Using global segmentation

to grow a business
Learning outcomes: Introduction United Airlines Although airline travel experienced consistent growth since 1991, its
business environment is susceptible to shock events. The events of
As a result of carefully reading this case study, students should be Today we live in a global community as global citizens where we have United Airlines was formed in 1927 from four airlines – Boeing Airplane
able to: 11 September 2001 led to a decline in air travel for both business and
become increasingly conscious about sharing the planet with people Company, National Air Transport, Varney and Pacific Air Transport.
from other cultures and backgrounds. In this global community where From its roots as a USA domestic carrier, United Airlines expanded into pleasure. This decline is likely to be temporary, but it has had a huge
provide a brief understanding of the notion of impact upon airlines like United. Major airlines carry huge fixed costs.
global citizenship so many technologies are shared, distances and time barriers have international routes to become the world’s second largest air carrier. With
shrunk. Not only can we use information technologies to e-mail, phone hubs in Chicago, Denver, Los Angeles, San Francisco, Washington D.C. Faced with excess capacity, they have had to respond quickly in order to
learn about the importance of customer service in or fax friends, family and colleagues in other parts of the world, we can and key international gateways in Tokyo, London, Frankfurt, Miami and remain profitable.
targeting customers within a service-based industry also use reliable and regular travel links to visit them, covering vast Toronto, United flies to 117 destinations in 26 countries. These schedules Airline operations are also affected by a number of regulatory bodies
understand the principles and practices of market distances in a matter of hours. are obviously subject to change. United employs more than 80,000 people
such as:
segmentation as well as the operation of a segmentation base worldwide and carries more than 210,000 passengers every day. Its
Whereas in the past travelling by air was, for many people, an
customers have access to more than 729 destinations around the world Aviation authorities that monitor maintenance, safety
relate process and practices of segmentation to a large experience more often than not associated with an annual family
through Star Alliance, the leading global airline network. and standards.
service-based business holiday, today air travel has become a way of life both for business and
leisure. One frequently quoted estimate is that demand for air travel By offering a range of customer-focused products and services, United
understand the service life-cycle. The Air Transport Users Council, which promotes the wider
will double in the next 20 years. As a result more and more people do has become an industry innovator. In a service-based industry,
interests of passengers.
not just need regular air travel, but also the type of travel that meets customers and the services they require are at the centre of any
their particular needs best. For example, unlike the manufacture of marketing strategy. Besides offering convenient scheduling throughout
tangible goods such as shampoo or bread that have clear uses, providing its domestic and international routes, United seeks to attract high-yield National governments, which may limit access to certain routes
travel opportunities is more sophisticated as it involves providing customers and to earn their preference and loyalty. It does this by i.e. between Denver and Heathrow, where the Bermuda 2 agreement
customer service to match the expectations of travel users. providing a comprehensive network and an attractive frequent-flyer between the USA and the UK limits the number of carriers.
programme with enhanced product/service offerings.
This case study focuses upon how United Airlines uses customers’ Office of Fair Trading, which investigates the desirability
motivations for different types of services to segment the market and
improve its competitiveness.
The external business environment of potential links between airlines. e.g. between bmi and
A company’s marketing environment can be complex. It includes United Airlines.

LEVEL EXPERIENCED
opportunities that could enhance a business as well as threats from The need for segmentation
outside the organisation that affect the ability of managers to develop
Within markets, not all customers are the same – they have different
Customer Service Level

and maintain relationships with customers. United Airlines operates in

tastes and want different things. As a result, particular markets can
a competitive market place. It has to compete with a range of other
usually be further divided into discrete segments. Each group consists of
carriers across all routes and must decide how it is going to compete.
HT people with similar needs and requirements. The organisation then
IG For example, more frequent services, more destinations, more
DEL comfortable seating, superior food, lower prices etc. develops strategies that are closely aimed at satisfying each customer
ER LEVEL group. This process is known as market segmentation.
TOM EXPECTED To compete successfully, United Airlines must provide its customers with
S Through segmentation, United Airlines can identify market
CU
greater value and satisfaction than its competitors. This involves finding out
what aspects of service most matter to customers and then positioning its opportunities and meet its marketing objectives. Segmentation gives an
services strongly in those service aspects. Managers at United Airlines airline a better understanding of its customers, the services they require,
constantly monitor competitor activity in order to maintain its market where and when they want those services and how they would prefer to
Time
position, whether through prices, schedules or route networks. pay for them.

