How Norwegian Airline segments its customer base and segments targeted

Norwegian Airlines segments its customer base based on their bargaining power (Copenhagen Business School 2011). Norwegian Airlines prefer not to increase prices and lower the quality of their service since most of their customers in the airline industry are after obtaining a high value for good quality services at lower prices (Copenhagen Business School 2011). When there are few consumers for any product in a market, consumers become more powerful but when products/ services are standardized the switching cost is usually low or as well they can opt to integrate backwards which is considered a threat to many businesses (Odoni 2015). According to the Copenhagen Business School (2011) the two segments used by Norwegian Airlines include the following:

Leisure travelers

Leisure travellers are people who travel using different means but not for work purposes (Odoni 2015). For Norwegian Airlines, the leisure travellers therefore consist of a large number of people characterized as being unique who have a variety of preferences (Copenhagen Business School 2011). At an individual level, each traveller holds an insignificant amount of power to make a business/ company provide greater service quality while maintaining lower prices (Odoni 2015). As a group, they play a significant role in any business industry considering they hold a higher bargaining power associated to the extremely low switching costs (Odoni 2015). The internet further strengthens this group of customer’s bargaining power having in mind they have access information on best low prices even when businesses boast of its brand name (Copenhagen Business School 2011). The year 2002 saw the Norwegian Competition Authority impose restrictions on frequent flier programs especially on the country’s local routes which in turn did not favor brand loyalty within this group of customers (Copenhagen Business School 2011). This was due to the reduced switching costs.

For Norwegian Airlines they consider leisure travellers as being sensitive to prices and carry the perception that the airline industry offers services which are undifferentiated (Copenhagen Business School 2011). As a result, competition is heightened as significant amounts of profits from the traditional network carriers are redirected towards low cost carriers like Norwegian Airlines. With this group’s preference for low cost carriers, it implies that when the minimum expectations are achieved by airline companies, price becomes the only variable which defines the industry (Odoni 2015). Generally, such groups of customers have redefined the industry dynamics and much pressure has been exerted towards traditional network carriers in reducing ticket prices (Odoni 2015).

Business travelers

These travellers associate their travelling to work matters (Odoni 2015). Most businesses are frequent air travellers thus their numbers contribute to a significant volume of the total traffic experienced in the industry as a result hold a stronger bargaining power taking it to their advantage when obtaining volume discounts (Odoni 2015). Moreover, business travellers are of high value to the airline industry because of their consistency in revenue flow and hold a high degree of certainty since most deals are struck through long term contracts (Odoni 2015). An example is of the Norwegian Air Shuttle who is in a long term contract with the Norwegian military (Copenhagen Business School 2011). The contract created a win-win situation for both parties since the deal was worth 1 billion NOK while the military cut travelling costs by three digit million figure (Copenhagen Business School 2011).

Unlike leisure traveller, this group of travellers tends to put less focus on ticket prices (Odoni 2015). They also put more emphasis on matters such as airline punctuality, route frequency as well as effortless ticket service handling (Odoni 2015). With the airline industry growing in to one which is global, airline carriers have resulted in to forming corporate agreements. An example is of Nordic Airlines which has opted to create a high frequency on routes that are more popular for the sole purpose of attracting business travellers (Copenhagen Business School 2011). The airline industry in Norway has over the years grown to be intense making some types of business who contract with airline carriers obtain 40 to 60% discount range depending on their contract types (Copenhagen Business School 2011). In an effort to make compensations, ticket charges for regular tickets are increased making small businesses that do not qualify to achieve discounts stand at the losing side.

Type of target marketing adopted

Currently, the company’s concept on targeting market adopted is based on providing value for money on its airline services so as to satisfy travellers within the Nordic region (Copenhagen Business School 2011). In a bid to achieve this concept, it is guided by the vision that flying should be affordable to everyone. Generally, the objective is to let numerous numbers travel by air while they enjoy a high quality travel experience characterized by low prices (Pearce 2012). There are three corporate values that affect the airline’s business and behavior. According to the Copenhagen Business School (2011) they include simplicity, directness and relevance, and the three are accompanied by other operational priorities which are safety, service and simplicity.

The company’s target marketing strategy is twofold; in that it aims at becoming the most preferable air travel service provider in its market and generating significant returns to company shareholders (Copenhagen Business School 2011). The Copenhagen Business School (2011) adds that with the following business principles adopted, the airline believes the target marketing can be achieved.

