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Strategic Planning, Product Positioning and Customer Value Marketing

Theories Applications at Qantas Group

A Report By Amit Singh

ID: c3099441

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Executive Summary

Qantas was founded in Queensland in 1920 as Queensland and Northern

Territory Aerial Services. It is twelfth largest and second oldest airline in the

world. Since Qantas was privatised in 1993, it has operated profitably in

international and domestic air services and a range of related businesses.

This report has attempted analyse and discuss some of the marketing

theories such as strategic planning, product positioning, and customer value

that Qantas has applied and what benefits it obtained strategically from

applying the theory in it marketing strategy.

Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue

in 2000 provided very steep challenges to Qantas for survival. Qantas

identified this changing environment and designed its business portfolio as

part of its strategic planning. This included purchase of Impulse airline, launch

of low-cost carriers like Australian Airlines and JetStar and expansion of non-

flying businesses such as catering travel and freight. Qantas also reviewed

and re-designed its business portfolio regularly to ensure its business portfolio

best fit the company’s strengths and weakness to opportunities in the

changing environment. This included cease operations of Impulse and

Australian airlines. Through these strategies planning Qantas successfully

competed with low-cost carriers and also to reduce the risk of cannibalisation

of the mainline carrier.

Qantas offer has many competitive advantages such as safety, schedules,

seat allocation, inflight services, oldest Australian airlines, spirit of Australia

and few others. However, Qantas has positioned its product only as ‘safety’

and ‘Spirit of Australia’ because these are the only differentiations that are

important, distinctive, superior, communicable, affordable, profitable, and most

importantly pre-emptive. Product positioning cannot be built on empty

promises. Qantas very few incidents during its 88 years history has built its

brand reputation as one of the world’s safety airline. Qantas has developed

reputation as ‘Spirit of Australia, mainly because Qantas has always assisted

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Australians during times of crisis. Qantas red kangaroo logo has provided a

strong brand recognition and image differentiation.

Qantas has created and delivered customer value by providing best possible

experience to customers before, during and after the flight. As customers are

value maximisers and they see product as complex bundles of benefits that

satisfy their needs, Qantas has augmented products benefits by having high

quality inflight services, seat allocation, convenient check in, Qantas Club,

holidays packages, car rental facilities and many more. Qantas brand

reputation for safety and spirit of Australia has also played a big role in

creating and delivering customer value.

In line with all above discussions, it can be concluded that Qantas has applied

strategic planning, product positioning and customer value marketing theories

very well in it marketing strategy. However, few safety incidents within last few

months, ongoing cost cutting, outsourced maintenance agreements and

ongoing disputes with personnel have all served to undertake not only

Qantas’s reputation for safety and engineering excellence, but also

confidence in the airline as a whole. So, it is time for Qantas to refocus on the

process of creating value to customers as well shareholders through strategic

planning. If shareholders value dominates, customer value is reduced and

consumers actively look for alternatives. If customer value dominates,

shareholders do not receive sufficient value in terms of dividends and capital

growth. Hence, Qantas needs to get the optimal balance between shareholder

value and customer value through strategic planning.

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Table of Contents Executive Summary ......................................................................................... II Table of Contents........................................................................................... IV 1. Introduction ..................................................................................................1

1.1 Qantas Background..............................................................................................1 1.2 Performance and Awards.....................................................................................2 1.3 Challenges............................................................................................................2

2. Strategic Planning........................................................................................2 2.2 Strategic Planning Theory....................................................................................2 2.3 Qantas Strategic Planning ....................................................................................4

3. Product Positioning ......................................................................................7 3.2 Positioning Theory...............................................................................................7 3.2 Qantas Product Positioning Strategies .................................................................8

4. Customer Value .........................................................................................12 4.1 Customer Value Theory.....................................................................................12 4.2 Qantas Customer Value .....................................................................................14

5. Conclusion and Recommendation .............................................................18 References ....................................................................................................20

FM– Assign 2 Page 1 Amit Singh ID: c3099441

1. Introduction The purpose of this report is to analyse and discuss some of the marketing

theories that Qantas has applied and what benefits it obtained strategically

from applying the theory in it marketing strategy. The report will focus on three

marketing theories in particular. They are strategic planning, product

positioning and customer value. The report will begin with information on

Qantas’s background, performances and challenges that it has faced. The

next three sections will discuss about strategic planning, product positioning

and customer value marketing theories in sequential order, and conclusion

and recommendation at the end. Each section provides theoretical concept

detail first, followed by analysis and discussion of how Qantas has applied the

theory and what benefits it have achieved.

