may in turn affect the results.  Emotions and attitudes can be interpreted through observing respondents’ facial expressions and other non-verbal behaviors, yet the cognitive aspect of respondents cannot be attained superficially.  And well-trained observers are needed to avoid subjectivity and biases during the observation.  Observational studies have a formulated research purpose and are systematically planned; they can be structured or unstructured, that is having the investigator being a participant or no participants in the study setting respectively.  All phenomena of interest are recorded systematically and quality control can be exercised by eliminating bias.  Observational studies can provide rich data and insights into the nature of the phenomena observed.  They have offered much understanding of interpersonal and group dynamics.  Further, observational data can also be quantified through tabulations.  3.2      Interviews Conducting interviews with respondents is another method of collecting data regarding information on issues of interest.  This method of collecting data could also be structured and unstructured; it could be done either face-to-face or via telephone calls.  Structured interviews, with specific goals and questions set before commencement, are easier to prepare and manage, and data collected is usually related, which gives more detailed information for further research.  Unstructured interviews, without any strict guidelines, are good in the beginning of research projects, since they provide a more general understanding of problems. Forms of interviews conducted may be differed depending on level of complexity of issues involved, duration of interviews, availability of both parties, namely researchers and respondents, and the geographical areas covered by the survey.  However, telephone interviews would be the best form of interviews when information has to be collected from a large number of respondents in scattered geographical areas, which has to be done within a short period of time.  Face-to-face interviews During face-to-face interviews, the interviewer can adapt the questions when necessary, be able to clarify doubts, and ensure the respondents understand the questions properly by repeating and rephrasing the questions.  It also allows exchange of other information, apart from the questions set, between interviewer and respondents.  Individual behavior can be observed which actually provide more reliable information to the interviewer; it is more important when attitudinal behavior is of concern.  More, this information may not be attained in questionnaire survey or telephone interview. However, as travel is involved, this method of data collection is the least inexpensive and the most time consuming.  Also, it is limited by geographical locations; in other words, more resources needed if the collection of data has to be done nationally or internationally, and the respondents may live in remote locations.  More, interviewers have to be well trained in order to avoid biases, as interpretation of respondents’ responses may differ from different interviewers.  Respondents are sometimes reluctant to be interviewed in persons, and feel uneasy about the anonymity of their responses. Telephone interviews Unlike face-to-face interviews, telephone interviews can reach vast geographical locations; interviews can be done across the country or even the globe in a comparatively short period of time.  It can also eliminate respondents’ discomforts that may appear during face-to-face interviews.  Respondents do feel less strange talking to interviewers on phone than meeting face-to-face.  This method of data collection is less costly, while interviewers are still able to ensure the respondents do understand the questions properly by repeating and interpreting the questions. Yet, households without phone are excluded.  And respondents can terminate the interviews without signal or explanation, simply by hanging up the phone, as resistance to intrusion via telephone is deemed to be normal.  In order to minimize such problem, it would be favorable if interviewers call respondents in advance to request participation in the survey, explain briefly the research purpose and the duration of survey, and make appointments with respondents.  Respondents tend to appreciate this courtesy and are likely to cooperate.  It is important not to prolong the survey beyond the said duration. 3.3      Questionnaire surveys A questionnaire 3.3       Questionnaires A questionnaire is a pre-formulated written set of questions to which respondents record their answers, usually within rather closely defined alternatives.  Questionnaires are an efficient data collection mechanism when the researcher knows exactly what is required and how to measure the variables of interest.  Questionnaires can be administered personally, mailed to the respondents, or electronically distributed.  Mail questionnaires The main advantage of mail questionnaires is that a wide geographical area can be covered in the survey.  They are mailed to the respondents, who can complete them at their convenience, in their homes, and at their own pace.  Some effective techniques can be employed for improving the rates of response to mail questionnaires.  Sending follow-up letters, enclosing some small monetary amounts as incentives with the questionnaire, providing the respondent with self-addressed, stamped return envelopes, and keeping the questionnaire brief do indeed help.  The main disadvantage of mail questionnaire is that the return rates are typically low.  A 30% response rate is considered acceptable.  Another disadvantage is that any doubts the respondents might have cannot be clarified.  Also, with very low return rates it is difficult to establish the representativeness of the sample because those responding to the survey may not at all represent the population they are supposed to.  Personally administered questionnaire A good way to collect data is to personally administer the questionnaires.  The main advantage of this is that the researcher or a member of the research team can collect all the completed responses within a short period of time.  Any doubts that the respondents might have on any question could be clarified on the spot.  