First, all of the airline’s employees have to stick to both corporate values and priorities. Second, it has an aim of attracting more travellers and stimulating the airline industry through availing operational excellence, friendly and helpful services, and low costs in operations that give rise to ticket prices which are low. Third, through it providing travellers with the freedom to select, it ensures there exists a wider market reach for some travellers will claim to be provided with more products and services from airline companies and will be willing to part with the charges. Fourth, with comprehensive and attractive routes being crucial to airline business, the company has invested efforts and resources to fly on routes which consist of business destinations of high frequency together with popular destinations visited by leisure travellers. Fifth, the company constantly monitors and works towards improving it cost base in areas where it is effective. Moreover, revenue is to be maximized through the usage of passenger revenue management. Sixth, high quality cost efficient services are achieved through the incorporation of industry leading technology. With this in place there is a high expectation that the level of convenience and comfort of customers is achieved (Pearce 2012). Lastly, the company’s brand name and efficient distribution channels make it stand out thus positively adding to its revenue.

Positioning strategy in relation to the competition

Positioning strategies are applied through the selection of a few critical areas a company can put its concentration and succeed (West, Ford and Ibrahim 2015). Additionally, the positioning strategy serves the purpose of helping firms be able to maintain a competitive advantage in any type of market. For a positioning strategy to be effective it has to take in to account a company’s strengths and weaknesses, market and customer needs together with competitor’s position (West, Ford and Ibrahim 2015). In the airline’s business operations, positioning strategies have enabled Norwegian airlines to spotlight certain areas in which competitors have failed to make an impact (Copenhagen Business School 2011). Some of the strategies employed by the company include:

Innovation

Generally, innovation will involve coming up with new and better products or processes. Creating new products entails designing products which are unique and are attributed to superiority over the existing products (West, Ford and Ibrahim 2015). Creating new processes will involve designing unique processes either for production or delivering customers the products (West, Ford and Ibrahim 2015). For the case of Norwegian Airlines its innovation is mainly based on processes (Copenhagen Business School 2011). Despite the fact that the low cost concept was introduced by the North American carrier, Southwest Airlines, and the concept being dominated in Europe by Ryanair, NAS became the first airline carrier to heavily invest on low cost flights within the Scandinavia since initially no company had tapped in to the concept (Copenhagen Business School 2011). Again, it became the first carrier in Scandinavia to provide ticketless point to point travel (Copenhagen Business School 2011). Therefore, it is widely accepted that the airline played a significant role in transforming the Nordic airline industry through the creation of new markets together with air travel demand previously not experienced (Copenhagen Business School 2011). A different process innovation brought about by NAS was the concept of long haul flights which were still cheap (Copenhagen Business School 2011). To prove its commitment to this innovation, it put to plans the creation of a subsidiary which was to take advantage of its lean cost structure and avail to its consumer’s low cost long haul flights. Routes from Oslo to New York and Bangkok were developed and effected through using two aircrafts that were leased (Copenhagen Business School 2011).

In product innovation, Norwegian airline is one of European’s leading airlines. The year 2004 saw the airline become the only company globally to sale its tickets via SMS through its partnership with Telenor (Copenhagen Business School 2011). Again, the company sought the sale of its tickets at retail convenient stores through more than 440 Narvesen kiosks (Copenhagen Business School 2011). 2012 further saw the airline become the first to provide in-flight high speed internet to travellers. Its renewal of aircrafts to a fleet only consisting of B737-800 gives it an advantage apart from enabling it make a reduction on environment pollution (Copenhagen Business School 2011). Such improvements impact quality levels and increase comfort resulting to more customer value.

Quality

Generally, the trends experienced are noteworthy. The airline has over the years improved on punctuality rates; from an initial 77% to above 80%; though it still accepts a lot has to be done for it to reach the 90% mark (Copenhagen Business School 2011). The other aspect of quality, excellence, proves to us that low cost carriers have with them business models conflicting directly with a variety of its traits (West, Ford and Ibrahim 2015). Everyone can agree to that fact that improvising a low cost airline will lead to a company to compromise on service standard expectations of customer. An example is Ryanair which has with it low levels of excellence because of their strategy of not providing everything for free, bases its operations on secondary airports and as limits on the weight of luggage their customers carry on board (Copenhagen Business School 2011). No food or entertainment is available in their flights and seat arrangements are much tighter. NAS’ service levels are higher than Ryanair’s with entertainment and food being served, and the seat arrangement being more spacious (Copenhagen Business School 2011).

Reference list

Copenhagen Business School. 2011. Strategic analysis and evaluation of Norwegian Air Shuttle ASA. [online] Available at: http://studenttheses.cbs.dk/bitstream/handle/10417/3110/kai_yung_vaarbo_og_guttorm_lindseth.pdf [Accessed 21 Feb. 2018].

Odoni, A. 2015. The global airline industry. John Wiley & Sons Inc.

PEARCE, D. G. 2012. Frameworks for Tourism Research. Wallingford, CABI. http://dx.doi.org/10.1079/9781845938987.0000

West, D., Ford, J. B., & Ibrahim, E. 2015. Strategic marketing: creating competitive advantage. Oxford, Oxford University Press.