1.1 Qantas Background Qantas is twelfth largest and second oldest airline in the world. It is also

Australia’s largest domestic and international airline (Qantas, 2008). It was

founded in Queensland in 1920 as Queensland and Northern Territory Aerial

Services Limited. The name Qantas is derived from the initial letters of the

words in this title. Since then, Qantas has played a key role in the

development of Australian and international aviation. Qantas was privatised in

March 1993 with British Airways taking 25% stakes in the airline for A$665

million.

Qantas’s main business is the transportation of passengers. It is recognised

as one of the world’s leading long distances airlines, having pioneered

services from Australia to North America and Europe. Qantas offers services

across a network covering 145 destinations in 37 countries. At 30 June 2008,

the Qantas Group operated a fleet of 224 aircraft, comprising Boeing 747s,

767s, 737s and 717s and Airbus A330s and A320s, Bombardier Dash 8s and

Bombardier Q400. The flying businesses of Qantas Group are grouped under

two major brands – Qantas and Jetstar. In addition to its Qantas and Jetstar

flying operations, the Qantas Group operates a diverse portfolio of airline-

related businesses. These include Qantas Engineering, Airports, Q Catering,

Qantas Freight and Qantas Holidays.


1.2 Performance and Awards For the full year ended 30 June 2008, Qantas reported a record profit before

tax of $1,408 million, a 46 per cent increase on the full year to 30 June 2007.

Net profit after tax, also a record, was $970 million (Qantas, 2008).

Qantas is Australia’s leading brands with a proud history of reliability, safety,

engineering excellence and outstanding customer service. Qantas was voted

the third best airline in the world in 2008 by research consultancy firm Skytrax.

Qantas is one of only two airlines to have been listed in the top five in the

world for six consecutive years. Some of the other awards include: WAEA

Avion Awards – best overall inflight entertainment (2002, 2003, 2005, 2006),

Sky Awards – best first class cellar, best business class sparking award

(2008).

1.3 Challenges Since Qantas was privatized in 1993, it has operated profitably in international

and domestic air services and a range of related businesses (Bamber et. al,

2005). It is only because Qantas has successfully managed the challenges

that it has faced in past. Some of the challenges include: launch of low cost

carriers worldwide, and Virgin Blue and Impulse airlines in Australia increasing

competition, increasing fuel price leading to higher operating cost,

unpredictable factors like terrorism and natural disasters affecting airline

revenue (Firth, 2008). However, the report will only focus on challenged faced

by Qantas as result of launch of low cost carriers.

2. Strategic Planning

2.2 Strategic Planning Theory Most organisations operate according to some sort of formal plans. These

usually include annual plans and long-term plans (Kotler et al., 2007). The

annual plans consist of the action plan, objectives, marketing strategy,

budgets and controls for the year. The long-terms plans deal with resources,

objectives, action plans and major factors affecting the organisation during

next 5-10 years period. So, these two plans basically focus on the current

business direction and its continuation. However, the market and consumer


behaviours are dynamic in nature that always keeps changing with time. This

is where the role of strategic planning becomes vital as the strategic planning

helps the firm to adapt to take advantage of opportunities in its constantly

changing environment. According to Hamel and Prahalad (cited in Kotler et

al., 2007), the main purpose of strategic planning is to help companies

understand how they can compete for the future. To compete effectively, firms

not only must continually improve their operations but they frequently need to

reinvent themselves to remain differentiated and relevant. Strategic Planning

is defined as the process of developing and maintaining a strategic fit between

the organisation’s goals and capabilities and its changing marketing

opportunities (Kotler et al., 2007). It relies on developing a clear company

mission, setting supporting objectives, designing a sound business portfolio

and coordinating functional strategies as shown in Figure 1.