The researcher is also afforded the opportunity to introduce the research topic and motivate the respondents to offer their frank answers.  Administering questionnaires to large numbers of individuals at the same time is less expensive and consumes less time than interviewing; it does not also require as much skill to administer the questionnaire as to conduct interview.  Wherever possible, questionnaires are best administered personally to groups of people because of these advantages.  The answer is designed just like a multiple-choice answer sheet, so that respondents can circle their answers to each question on the sheet, which can then be directly entered into the computer as data, without someone having to code and then manually enter them in the computer.  The response rate is almost 100% ensured.  The anonymity of respondent is high, so most them would feel less uncomfortable disclosing personal information.  The disadvantage of questionnaire is happened to organizations, as some of them are often unable or disinclined to allow work hours to be spent on data collection, and other ways of getting the questionnaires back after completion may have to be found.  Thus it is not a consideration for this study, as the target respondents are customers instead of employees.  By compare and contrast the mentioned advantages and disadvantages of all forms of data collection, questionnaire survey was chosen to serve as a mean in investigating the effectiveness of the most reckonable frequent flyer programs in Hong Kong.  Since conducting questionnaire surveys allows researchers to collect complete responses within a short period of time, and further questions or doubts could be clarified on spot during interviews with respondents.  Researchers also have opportunity to introduce the research topic and invite the respondents to offer dutiful answers.  Hence, questionnaires are best administered personally to groups of people because of these advantages.  Further, in order to avoid bias, negative worded questions are used in this questionnaire, instead of phrasing all questions positively, so the tendency in respondents to mechanically circle the points toward one end of the scale is minimized.  Wherever possible, questionnaires are best administered personally to groups of people because of these advantages.  Furthermore, in order to avoid bias, negatively worded questions are used in this questionnaire, instead of phrasing all questions positively, so the tendency in respondents to mechanically circle the points toward one end of the scale is minimized.  A respondent who is not particularly interested in completing the questionnaire is more likely to stay involved and remain alert while answering the questions are interspersed in it.  Negatively worded questions offer an opportunity to detect biases; therefore, a good questionnaire should therefore include both positively and negatively worded questions.  3.4       Sampling Surveys are useful and powerful in finding answers to research questions through data collection and subsequent analyses.  The process of selecting the right individuals, objects, or events for study is known as sampling.  A sample is a subset of population, which refers to the entire group of people, events, or things of interest that the researcher wishes to investigate.  A sample comprises some members selected from population.  In other words, some, but not all, elements of the population would form the sample.  Sampling is the process of selecting a sufficient number of elements from the population, so that a study of the sample and an understanding of its properties or characteristics would make it possible for us to generalize such properties or characteristics to the population elements. The reasons for using a sample, rather than collecting data from the entire population, are self-evident.  In research investigations involving several hundreds and even thousands of elements, which refers every member within the population, it would be practically impossible to collect data from, or test, or examine every element.  Even if it were possible, it would be prohibitive in terms of time, cost and other human resources.  Study of a sample rather than the entire population is also sometimes likely to produce more reliable results.  This is mostly because fatigue is reduced and few errors will therefore result in collecting data, especially when a large number of elements are involved.  In a few cases, it would also be impossible to use the entire population to gain knowledge about, or test something.  The purpose of this research is to investigate the effectiveness of frequent flyer programs in sustaining airline customer loyalty; the sample was chosen to be a group of customers who the monthly salary income of main employment is higher than HKD 15,000. It is because the purpose of this study is to investigate the interactivity between the store layout and customers (how a retailer can trigger certain customer behavior), that the sample was chosen to be a group of customers who finished shopping in a big retailer.  The main advantage of the superstore format seems to be the unique store design.  It is also because IKEA encourages customers to choose the furniture and pick it up themselves in a layout that facilitated self-service.  The sample used was a group of customers who finished shopping in IKEA, so they can still remember clearly the shopping experience, which made their answer more valid and reliable.  The sample size is around 100 people, a random selection from those customers, 40 percent male and 60 percent of female.  It is because there is always higher traffic during weekend that the survey was being done in a weekend.  There are several IKEA stores in HK, in order to reach as many customers as possible at the same time, so the Causeway Bay store, which is in prime location, was chosen.  The opening hours is 1030 to 2230 daily, and the peak hours is from 1200 to 2000, so the researcher was there doing the survey in this period of time.  Finally, 110 surveys were done successfully.  To investigate interactivity, a survey instrument was designed which reflected the literature, and sought responses particularly with regard to impact of store design on customers.  