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 United Airlines segments its market so that it can: GLOBAL SEGMENT TARGETING Tour takers: want everything arranged for them. Like the product life-cycle, the service life-cycle needs constant
injections of life to extend the growth phase and increase the
identify consumer needs and the proportion of customers who Quality vacationers: treat the travel as part of the holiday experience
profitability of the organisation.
have those needs and so fly with carriers that provide superior services.

develop products and prices to meet these needs Travel seekers: love to travel and seek out new experiences. They want Conclusion
travel to be comfortable.
target communications at customers within each segment United Airlines recognises that airlines need to be able to respond
Frugal flyers: seek out the lowest cost carriers, but still expect their
allocate funds to support and develop each market opportunity. flight experience to be a good one. rapidly to changing customer requirements in what is a complex service
industry. The company understands the role of technology in enabling
Market segmentation therefore enables United Airlines to maximise Having identified these segments, United Airlines had to decide on it to amass the data it requires about customer requirements. In a
the efficiency of its marketing efforts by moving the company to use a which ones to concentrate. One key factor was the potential of each
Quality Schedule Global Mile Corporate heavily regulated and increasingly competitive market place with good
sector to generate not only revenue but also profit. In some segments,
different strategy for each market segment. Vacationers Optimizers Executives Accumulators Troopers prospects for long term growth, United Airlines successfully uses
such as global executives, the customer profile was clear-cut regarding
market segmentation to target distinct customer groups from whom
who they were and what they required so compiling a package of
The base for segmentation services for them was comparatively straightforward. However, some growth opportunities can be developed.
Segmentation involves dividing up a whole market so that products and segments were less responsive to key benefits and it proved harder to
services can then be developed for each part of the market. Some identify precisely what they were most looking for. GLOSSARY
companies divide up a market geographically, while others divide With global executives as the target market, the airline also developed
markets according to demographic details such as age, gender or Competitive market place:
packages for schedule optimizers, mile accumulators, travel seekers,
occupation. The criteria used to divide the market is known as the corporate troopers and quality vacationers. A market place in which there are several producers supplying
Travel
similar goods or services.
segmentation base. Seekers

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Meeting customer needs Customer service:
United Airlines uses a form of psychographic segmentation to divide up Marketing Targets Tactical Consumption Targets
In an industry in which the service provided is a major form of Process that provides time and place benefits for the customer
the market for its services. This involves identifying the social class, pre-transaction, during the enjoyment of the product and
The United Airlines business model can be compared to the classic competition, the most successful airlines will be those who most
lifestyles, opinions, interests, behaviour and attitudes of customers. accurately identify what different segments of their customer base want post-transaction.
Modern communication systems play a major part in this information- 80:20 rule in Pareto’s Analysis. Based on experience of the airline
and are willing to pay for, and then provide it, usually within one Global citizens:
gathering exercise. With the help of questionnaires, United Airlines industry, the model assumes that, for airlines offering a high level of aircraft. The end product is complex. For example, United Economy
service, 80% of profit comes from 20% of customers. The profit- Global community of people who share resources of the earth
classifies its customers by their motivations. For example, some International provides services such as multi-course meals based upon whose actions are increasingly interdependent with people from
customers choose United Airlines because of price, while others choose generating customers are the ones who are prepared to pay a premium consultation with celebrity chefs, brand name beverages, multi-lingual other countries, cultures and backgrounds.
the airline because of schedules, frequent flyer programmes or other price for a premium service. They are the ones that the airline most flight attendants, Mileage Plus® programmes and entertainment
needs to attract. systems. The services offered by United Business International and Market segmentation:
forms of service.
United First International include built-in entertainment centres and a Dividing the customers within a market into groups, each of which
greater amount of private space. has distinctive needs and expectations.
For United Airlines, successful segmentation enables targeting to take Global segmentation and growth strategies
place. Targeting provides the focus for the activities of the business. There are clear differences between domestic segments and global Marketing environment:
It enables promotions and services to be aimed only at those who are most segments. For example, international segments might differ by hours
The service life-cycle Organisations and forces outside the business that affect the ability
likely to respond positively to them. Passengers are communicated with rather than minutes in the US, and the cost of domestic travel is also In general, depending on the size of the company, service providers can of managers to develop and maintain relationships with targeted
through email which is becoming a focus for closely-targeted marketing. significantly lower. In global segments United Airlines identified modify their offer more quickly than manufacturers can alter customers.
nine motivational segment their products. United Airlines’ ability to fine-tune its services rapidly
Pareto’s Analysis:
profiles. These are: in response to changing customer needs enables it to retain its
market position. Growth strategies also depend on a capacity for Classic example of the 80:20 rule by which 80% of the level of
Global executives: face ‘rapid response’. profit is determined by 20% of customers.
frequent business travel and Positioning:
Service adjustments may involve, for example:
enjoy it because of the high Placing a product within the overall market e.g. at the ‘no frills’ end
level of service. expanding the range of services for some segments or at the ‘luxury’ end of the market.
Schedule optimizers: must modifying how a service is delivered Psychographic segmentation:
reach their destination by a re-positioning services in chosen segments Segmentation according to social class, lifestyle, activities,
certain time and select their opinions, behaviour or traits.
flights accordingly. differentiating services even further from those of competitors
Segmentation base:
Corporate troopers: use an finding untapped markets for services. The criteria used to divide up a market into a number of segments.
airline and a class of travel Targeting:
that has been chosen for them Developing strategies for particular segments.
by their company.
Sales
Tangible goods:
Mile accumulators: go out of Goods that have clear uses but no services attached to them.
their way to take flights that Lagards
will build up their air miles
Majority
entitlement.
Early Adopters For further information about Amway please browse:
Reluctant travellers: do not
enjoy travel and look for Innovators
services that will make the
experience bearable e.g. www.unitedairlines.co.uk
special privileges and Time
frequent flyer programmes.

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