Figure 1 – Steps in Strategic Planning (Kotler et a l., 2007)

At corporate level, the company first outlines its overall purpose and mission

of accomplishment through a mission statement. This mission statement is

then translated into detailed supporting objectives outlining how company

intends to accomplish its mission. Guided by the company’s mission and

objectives, the company now selects its business portfolio (business units and

products) that best fit the company’s strengths and weakness to opportunities

in the changing environment. Each business unit has a separate mission and

objectives and can be planned independent of other business unit. In turn,

each business unit prepares detailed marketing and other plans in line with

company’s mission and objectives. For a complex organisation, strategic

planning occurs at different levels of the organisations. A hierarchy of

strategies is shown in Figure 2.

Defining the company

mission

Setting company goals and objectives

Designing business portfolio

Planning, Marketing &

other functional strategies

Business unit, product & market level


Figure 2 – The Strategic Hierarchy (Ngo, 2008)

2.3 Qantas Strategic Planning These have been turbulent times for the Australian airline industry since 2000.

It has been confronted with a marked decline in international tourism in the

aftermath of the September 2001 terrorist attacks in the United States, and

more recently in 2003, traffic loss attributable to the war in Iraq and severe

acute respiratory syndrome outbreaks in parts of Asia and Canada (Kain and

Webb, 2003). In addition to these, a significant worldwide trend in rapid

emergence of low-cost carriers was observed. Australian airline industry was

not immune to this, two low-cost carriers namely Impulse and Virgin Blue

airlines were launched in 2000. Qantas immediately felt the growing popularity

of discount air travel and reduced its fare to match start-up deals. But as

Qantas had higher overheads, the fare reductions challenged Qantas

(Bamber et al., 2005). To protect itself from the impact caused by the spread

of discount airlines in domestic and overseas markets, Qantas applied a

significant market strategic analysis and planning as discussed below.

Because of the low fare war, Qantas mission to be a leading provider of air

transport and related services in the Asia- pacific region (Firth, 2008) was

under threat. Against the background of low fare war, Qantas took over

Impulse in November 2001 and derived savings from utilising Impulse's low-


operating cost, all-economy class Boeing 717 aircraft and streamlined

staffing/work practice arrangements (Kain and Webb, 2003). The collapse of

Ansett in September 2001 left a large gap in the market, which Qantas and

Virgin Blue moved quickly to fill. After Ansett’s collapse Qantas held more

than 80 percent market share. But the Virgin Blue’s aggressive expansion

based on lower costs, which were 30-40 percent less than Qantas’s, helped

Virgin Blue to win about one third of the domestic markets within three years

(Bamber et al., 2005).

To respond to this competitive threat from Virgin Blue and to restrict Virgin

Blue and other carriers from taking more than 35 percent of domestic market

Qantas launched JetStar, low cost carrier, on 25 May 2004 and ceased

operation of Impulse airline (Harcourt, 2004). JetStar had mission to provide

consistent low fares to Australian, New Zealand and Asian leisure travelers.

JetStar’s business performed to plan in its first year to capture over 10 percent

of domestic market and contributed more than A$19 million before tax profits

in its first six months (Kotler et al., 2007). Thus, establishment of low cost

carrier (JetStar) allowed Qantas to compete with Virgin Blue on price,

especially in growing leisure markets, whilst Qantas as a full service airline to

concentrate on business markets. Qantas intended to force Virgin Blue to

respond either by reducing costs to compete with JetStar or by increasing

costs to compete with Qantas in the corporate market. This strategy, using

two brands to target different markets, aimed to close the gap at the lower end

of the domestic market and also to reduce the risk of cannibalisation of the

mainline carrier.