A rating scale of one to five was used, where one represented highly agree with the question asked and ten represented highly disagree.  The constructs were developed from the literature. Special attention was given to the formulation of constructs with respect to:  Product knowledge (6 items) and Store Design (12 items).  The specific items are detailed in the results section below, so those will not be repeated here.  XXXXX This research as stated is to find out the effectiveness of frequent flyer program in sustaining customer loyalty.  In order to address the aforementioned objectives, the dissertation would have to delve into: Q         what is the ideal “loyal” customer Cathay Pacific is looking for (as the word “loyal” could have different meaning for different industry or even brand/company e.g. sole usage, repeat usage, recommendation etc.); Q         what information does Cathay Pacific collect from their customers and how do they use it which allows them to identify who are the satisfied customers that they can retain and grow them into loyalists. Ultimately, this dissertation is a starting point in understanding the loyalty that Cathay Pacific is trying to build vis-à-vis their desired. For this dissertation, interview has been carried out with the CRM Project Manager of Cathay Pacific, Mr. Clement Au, who shared his valuable insights and knowledge on airline loyalty programs.  He has over 8 years of experience in running the frequent flyer programs at Cathay Pacific.  Further to this step the strategy and method that Cathay Pacific set to different literature would be compared.  And then it comes to the quantitative analysis, that is to find out the perceptions on the importance of privileges and rewards that frequent flyer program offers. Research approach The research is done basing on deductive approach (Gharuri et al. 1995).  “By deduction we mean that we draw conclusions through logical reasoning.  In this case, it need not be true in reality, but it is logical” (pp. 9).  In order to obtain more information on this topic, qualitative approach has been done.  Primary and secondary sources are obtained to enrich the knowledge and basis on the topic.  Quantitative approach was then performed by setting up questionnaire, which provided primary source of data to perform data analysis and discussion. Population and sample The target respondent of the questionnaire designed for this research is focused on the age group of 25 to 60, well-educated Generation X-ers with moderate to high income.  People in this category are having a well-accepted social status, earning moderate to high income which allow them to choose their airlines without much monetary constraints. Their traveling frequency is comparatively high, in both leisure and business.  This makes them falls into the target customer of CP’s loyalty program. Research process In the first phase of this research, data and readings of literatures, government statistics and company writings were studied.  This allowed me to preliminary verify the feasibility to probe into this topic.  Apart from obtaining secondary data from different sources, an in-depth interview was conducted with the CRM Project Manager of Cathay Pacific in order to collect first hand qualitative primary information.  The aim was to collect information on the strategy Cathay Pacific implemented in order to enhance the customer loyalty including the mission of The Marco Polo Club, the reason of the foundation of Cathay Pacific Loyalty Program Ltd., the target group of The Marco Polo Club, etc.  The reason of interviewing the CRM Project Manager from Cathay Pacific is because he could reflect the strategy directly without any misinterpretations. The second phase of this research was to perform a questionnaire survey on the target respondents.  A structured questionnaire with 18 questions was developed to collect relevant information from the target group of the study.  The purpose is to examine and obtain insights into the preference of airline amongst the target group of Cathay Pacific frequent flyer program; the popularity of customer joined the programs, the reason behind the customers joining the programs, and whether the programs built customer loyalty on Cathay Pacific. The survey was conducted by non-probability sampling, which means selecting subjects by means other than by chance or random.  One of the reasons for pursuing non-probability sampling is that the research is restricted by limited resources in order to perform randomization.  Besides, non-probability sampling allowed the selection of respondents which belongs to a specified income level (mid-upper class).  It is convenient and inexpensive, but may have risk of bias and unrepresentativeness.  Also, sampling error cannot be estimated.  Amongst non-probability sampling, purposive sampling was used.  It is a conscious selection of certain groups or elements (e.g., “typical” subjects or events).  In this research, the target customers of The Macro Polo Club were intentionally selected to be the interviewees, i.e. middle to high income customers.  According to the 2006 Population By-census performed by the Hong Kong Government, people with monthly income from main employment equal or higher than HKD15,000 accounted for 31.5% of total Hong Kong population (HKD15,000 – HKD19,999 10.6%; HKD20,000 – HKD24,999 6.7%; HKD25,000 – HKD39,999 7.9%; >HKD39,999 6.3%), while if the range was set as equals or higher than HKD10,000, it would give rise to 52.2% of total population (HKD10,000 – HKD14,999 20.7%).  Therefore, customer with monthly income from main employment equals or higher than HKD15,000 was selected as it fell within the class of middle to higher income group. The survey was performed by telephone interview rather than by mail or email due to several reasons: Q          The responding rate is considered to be low if mail or email was used due to reluctance to reply; Q          Personal interview could prevent misinterpret of questions; Q          Limited monetary resources.  Q          Data collected through telephone surveys usually has minimal missing or erroneous data, primarily because it offers the opportunity for personal assistance.  Q          Telephone surveys offer a good opportunity to reach “low incidence” respondents – populations of people that are very small within general population.  