IT’S GETTING REALLY HOT UP THERE

Disclaimer: Contents in the blog are strictly based on my opinions and are not meant to offend anyone. You are most welcome to agree or disagree on any of the points. Also please ignore the grammar mistakes, if any.

Yes guys I know it’s getting really hot but I am not talking about the season but the Indian Airline Industry, especially the low cost carriers. Few days back, we saw a new player in the airline industry i.e. AirAsia and it not just simply entered but entered with a bang. It initiated the price war even before its debut in the market. They offered the flight ticket from Bangalore to Goa in just 990 bucks i.e. just 100 bucks extra compared to a 3^rd AC train fare.

AirAsia was a new entrant in India and what they chose as their USP – Lowest Fare. No doubt, they are famous world over for their frugal cost structure. But I am afraid that by offering lowest fare they will be able to gather any loyal customers. AirAsia really had an advantage as it was the “NEW” thing. They could have differentiated themselves on the basis of service or something else but price. This initiated a price war between low cost carriers. But AirAsia didn’t know that other low cost carriers are the older players in this race.

Other low cost carriers also reduced their fares to hold on to their market share as in this industry market share is given utmost importance over profits. This is also clear from their annual reports. Many low cost carriers have reported annual losses from past 3 to 4 years. And still they are fighting the price war. In Business world, there is a saying – “Aggressive competition is good till the time it doesn't hurt you.”

But there is one very important point which we are missing. Suppose you need to book an air ticket. So what you will do, you will go to an online travel website, type in the source, destination, travel date and class. And then you select the airline offering lowest fare. And let’s suppose if the fares are exactly same (rare case, there is always some difference), then you see the timings but never the Brand. The emotional contact between the Brand and the customer is missing here. Till now, all the low cost carriers focused upon the promotional fares. They never tried to build a relationship with their customers. There is no differentiation among so many brands existing currently in the market and I wonder why no one is even trying to do it. Even their official websites are almost alike and look what Virgin America has done with its official website here. They have tried to better the flight booking experience of their customers.

Doing a little extra doesn't mean that you really need to hike your fare to compensate for. No not at all. For e.g. when people wait in cues to get their boarding passes or when they are waiting for their flight, do something to entertain them like Disney does so that they don’t feel bored. Flight journey is very boring, and so you can try to do something different to make it memorable. All this will make an emotional bond between your brand and the customer. And the next time when the customer will book the tickets, most likely he/she will favor your brand because they have some good memories related to your brand. Here, I would like to quote an example of WestJet Airlines. It is a Canadian low cost carrier which surprised their customers by fulfilling their Christmas wishes. Here's the video.

Although AirAsia have now increased their fares (may be they have foreseen the future impact on their operational profits) but on the contrary its competitors are still keeping their fares comparatively low. As if they are saying – “So what if you initiated the war, it will be ended by us.” But will this strategy be profitable for them.

We all know Game Theory. We know that in an infinite game, it is in the benefit of the players to compromise with each other. This is also an infinite game. Airlines can give indirect signals to their competitors to increase their prices. And if all agree then just focus on your services and try to build a relationship with your customer. So that next time someone needs to travel, he/she travels by your flight.

The only point which I am trying to make is that just by differentiating yourself on price, may help you a little in short run but won’t be beneficial for you in the long run. Also if you will increase your prices afterwards, your customers may shift to other brands as they were not Brand Loyal. So you need to create an identity, an image, a perception from the start, which no other brand can copy.

Think Different. Do Different. Be Different.

Thank You

Rishabh Bhardwaj

PGDM 2013-15

IIM 

And They Say "The Sales happen only because of US"!!!

Disclaimer: Contents in the blog are strictly based on my opinions and are not meant to offend anyone. You are most welcome to agree or disagree on any of the points. Also please ignore the grammar mistakes, if any.

Hi guys, as you all know that currently two summers are going on. One is the season and the other is the internship of MBA students.

So guys those of you who are currently working in Marketing & Sales profile, you might have heard this line many times, “Sales department is the most respectable department as we are the people who generate money for the company.” Here, I am specifically talking about those companies which are selling products meant for sale to end customers via distributors/retailers.

Before moving ahead, let’s first understand the working of Sales department. Their basic job is Channel Management i.e. to make sure that whether their company’s products are available with the distributors/retailers or not. They just try to push the products to dealers. They are not involved in the final transaction between retailer and customer. It is the dealer’s responsibility to sell that company’s products.

Now, let’s understand the dealer’s point of view. What is the dealer's incentive to sell your product first compared to other brands? It generally depends on two things. One is the margin, which the dealer is getting by selling your product and second is the service provided by the company to the customers.

In today’s competitive market, generally the margin is kept almost equal by the competitive brands. So the focal point is service. Now, there are different criteria on the basis of which a company provides the service. One can be the Direct Service Centre of the company. Customers directly call there and get their complaints resolved. In this manner, dealers feel safe as the relationship between them and customers remain intact. Other way is that customers need to register their complaint with the dealers (from where they purchased the product), then the dealers will call the company. Then a service person will come from the company, will examine the product, and then take the product with him for further checking. During all this, customers need to wait and they get frustrated when that product comes in daily use. This also puts the relationship between customers and dealer at risk. Because if there will be delay from the company side, then the customer will hold the dealer responsible and this will affect their relationship. So, it’s simple. Dealers will prefer to sell that brand which will give a considerable margin and best in class after sales service.

Now, what happens is that local brands (talking about brands which have strong roots only in specific regions) generally offer comparatively more margin and better after sales service to their customers which put branded products on the back-list. According to me, either make your branding so strong and after sales service so good, that customers are not swayed by anyone and directly ask for your brand or make good relationship with the dealers so that they give first preference to your brand. But it is better to give priority to first option as it won’t leave anything on chance, although you should maintain good relationship with your dealers as well.

Actually, it’s the Branding/Marketing (in some companies, Branding is a separate department) department which creates the need among the customers, which makes the customers aware about the brand, etc. etc. Let me clear one thing that at the end it’s also not the Branding alone but the Holistic Marketing which is responsible for generating revenue for the firm. Sales department job is to make sure of the availability of the products at the purchase point and rest everything depends upon your Branding, Marketing, etc. etc So, making the product available at the retailer’s end does not ensure sales but also if there is no availability of product at retailer’s end then the Branding won’t do any good.

Finally, we can conclude that it is not the Sales department alone which is responsible for the sales but the Marketing department as a whole. And this absolutely doesn’t mean that Sales department is of no use. They are the ones who have to listen a lot from the dealers, have to do a lot of field work, lot of phone calls, etc. So, yes they are respectable.

Thank You

Rishabh Bhardwaj

PGDM 2013-15

IIM