In addition, Qantas also expanded other non-flying businesses such as travel,

catering and freight by acquiring other businesses to expand its existing

operations (Kotler et al., 2007). Qantas also launched its new wholly owned,

low-cost international subsidiary, Australian Airlines, in October 2002 to

compete with low-cost carriers in overseas markets. The airline was

established to serve markets from which Qantas and other airlines had

withdrawn and to service inbound tourists from Asia. Australian Airlines


provides all economy, full-service flights and reportedly has operating costs

some 30 per cent lower than Qantas's international operations (Kain and

Webb, 2003). As part of strategy to focus on two strong brands – Qantas and

JetStar – Australian Airlines was ceased operation in July 2006 (Qantas,

2008).

It can be concluded from above discussions that strategic planning played a

vital role in Qantas success and survival. The strategic planning started with

mission of Qantas to be a leading provider of air transport. To accomplish this

Qantas identified the changing worldwide trend in rapid emergence of low-

cost carriers in airline industry. Guided with this, Qantas designed its business

Figure 3 – Qantas Business Portfolio (Strategic Bus iness Units)

portfolio. This included purchase of Impulse airline, launch of Australian

Airlines, JetStar and expansion of non-flying businesses such as catering,

Qantas

Group

Limited

JetStar

Asia

JetStar

Qantas

Qantas

Link

Qantas

Freight

Qantas Defence Service

Qantas

Catering

Qantas

Holidays

Qantas Engineering

Airports


travel and freight. Each of these strategic business units within the Qantas

business portfolio had separate mission and objective such as JetStar mission

was to provide consistent low fares to Australian, New Zealand and Asian

leisure travellers. Qantas also reviewed and re-designed its business portfolio

regularly to ensure its business portfolio best fit the company’s strengths and

weakness to opportunities in the changing environment. This included cease

operations of Impulse and Australian airlines. Qantas Group current business

portfolio is shown in Figure 3. Finally, Qantas used the marketing strategy to

use two brands Qantas and JetStar to target different consumers groups in

airline industry.

3. Product Positioning

3.2 Positioning Theory Product position is the way the product is defined by consumers on important

attributes – the place that product occupies in consumers’ minds relative to

competing products (Kotler et al., 2007). In other words, a product’s position is

the complex set of perceptions, impressions and feelings that consumers hold

for the product compared with the competing product. Consumers position

products with or without the help of marketers and use product position while

making a buying decision. So, it important for marketers to select and

communicate product position that will give their products the greatest

advantage in the targeted markets. Positioning a product has three steps:

identifying possible competitive advantages, selecting the right competitive

advantages, and communicating and delivering chosen position to the market

(Kotler et al., 2007).

Identifying possible competitive advantages: Consumers typically choose

products and services that give them the greatest value. If a company can

position itself as providing superior value to selected target markets either by

offering lower prices than competitors or by providing more benefits, it gains

competitive advantages. Thus, positioning begins with actually differentiating

the company’s offer so that it gives consumers more value than a competitor’s

offer. A company offer can be differentiated along lines of product, services,

personnel and image.


Selecting the right competitive advantages: If a company offer has more than

one competitive advantages, then it should only promote differences that are

important, distinctive, superior, communicable, pre-emptive, affordable and

profitable. A company should generally avoid underpositioning,

overpositioning and confused positioning errors.

Communicating and delivering chosen position to the market: Once a

company has decided on a product position, it must first deliver that position

and design appropriate marketing mixes to communicate the desired position

to the targeted consumers. Once the desired position is built, the company

must maintain the position through consistent performance, close monitoring

and adaptation over time to match changes in consumer needs and

competitors’ strategies.

3.2 Qantas Product Positioning Strategies The first step of positioning strategies is to identify possible competitive

advantages. Qantas has many opportunities for differentiating its offer and

gain competitive advantage against its competitor Virgin Blue through product

and service differentiation. As Qantas is a leading provider of air transport, the

core benefit that a customer will receive is ‘time-critical transport’. However,

the Qantas brand, which is highly associated with safety along with high

quality in-flight entertainment services, food and beverage service, convenient

flight booking system, plane seating configuration, and frequent and on time

plane schedules they all provide core benefit to consumers. Qantas is

Australia’s largest airline serving Australian since 1920 while Virgin Blue was

only launched in 2000 can be also used to differentiate Qantas offer against

Virgin Blue. Qantas’s product and service differentiation is shown in Figure 4.