Q          Telephone surveys allow for relatively quick data collection. Q          Telephone surveys provide the opportunity to branch – take respondents to questions based on previous responses – and otherwise customize the survey.  For this reason, the questionnaire was in fact customized after interviewing with several respondents. Questionnaire design The questionnaire designed for the use in second phase consists of eighteen questions in total.  Q1 to Q4 and Q18 were designed to obtain the generic information of the interviewee including gender, age, employment status, range of salary income, and education level.  Q5 and Q6 were purposed to segment interviewees into groups of leisure or business and frequent or non-frequent airline customers.  Q7 to Q14 were designed to find out whether the interviewee joined The Marco Polo Club and Asia Miles, also the reasons behind and the method of application.  Q15 investigated the reasons of choosing Cathay Pacific for the business trip(s) and leisure trip(s).  Q16 was a free flow question finding out the best airline among the interviewees’ minds.  Q17 allowed the interviewee to rate the overall performance of Cathay Pacific.  Decision making process In reality decision making involves many stages, it bases on the preferences of traveling partner, information source available, then preliminary decision is made; when more information is obtained, while surrounding circumstances give rise to constraints on decision made, it may lead to change in such choice.  Decision making process varies case by case; the same customer travels with the same purpose might choose a different airline within a different time frame in a different situation; in other words, customer and purpose remain constant, while time, situation and decision made may vary.   For this reason, the questionnaire asking for the decision making process under a cross sectional setting, that is, the questionnaire survey conducted within a short period of time, with minimal change in external environment.  For instance, consumers’ perceptions on safety might differ significantly before and after the 911 terrorism attack.  Therefore, the cross sectional research setting can eliminate the constraint on the confusion of an ever-changing situation and enhance the validity of the survey result.  Age and Income Consumer behavior on airline selection varies in terms of education level, age and income.  People with higher income tend to select an airline depending on some other attributes or reasons other than the price, while those with lower income might choose an airline purely determined by the price of their air tickets.  People at different age might have different perceptions and preferences on the choice of airline; the sense of belongings varies by age, and this gives rise to variation in loyalty among local brands, i.e. country of origin effect.  There were questions set in the survey investigating the correlations between each factors. Frequent Flyer Program and Decision making process Frequent Flyer Program provides various benefits or one may say attractions to customers.  The questionnaire investigated whether the benefits provided by The Marco Polo Club and Asia Miles were what customers looking for; the effectiveness of retaining the customers and the effectiveness in encouraging repeat purchase.  The survey focused on investigating whether the Frequent Flyer Programs installed by Cathay Pacific were meeting their objectives. Crucial Attributes and Rating The last part of the questionnaire consists of an open end questions.  It helped us to find out the most important attributes that attract customers, i.e. reasons for flying on Cathay Pacific.  Further, interviewees were asked to rate the overall performance of Cathay Pacific in their mind by using Likert-scale.  It helped to find out how customers perceive Cathay Pacific as a whole. Data Analysis Various methods were applied in collecting data in this survey.  Methods adopted for attitudinal aspect included five-point Likert-scale in rating the overall performance of Cathay Pacific; straight forward choices of reasons for joining those frequent flyer programs; and, straight forward choices of reasons for flying on Cathay Pacific.  For behavioral aspect, frequency of business trips and leisure trips were recorded; the airlines taken for those flights and methods of joining the frequent flyer programmes were also recorded and analyzed. Data collected from the questionnaire survey will be analyzed manually by Microsoft Excel.  Significant findings will be stated in the result chapter and investigate further with the literatures in the discussion chapter.  Limitations of the survey will also be discussed. 4          LIMITATIONS This research was done limited to both time and monetary budget.  The survey was done in a relatively small scale with 100 interviewees.  In order to enhance the accuracy of the target interviewees, we focused the survey to be performed to monthly salary income of main employment higher than HKD15, 000, which gave rise to top 31.5% monthly income of total population.  Interviews were done to altogether 121 persons with judgment in estimating their monthly salary income.  Within these 121 persons, only those with salary equal or higher than HKD15, 000 would continue the questionnaire, hence, purposive sampling method was applied.  The limitation here was that it is impossible to have a full set of traveler data; simple random sampling method could not be used.  Because of the non-random sampling method used for collecting customer data, the reliability and validity of the research were hindered. In the purposive sampling method, the target respondents were set as middle to high salary income customers (according to the qualitative interview result obtained from the CRM Project Manager of Cathay Pacific).  However, there was not any standard on what is meant by middle to high salary income class in previous literature or any other references.  Therefore the salary level was estimated around the top 30% salary income of the total Hong Kong population.  