Apart from Qantas image associated with safety records, the Qantas brand

image has also been associated with ‘the Spirit of Australia’. The Qantas

brand is synonymous with Australia and is regarded as part of the fabric of the

country (Brandstrategy, 2008). Qantas red kangaroo logo has provided a



Figure 4 – Qantas Product and Service Differentiation

The second step of positioning strategies is to select the right competitive

advantages: Qantas offer has many competitive advantages as discussed in

previous section and shown in Figure 4. So, Qantas needs to decide how

many differences to promote and which one so that it does not overposition,

underposition or confused position its product. Qantas should only promote

differences that are meaningful and worthy whilst meeting the selection

criteria requirements like important, distinctive, superior, communicable, pre-

emptive, affordable and profitable. Qantas product differentiation selecting

criteria matrix is shown in Table 1.

The attribute like high quality meals, inflight services, and seat allocation may

be important to some travellers while not so important for others. None of

these attributes are pre-emptive either that is the competitor can easily copy

the attribute. This is not to suggest that pre-emptive is the most critical

selecting criteria. Qantas is the oldest and largest airline in Australia, no

competitor can copy this but still Qantas does not product position as the

oldest and largest airline as these attributes are not important to most

travellers. Similarly, attributes like schedules, flight booking system, and time

critical transport are important to most travellers but yet again Qantas product

Time-critical Transport

Safety Record

Schedules Meals

Australia’s Largest Airlines

Australia’s Oldest Airlines

In-flight Services Seat

Allocation

Flight Booking System


positioning is not along the line of these attributes simply because these

attributes are not pre-emptive. Competitors can easily copy these attributes

and it will be no longer competitive advantage to Qantas. In other words,

Qantas needs to do a very careful assessment selection of attributes that will

be promoted as product positioning.

Table 1 – Qantas Product Positioning Selecting Criteria Matrix

Note: √ = Yes, X = No

It can be seen in Table 1 that ‘Safety records’ and ‘Spirit of Australia’ are the

only two attributes that meet all the selection criteria requirements. Qantas

Product Positioning Selecting Criteria Product Differences Important Distinctive Superior Communicable Pre-

emptive

Affordable Profitable

Time

Critical

√

√

√

√

X

√

√

Meals √, X √ √ √ X √ X

Inflight

Services

√, X

√

√

√

X

√

X

Safety

Records

√

√

√

√

√

√

√

Largest

Airlines

X

√

√

√

X

√

X

Seat

Allocation

√, X

√

√

√

X

√

X

Oldest

Airline

X

√

√

√

√

√

X

Schedules √ √ √ √ X √ √

Spirit of

Australia

√

√

√

√

√

√

√

Flight

Booking

System

√

√

√

√

X

√

√


competitor, Virgin Blue, cannot implant these attributes in the public’s mind

overnight using advertisements. According Unisys (2008) study Qantas ranks

in the top four most trusted airlines in Asia- Pacific region. The study also

found that safety is the most important factor to build trust in an airline. So,

Qantas is quite right to select ‘Safety records’ and ‘Spirit of Australia’ as its

brand image for product positioning.

The third step of positioning strategies is to communicate and delivering

chosen position to the market. Let us examine how Qantas is doing this.

Before Qantas starts communicating its brand image as ‘Safety’ and ‘Spirit of

Australia’, Qantas must first deliver these positions. Product positioning

cannot be built on empty promises. Qantas has some fatal incidents during

World War II while operating on behalf of Allied military force (Wikipedia,

2008). The last fatal incident suffered by Qantas was in 1951. Since then, only

few minor incidents have been reported in 1960, 1999 and 2008. This is an

outstanding safety records considering the number of fatal accidents that

other major airlines in world have gone through in last 88 years history of

Qantas. Because of this Qantas has reputation for safety and safety is a pillar

of its brand.

Qantas has also developed reputation as ‘Spirit of Australia, mainly because

Qantas has always assisted Australians during times of crisis – both in

Australia and abroad (Qantas, 2008). In recent years, Qantas responded to

the October 2002 bombings in Bali by carrying more than 4,500 people home

to Australia. In 2004, Qantas assisted with relief efforts following the Boxing

Day earthquake and tsunami, which devastated parts of South East Asia. The

airline operated special flights to Thailand, the Maldives and Sri Lanka to

deliver medical personnel and supplies and evacuate people to Australia, and

flew medical and charitable supplies free of charge. When Cyclone Larry

destroyed parts of North Queensland in April 2005, Qantas operated a special

flight to carry more than 120 volunteer tradesmen and emergency services

personnel to Cairns to help rebuild homes and essential services. Qantas has

also established ‘Sharing the Spirit’ program in 2004 to discover and foster

young Australian talent in a diverse range of creative fields.


The Qantas has been communicating its ‘Spirit of Australia’ brand image

through its red kangaroo logo. Kangaroo is national animal of Australia and

Kangaroo represent Australia in world. In addition, Qantas has also been

communicating ‘Spirit of Australia’ brand image through various charity and

community work, and supporting Australian sports. Qantas is the naming

rights sponsor of two of Australia’s premier national sporting teams – the

Qantas Wallabies and Qantas Socceroos. There is no greater testament to

represent Qantas’s the 'Spirit of Australia’ image in their hugely successful 'I

Still Call Australia Home’ advertising campaigns.

4. Customer Value

4.1 Customer Value Theory

Consumers have needs of various kinds. This is the most basic concept

around which marketing revolves. Consumers satisfy their needs with

products and services. But consumers usually find a broad range of products

and services that might satisfy a given need. There is when the role of

customer value becomes vital. Consumers make their buying decision based

on their perceptions of the value that various products and services provide.

The concept of product is not limited to physical objects. The importance of

physical goods lies not much in owing them as in the benefits they provide.

Consumers view products as bundles of benefits and they buy the product

that give them the best bundle for their money. In other words, consumers

choose the marketing offer that they believe gives them the most value. The

consumers are value maximisers. So, really is a customer value?

Customer value is the difference between the prospective customer’s

evaluation of all the benefits and all costs of an offering as compared to the

perceived alternatives (Kotler et al., 2007). This is also called customer

delivered value. Any company can create customer value by selling their

products and services for free or at reduced price. However, this is not called

customer value. Customer value is about creating and delivering values to

customers while managing profitability for the company at the same time.

Determinants of customer delivered value are shown in Figure 5.


Figure 5 – Determinants of Customer Delivered Value (Kotler et al., 2007)

Total customer value is the perceived monetary value of the bundle of

economic, functional and psychological benefits customers expect from a

given market offering. Similarly, total customer cost is the bundle of costs

customers expect to in occur in evaluating, obtaining and disposing of the

given markets offering. Customer will buy the marketing offer that the

customer believe delivers highest customer value after taking into account of

both total customer value (benefits) and total customer cost (costs). Branding

is an important part of product and branding add customer value. Brand name

allows customers to associate benefits that they receive from the product and

to differentiate the product from those of competitors. After purchasing, the

customer makes some assessment of the value they think they have received

from the product, and this judgment will influence their satisfaction and future


buying behavior. Understanding of these concept are very important to

marketers as it provide they opportunity to assess the total customer value

and total customer cost associated with each competitor’s offer to how their

offer rates in the buyer’s mind. If their offer value is poorly rated in customer’s

mind then marketers can increase the offer value rating by increasing the

benefits associated with product (total customer value) or by decreasing total

customer cost. On the other hand, if marketer is aware that their offer value

is highly rated in customer’s mind then marketer can charge a premium over

the competitor’s offer.