According to the 2006 Population By-census performed by Hong Kong Government, people with salary equals or higher than HKD15, 000 gave rise to top 31.5% salary income in Hong Kong, therefore the threshold was set accordingly.  As two estimations were made, it affected the reliability of the research. Further, because the survey focused on respondents in the Hong Kong, all interviewees selected were Chinese.  No foreigners based in Hong Kong or those traveling in Hong Kong were interviewed.  Therefore, the results can only reflect the behavior and attitude of Hong Kong travelers, but not generalized to worldwide travelers. The survey is considered as a small scale survey.  Out of those 100 respondents who salary passed the threshold (HKD15,000), only 7 respondents joined The Marco Polo Club.  This small portion of segment was not eligible to provide significant statistics for analysis.  Therefore, there is still hidden agenda in the research to be explored in the future research with a larger scale survey.  However, valuable insights were obtained from those 7 respondents.  During the interviews with them, the original questionnaire was used as the guide only, in-depth qualitative interviews were indeed performed with all those 7 respondents. 5          RESULTS The findings of the analysis are divided into three sections.  The result of the qualitative interview with the CRM Project Manager from Cathay Pacific would be recorded.  Then the results obtained from seven members of The Macro Polo Club would also be presented.  The rest would be the results of the survey with those non-Marco Polo Club members. Qualitative Interview result The interview was performed on 3rd March 2007 at 15:00 and was finished in 30 minutes.  CRM Project Manager of Cathay Pacific, Mr. Clement Au, was interviewed in the section.  Mr. Au expressed the objectives of setting up The Marco Polo Club are as follows: Q          To retain loyal customers who fly on Cathay Pacific. Q          To maintain a database which allows Cathay Pacific to identify different segments of customers according to their contributions in term of flight sectors, distance flown and revenue generated.  By using this database, they could provide different services, benefits and privileges to different segments accordingly.  In order to achieve the objectives, various benefits were provided to members of The Marco Polo Club, whereas the benefits vary amongst different tiers of members.  (Appendix) For Asia Miles, the objective was to provide an attractiveness and means to bound customers and encourage repeat purchase. The measurement of The Marco Polo Club based on three factors: the mileage its members flown, the number of sectors they flown, and the class of the flights.  The loyalty of customers was also measured by RFM method.  RFM refers a method used for analyzing customer behavior and defining market segments, by using Recency and Fequency to rank the Monetary Value and likelihood of customers relative to each other.  This method works everywhere and is commonly used in database marketing and direct marketing.  Also, the effectiveness of The Marco Polo Club was measured by monitoring the numbers of members renew their memberships (staying at the same tier, down a tier or up a tier).  In order to clearly identify the effectiveness of the frequent flyer programmes, Cathay Pacific founded the subsidiary Cathay Pacific Loyalty Programme Ltd (CPLP).  CPLP operates The Marco Polo Club and also Asia Miles, they have their own books of accounts which allowed them to clearly monitor the profitability in operating the programs.  Before the setup of CPLP, it was difficult to distinguish the operating costs of the programs. Mr. Au also emphasized on different means provided by The Marco Polo Club and Asia Miles.  The Marco Polo Club focused on providing a sense of recognition to its “loyal” customers.  By providing different benefits and privileges to customers, loyalty of customers are enhanced and retained.  By which, investments were made in order to provide the sense of recognition:  a 24-hour toll-free service line was implemented to give prompt reply to The Marco Polo Club members; dedicated counter to serve the members; three VIP lounges located in the Hong Kong International Airport (Cathay Pacific First Class Lounge, Cathay Pacific Business Class Lounge & Dragonair Lounge); Dedicated Club Service Desk at HKIA; Personalized baggage name tags; The Club Magazine, etc.  While Asia Miles is purely a typical mileage reward program which offers flights redemption and other lifestyle redemption including wine, hotel, electronics, households, flowers, etc.  In addition to flying and purchasing duty-free products on Cathay Pacific, customers can earn Asia Miles simply by doing what people normally do everyday, including staying at hotels, spending on credit card and dining. Mr. Au explained the reason why Cathay Pacific would implement 2 different Frequent Flyer Programs.  He explained that Cathay Pacific believes loyalty programs need to focus more on enhancing the customer’s emotional quality if they are to be truly effective in improving a company’s relationship with its customer base.  He further explained emotional quality as “what drives someone to choose one brand over another when all other attributes appear to be equal.”  Mr. Au said a customer’s emotional quality was not about satisfaction alone. “Satisfied customers are not necessarily loyal customers.”  He said it had become increasingly important for Cathay Pacific to tap into a customer’s emotional loyalty because they were more likely to be good advocates and more forgiving of a brand they were emotionally connected to.  “Opportunities exist each time a customer interacts with Cathay for his or her emotional loyalty score to go up or down,” Mr. Au explained.  And emotional loyalty can be borne from negative experiences with a brand equally as much as from positive experiences.  While for Asia Miles, Mr. Au described it as ‘transactional loyalty’ program. During the interview, we were not able to obtain the actual figures that Cathay Pacific was investing in the programs, nor could the figures be found in any other sources.  