4.2 Qantas Customer Value Let us examine how Qantas is creating and delivering customer value while

making profit at the same time. When a customer buys a Qantas air ticket for

Hong Kong, the customer receives a Qantas air ticket and a seat on a plane

as product and service. Qantas’s competitor Virgin Blue can provide an air

ticket and a seat on a plane. So, the real question is why would a customer

buy Qantas air ticket? From customers’ perspective, they are not just after the

air ticket and a seat on a plane and customers tend to see product as complex

bundles of benefits that satisfy their needs. Customers are after value that

they can receive before, during and after the flight. Some consumers might

buy air ticket from supplier who has better flight booking system and

convenient check in facilities. Some other consumers might buy air ticket

from supplier who has better in-flight services, are more reliable and has

better safety records. Similarly, other group of consumers might buy air ticket

from supplier who has car rental facilities at the airport. To consumer, these

augmented benefits become an important part of the total product value and

will contribute to their choice of airline for their purchase of air ticket.

Qantas is well capitalised on augmented benefits that it provides to customer

for creating and delivering customer value. Qantas website www.qantas.com

has been recently awarded best website customer experience by Global

Reviews (Qantas, 2008). E-ticket and QucickCheck facilities are available at

domestic airports allowing check-in to complete in less than 60 seconds for


customers without baggage. Customers use kiosks to access and review their

booking, select a preferred seat if available and to obtain a boarding pass.

Qantas has also opened Qantas meeting room at Sydney and Melbourne

terminals. Customers who expect service before flight can join Qantas Club.

For holiday lover customers, Qantas has a dedicated Qantas Holidays branch

that sells holiday packages to destinations throughout Australia and around

the world. Frequent flyer scheme is there for customers who like the idea of

receiving a bonus points from flying with Qantas. Best first class cellar and

best business class luxury awards in 2008, and best overall inflight

entertainment and service award by WAEA Avion from 2002 to 2006 are very

good indication for customers who are after inflight services. Qantas also has

car rental facilities available from airport to make customers experience better

after the flight. In other words, Qantas has designed their product and found

ways to augment it in order to create and deliver bundle of benefits that will

provide the greatest value for consumers. Every customer will find matching

benefits from the bundle of Qantas’s benefits that will satisfy their need.

Figure 6 – Qantas Airline Augmented Benefits (Ngo, 2008)


This is important because value that customer assigns to a benefit may be

different for different customers. Qantas brand reputation for safety and spirit

of Australia has also played a big role in creating and delivering customer

value. Qantas air ticket benefits associated with customer value are

summarised in Figure 6.

Now let us examine what customer value Qantas is delivering against it

competitor Virgin Blue using determinants of customer value. For value

column, ‘10’ represents best value and ‘0’ represents worst value. Similarly,

for cost column ‘10’ represents most expensive and ‘0’ represents least

expensive. Beginning with image value, a reasonable customer will highly rate

Qantas image because of its brand reputation for safety and spirit of Australia

while Virgin Blue is still searching for brand representation. Hence, 8 point has

been allocated to Qantas and 3 point to Virgin Blue for image value as shown

in Figure 7. Similarly, Qantas has highly rated personal value, service value

and product value because of its high quality call centre, inflight service, and

reliability and safety of its operation. Virgin Blue, on the other hand, being a

low cost carrier does not provide good quality services and reliable

operations. Points have been allocated accordingly for personal value, service

value and product value categories for Qantas and Virgin Blue, and are shown

in Figure 7.

Psychic, energy and time costs will be identical and very minimal for both

Qantas and Virgin Blue because customer can obtain air ticket price by calling

travel agents or by looking at company websites. Accordingly, 1 point has

been allocated for these categories. The actual air ticket cost for Qantas is

quite high as compared to Virgin Blue. Hence, 8 points has been allocated for

Qantas and 4.5 points for Virgin Blue. Point allocations for all determinant of

customer delivered value is shown in Figure 7.

It can be seen from Figure 7 that Qantas has customer value 11.5 points more

than its competitor Virgin Blue. But it does not mean that customer will always

buy Qantas ticket. Customers operate under various constraints and they are

after different benefits. For example if customers considers ticket price being


the only factor, then they are more likely to buy tickets from Virgin Blue.

However, customer delivered value is a useful framework that applies to many

situations and yields rich insights. It has implications for both Qantas and

Virgin Blue. For Virgin Blue, if they want to compete with Qantas they need to

increase their customer value. Virgin Blue can do this either by increasing

total customer value (benefits) or by reducing total customer cost. There is

nothing much Virgin can do to reduce total customer cost because it is already

the least expensive. Hence, Virgin need to focus on augmenting their offer’s

product, services, personnel and image benefits.

Figure 7 – Qantas Airline Customer Delivered Value


For Qantas, it is important to understand that customers value their offer more

than Virgin Blue so that they can charge a premium over Virgin Blue. This is

exactly what Qantas is doing and this explains why Qantas ticket is expensive

than the Virgin Blue. However, Qantas needs to be aware that if it charges too

much premium then customers might decide that the high price of Qantas

can’t be justified and that a competing Virgin Blue offer provides better value.

5. Conclusion and Recommendation Qantas was founded in Queensland in 1920 as Queensland and Northern

Territory Aerial Services. It is twelfth largest and second oldest airline in the

world. Since Qantas was privatised in 1993, it has operated profitably in

international and domestic air services and a range of related businesses.

This report has attempted analyse and discuss some of the marketing

theories such as strategic planning, product positioning, and customer value

that Qantas has applied and what benefits it obtained strategically from

applying the theory in it marketing strategy.

Global trend in rapid emergence of low-cost carriers and launch of Virgin Blue

in 2000 provided very steep challenges to Qantas for survival. Qantas

identified this changing environment and designed its business portfolio as

part of its strategic planning. This included purchase of Impulse airline, launch

of low-cost carriers like Australian Airlines and JetStar and expansion of non-

flying businesses such as catering travel and freight. Qantas also reviewed

and re-designed its business portfolio regularly to ensure its business portfolio

best fit the company’s strengths and weakness to opportunities in the

changing environment. This included cease operations of Impulse and

Australian airlines. Through these strategies planning Qantas successfully

competed with low-cost carriers and also to reduce the risk of cannibalisation

of the mainline carrier.

Qantas offer has many competitive advantages such as safety, schedules,

seat allocation, inflight services, oldest Australian airlines, spirit of Australia

and few others. However, Qantas has positioned its product only as ‘safety’

and ‘Spirit of Australia’ because these are the only differentiations that are


important, distinctive, superior, communicable, affordable, profitable, and most

importantly pre-emptive. Product positioning cannot be built on empty

promises. Qantas very few incidents during its 88 years history has built its

brand reputation as one of the world’s safety airline. Qantas has developed

reputation as ‘Spirit of Australia, mainly because Qantas has always assisted

Australians during times of crisis. Qantas red kangaroo logo has provided a


Qantas has created and delivered customer value by providing best possible

experience to customers before, during and after the flight. As customers are

value maximisers and they see product as complex bundles of benefits that

satisfy their needs, Qantas has augmented products benefits by having high

quality inflight services, seat allocation, convenient check in, Qantas Club,

holidays packages, car rental facilities and many more. Qantas brand

reputation for safety and spirit of Australia has also played a big role in

creating and delivering customer value.

In line with all above discussions, it can be concluded that Qantas has applied

strategic planning, product positioning and customer value marketing theories

very well in it marketing strategy. However, few safety incidents within last few

months, ongoing cost cutting, outsourced maintenance agreements and

ongoing disputes with personnel have all served to undertake not only

Qantas’s reputation for safety and engineering excellence, but also

confidence in the airline as a whole (Hogan, 2008). So, it is time for Qantas to

refocus on the process of creating value to customers as well shareholders

through strategic planning. If shareholders value dominates, customer value is

reduced and consumers actively look for alternatives. If customer value

dominates, shareholders do not receive sufficient value in terms of dividends

and capital growth. Hence, Qantas needs to get the optimal balance between

shareholder value and customer value through strategic planning.


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