However, we were able to collect approximations on the figures; Mr. Au stated that the cost of operating the programs was below 10% of total revenue. The number of The Marco Polo Club members was totaled to around 0.3 million, while the number of Asia Miles members was around 3 millions in total, according to Mr. Au. load factor = percentage of passenger per flight load factor higher, percentage of occupancy higher for the rest, all join marco polo due to the misconception that it is a mileage program or, they joined due to the transmission from elite member (dragonair) to marco polo after merging passenger load factor gives rise to the estimated number (from the interview of the cx employee) Quantitative results Within the population of target respondents, more than 90% joined Asia Miles, however, less than 10% of the Asia Miles members joined The Macro Polo Club.  This somehow explained the difference between The Macro Polo Club and Asia Miles.  The Club is more likely to be a program which emphasize on customer loyalty; whereas, Asia Miles is merely a program rewards customers on their repeat purchase, and the method of application is a lot easier, and is widely available to its customers.  Reasons for choosing different program by airline customers in Hong Kong would be discussed.    Asia Miles members tend to be more price sensitive, as some of the respondents claimed after comparing costs and benefits of choosing which airline to fly on, they prefer choosing flights of lower prices even they cannot redeem free flights with the mileage earned.  Sometimes it is less expensive to purchase a cheaper air ticket than to purchase a more expensive ticket which its mileage may not be enough to redeem a free flight anyway.  The ability to redeem free flights in a frequent flyer program is of their most concern, that is a crucial factor regarding the consumer’s behavior. The profile of the typical Macro Polo Club Members within the population of the target respondents was found to be predominantly female, aged between 25 and 29, full-time employed and with an income of HKD 20,000 or above.  All of them joined both The Macro Polo Club and Asia Miles.  However, the result is limited by its scale of research, as the total number of respondents joined The Club only totaled to 7 members, the result may not reflect the situation of the market as a whole.  business = pay by employer = can afford higher fee = might choose airline with better reputation despite higher cost leisure = more money sensitive = might choose cheaper airline despite bad reputation if really loyal, would choose cx for both busi and leisure if not, only business trip higher, not leisure   More than 57% of The Club members do fly more often on Cathay Pacific because they have joined the membership.  Whileas only 38% of Asia Miles members choose to fly more often on Cathay Pacific.  For The Club members, the membership offers them more attractive benefits, hence, they have stronger attachment to Cathay Pacific as compared with Asia Miles members.  Thereby, The Macro Polo Club as a frequent flyer programs is being more effective than Asia Miles in building customer loyalty comparatively, though the number of members is far less than Asia Miles.  But is The Macro Polo Club a success in building customer loyalty afterall? The overall rating of Cathay Pacific indicates that good services and products provided are being regconised.  Majority of respondents were impressed by high standard of inflight service delivered by cabin crews, clean and tidy cabins, and especially its strong technical and mechanical safety record; these good qualities form the base of costumer loyalty, and that is where the relationship of Cathay Pacific and its Club members built on top of.  Good qualities of an airline are important factors, without these factors, the relationship cannot be maintained; in other words, merely rewarding its customers in monetary value and without quality products and services may not retain its existing customers and attract new ones.  That is, no matter how well a frequent flyer program is modelled, its effectiveness would be triggered if it stands without a base.  The essence of an airline is very important in creating customer loyalty.  The Club members also explained that since Cathay Pacific is a Hong Kong’s carrier, apart from delivering high standard of inflight services, brand loyalty is also of concern.  Members chose to fly on Cathay Pacific because of its reputation, its brand, though the benefits of frequent flyer program contribute a bit to their decision making process.  However, some respondents claimed that they joined The Macro Polo Club due to misconception that it is a reward program, like Asia Miles.  Even though members may have joined the program with misconception, yet if the program is customized to these members, their membership may be retained, and so as those who joined due to the transmission from Elite, frequent flyer program offered by Dragonair. This loyalty, benefits which members enjoy on top of monetary rewards, can only be built to customers who are more service-oriented and less price-sensitive.    6          Discussions Customers are said to be loyal when their buying behavior remains consistent to one type of item and completely ignore the pleas of competitors. Indeed, it is a known fact that customer loyalty is beneficial to businesses. There are a myriad of ways on how this loyalty can be achieved. Previous researches have concluded that satisfied consumers are more loyal to the product as compared to unsatisfied customers (Bailey & Schultz, 2000). Accordingly, any business’s most advantageous strategic purpose is to gain customer loyalty. It has a constructive effect on company culture, development and bottom line (Dick & Basen, 1997). Customers will be able to see that the company is geared towards retaining customers through all business processes from management to staff. Aside from being a strategic purpose, gaining customer loyalty is also a key corporate challenge today especially in this increasingly competitive and crowded marketplace because of the eventual profitability it will provide especially in terms of international marketing (Chow & Holden, 1997). Every international business wants to have a regular customer base because customers dictate profits and how the customer is treated will reflect on whether the customers will remain loyal with the company or not.  Competition forces certain brand names to become stronger than others because of product loyalty and name recognition. Consumers tend to buy what is already familiar to them (Henry, 2000). Thus, it becomes imperative for retailing outfits, especially small or exclusive ones to build a steady base of customers to exist in the competitive marketplace. It has been noted that customers have both current and potential value to companies. Thus, another advantage of having a loyal customer base is that it is more inexpensive to maintain one than acquiring new customers. The cost to get new customers amount to 5-10 times more than that of keeping a customer because there are a lot more tasks to be done to acquire new customers. Having a regular customer base will shift the focus of business strategies to improvement of product and service quality among others (Bejou & Palmer, 1998). In 1999, fashion retail giant, Marks and Spencer’s (M&S) suffered a big loyalty test in Northern Ireland when customers expressed dissatisfaction about the stagnant fashion, inconsistency of sizes and high prices. Even those who considered weekly trips to M&S a must complained were greatly disappointed with the store (Flynn, 1999) In this regard, different companies are trying to establish a customer loyalty programs. Loyalty programs – built customer loyalty through other means, more than simply repeat purchase. Randall Whyte (2002) mentioned, “It was found that the schemes create spurious loyalty and that the issue is much broader than merely accepting repeat purchase as a proxy for customer satisfaction.  Rather it is the conditions and circumstances surrounding the relationship and how it is maintained that were found to be important factors.”  It is true for programs offered by Cathay Pacific.  Asia Miles, to the population of target respondents, is a reward program, which simply encourages repeat purchase through rewarding customers on their spending, as over 90% of respondents who have already joined Asia Miles claimed that reason for joining such program is because points and mileage accumulated can be used to redeem free flights.  Whereas, The Club is offered to inject customer loyalty to existing members, apart from being the Hong Kong’s flag carrier, it is also a Hong Kong brand.  Members benefit from privileges such as 24-hour access to the worldwide toll-free Macro Polo Club Service Line, worldwide lounge access, priority check-in and boarding.  By making these privileges explicit, members enjoy superiority, for which Asia Miles and other frequent flyer programs may not be able to offer.  In other words, The Club offers rewards with superiority that triggers the retention of existing customers, and attracts new customers who also love to enjoy those privileges as being loyalty to an airliner.              There are many ways in which airline companies gain customer loyalty. One way is by developing an online newsletter. This will keep customers updated of the latest developments in the company, including new products and special offers. The contact details in the site may also be improved by adding information about the profile of an airline industry; in this way, foreign customers can easily contact the company nearest to their location. A customer care section may also be placed in the website where they can easily post or send their queries or concerns. This is a good way of reaching out to customers and showing that the company prioritizes their needs. According to Ohmae (1985), this marketing practice is concentrated on the needs of the consumers. In order for this strategy to work, the company should rid its system of communication barriers and open itself to better technologies. This change will be beneficial not only by increasing company sales but also in establishing customer loyalty and better marketing activities (Aaker, 2001; Douglas & Craig, 1986). One of the approaches used by a Hong Kong airline industry as part of in order to ensure customer loyalty is the way it focused attention to the clients, specifically to the executive-class passengers. This bias in focus is ascribed by the frequency of traveling done by the executive class travelers. Accompanying the cost associated with the travel of executive class passengers the magnitude of revenues can be intensified. A simple glimpse of the a HK Airline Website would reveal the master plan of the airline. The business class passengers are focused for special packages upon their choice of traveling with the airline. On each travel stop the business class passenger makes, points are earned that qualify the passenger to various offers and gifts. Incentives to regular executive customers of the airline industry have been responsible for earning the airline customer loyalty. Airline industries gives away holiday packages, travel discounts, and unmatchable indulgence by providing the executive class with Chauffeur drivers, Express rail tickets during international travel and hotel vouchers and what not. Besides the executive class, regular customers too are catered with an exceptional level of care. The operations of management at these airline industries has assures fresh and rich food to be stocked and served to passengers while they are onboard the flights. The decision taken by the budgeting department to restructure and cutting on fuel costs have helped airline industry focus intensely on the quality of services provided onboard to maintain a positive repute amongst the customers and to achieve customer loyalty. The marketing strategy pf HK airline is complete customer orientation. The company seeks to cater each of the varied type of customers. The airline has initiated routes to a wide range of destinations all around the globe with main focus on flights from the HK to other parts of the world. Backing a network of destinations are the competitive tariffs hosted by airline industries. Another customer loyalty program requires from HK airline company is to setup a global electronic network to bring the services closer to the target customers of the airline. A 24-hour customer support group corresponds to customer queries. Online ticket reservation and flight schedules open up a great domain of options available to the prospective travelers. Discount and club cards have been a strategy to developed similar loyalty schemes in order to identify and stimulate airline industry awareness within HK. These database marketing and loyalty programmes, the ultimate promotion strategies for the retailer are powerful, highly segmented customer-oriented forms of promotions, encouraging customer retention and purchase activation.                         One of the most important assets of many firms is the loyalty of its customer base. Measures of sales and market share are useful but crude indicators of what customers really feel about a firm. Measures of customer service and brand loyalty are more sensitive and provide diagnostic value as well. One way of accessing customer needs/wants is to examine customers’ complaints and obviously try to respond to them. As far as measurement is concerned, the most important point is that the range of instruments used and their sensitivity are appropriate to the clients under scrutiny.  7          Conclusions The loyalty of existing customers represents a substantial entry barrier to would-be competitors. Excessive resources are required when entering a market in which existing customers must be cajoled away from an established brand with which they are well satisfied. The profit potential for the tentative entrant is thus reduced.      Fewer new customers are to be found in many markets which are now mature or growing very slowly. Moreover, competition is strong and the costs of getting new customers are high. Customers that have been with a company for some length of time tend, on average, to spend more on each transaction, offer more opportunities for selling them other products and services and give better recommendations to their friends and colleagues than other customers. Customer loyalty is considered to be an important driver of success and increased profitability. However, customer loyalty and customer retention need to be distinguished from one another. Customer retention reflects only repeat purchase behavior. Customer loyalty, however, is more to do with how customers feel about the firm whether they trust the firm, whether they actively want to do business with the firm and whether they will recommend the firm to others. Customer loyalty is closely related to customer satisfaction. While retention can be obtained through discounts for repeat purchase and so on, getting high customer loyalty requires greater long-term investment. It involves emphasis on achieving excellence in the service activities that augment the basic service offering. The focus of this study is directed towards the evaluation of the loyalty program of Cathay Pacific which is the Marco Polo Club or “The Club”. The objective is to understand the main mission of the airline company in offering such loyalty program and to know whether the company has been able to meet the demands of their clients using this loyalty program. Data Collected from the respondents provided answers to the queries of the researcher. The primary source of information came from interview questionnaire that were sent to the selected respondents of the study. These primary sources include the chosen passengers which were composed of 121 passengers of Cathay Pacific that adheres to the given criteria and the CRM Project Manager of Cathay Pacific. The respondent’s cooperation was fervently soughed after and its descriptive and statistical analysis was undertaken by the researcher through the descriptive research method that uses observation and surveys. The result of the study shows that loyalty program (Marco Polo Club) was used in Cathay Pacific to ensure that their consumers will remain loyal to the services being offered by the company. In addition, the result also shows that Marco Polo and Asia Miles have differences in terms of purpose. Marco Polo Club functions as a company database to collect pertinent information of different market segments that uses this loyalty program while Asia Miles is basically used as a rewards system. Marco Polo is considered as a loyalty program than Asia Miles because the members of Marco Polo Club are receiving more benefits than the members of the latter which allows Cathay Pacific to gain more loyal customers.              It has been found out the with the chosen respondents, 90% of Cathay Pacific’s clients have joined Asia Miles while less than 10% of the Asia Miles members have joined The Marco Polo Club. Such discrepancies have been considered as one of the notable information which explains the differences of the two frequent flyer program in Cathay Pacific.             With the interview process, the researcher has found out that the main objective of Marco Polo Club was to retain loyal customers who avail the services of Cathay Pacific. In addition, it has also been discovered that Marco Polo Club was also used to sustain a database which enable Cathay Pacific to determine various market segments in line with their contributions in terms of flight sectors, distance flown and revenue generated. Through this database, the company is able to provide different services, benefits and privileges to different segments in accordance with their needs and demands. The CRM Project Manager of Cathay Pacific who was interviewed revealed that in order for the company to meet its organisational goal, different benefits were provided to members of The Marco Polo Club which varied among different members. It has been found out that Asia Miles can be considered as a subsidiary of Marco Polo Club since the former has an objective of attracting clients and to encourage them for repeat purchase.  8          Future Research Directions The research was done to target respondents whose monthly income of main employment has more than HKD 15,000, yet after survey was done, it was realized that only small number of respondents’ salary is below HKD 25,000.  Future Research should be focused on monthly income of HKD 25,000 or higher, so as to give a better sample to the research as this should be targeted at higher income group. </div> Credit:ivythesis.typepad.com

Research Paper on Sustaining Airline Customer Loyalty Through Frequent-flyer Program

2 LITERATURE REVIEW This chapter will focus on the various literatures and will be evaluated and reviewed; the subje...