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Lufthansa ??“ Incentives & Pricing Strategies
Lufthansa operates the most First and Business Class seats worldwide (on average 65 and up to 98 Business Class seats on the AWAY fleet). The share of corporate customers Is said to be the highest In the industry. This Is important, as an average corporate ticket results in 2. 5 times higher revenues than an average private ticket. PROBLEM IDENTIFICATION Keeping up with average industry growth rates is essential in order to constantly lower unit costs and stay competitive in the market.
As nearly all industry growth comes from the price-sensitive, private segment (corporate segments are relatively stable), this can only be achieved by attracting more private or individual leisure travelers. For many years, Lufthansa has already been advertising low prices In order to change the Image of being “too expensive for private travelers”. While, In fact, this Image was true In the ass, It does not reflect reality anymore.
Lufthansa all-Len prices are often cheaper or at least equivalent to the low-cost airlines with all their extra fees; the campaigns have resulted in slow traction so far. So again, when launching a new marketing campaign in 2011/12, the company concentrated on private traveler target groups to continue sending their low-cost message. See Exhibit 1 for examples of advertisements and TV commercials. ) unfortunately, at roughly the same time as they launched their campaign for leisure travelers, Lufthansa restructured the highly-successful frequent-flier program “Miles & More”.
Many corporate travelers (many of them status customers) complained that important features were taken away including: miles required for award tickets and upgrades were higher than before; customers felt betrayed. In combination with the new campaign, which clearly addressed private travelers and low prices, the conclusion of the corporate revelers was that Lufthansa was changing strategy and now would value private travelers more than their most important and loyal corporate travelers.
In essence, by focusing communication on price and private travelers, Lufthansa has negatively affected the perception of its business/corporate traveler segment. By advertising low prices to the leisure traveler, the perception of exclusivity held by business consumers has been declining. This perception has been compounded by the loss of certain benefits previously offered within their Miles & More frequent traveler program. Lufthansa cannot afford to lose its most profitable target audience and needs to maintain its strengths in the corporate business segment.
At the same time the company needs to reposition its brand image in order to become more attractive for private travelers and keep up with industry growth. The big communication challenge is how to make sure the corporate community understands this and continues to feel valued while in turn Lufthansa remains a “premium” brand. Additionally, it needs to emphasize to private travelers that this “premium” brand offers value-for-money to them as well. ACTION STEPS Managing Perceptions (Short-term) Lufthansa is currently trying to balance the perceptions of two customer segments.
More importantly, the perception of the business community must be managed such that they do not see Lufthansa offerings as a zero-sum game in which one segment gains at the expense of the other. In other words, business/corporate travelers must not see Lufthansa taking away benefits from corporate travelers to fund offerings for the private traveler. As long as Lufthansa keeps the benefits for the corporate travelers intact, the problem should be mitigated. Creating Positive Brand Attitudes (Short Term) Airline travel can be considered to be a highly involved service.
Corporations enter into corporate airline contracts with airliners after evaluations of competitive offerings. Lufthansa has traditionally enjoyed very positive brand equity in the corporate traveler minds and it’s become synonymous with quality and prestige. Thus Lufthansa is taking active measures to strengthen and improve its loyalty program to build (or rebuild to a certain extent) its strong, positive brand equity through the creation of favorable meanings and beliefs (about the brand Lufthansa) hat are easily accessible in consumer memory.
Maintaining Brand Loyalty (Short Term) Lufthansa has considered revamping the Miles & More program Lufthansa marketing communication efforts is seeking to confirm and bolster the positive evaluations of its brand as an airline catering to business travelers. Images and messages are attempting to focus on amenities important to business travelers such as convenient schedules, seating comfort, available workstations, airport lounges and express lines. (They are also trying to impress upon business travelers that these are amenities not available to the private traveler). Lufthansa is also trying to minimize the negative brand perceptions resulting from its expansion into the private traveler market, especially within the business community. Compensation programs for service failures such as additional miles, future upgrades etc. Are provided when necessary. Additionally, staff training is seen as a simple way to utilize The airline has discussed considering more “a la carte” solutions. Specifically using IT and tracking tools to offer special product/service packages for different target roofs, in other words offer a more customized experience.
Some of the solutions being explored include: Business traveler package: flexible ticket conditions, mileage accrual, lounge access, free in-flight Wi-If, extra hand luggage. Family package: baby stroller service at airport, boarding assistance, toys & special kids menu, extra checked luggage. “Silver Eager” (60+) package: additional information before flight (health tips, check lists etc. ), personal check-in at counter (instead of online check-in), transfer assistance at airport, language service With these activities,
Lufthansa is seeking to further strengthen its image of a high-profile airline, and offer a more customized solutions to attract and maintain a greater variety of customers. Lufthansa has to grow like any other airline in the market. The business travel segment is stable and not growing. However, the revenue and the subsequent higher profit margin provided by the business travel segment are important and critical to the overall business of Lufthansa. The leisure travel segment provides higher potential growth rate and opportunity (albeit at lower profit margin) but requires a efferent marketing approach.
So far, there is not a dilemma in sight but a need to position and communicate two different products for two different consumer target groups. The main problem started with the changes in the loyalty program which, appears to be the most important factor for choosing an airline and which most Lufthansa corporate travelers perceived as a reduction in their benefits. The perception of the business traveler is a combination of facts like De facto changes in the loyalty program and the social media feedback from dissatisfied business revelers.
The perception of this important target group counts and not the explanation of Lufthansa product managers that the current Lufthansa loyalty program is still better that any others provided by the competition. The typical corporate traveler does not care if Lufthansa focuses as much on the price-sensitive leisure traveler as long as the business traveler product and benefits remain the same or even improve. Here lies the issue which has to be solved in short term before the damage to the top line of the business becomes permanent.
Once equines travelers are moving to another loyalty program they are lost for Lufthansa. The average business traveler accepts that the “liaison” between her/him and Lufthansa will change over time; however, recently it was perceived to be out of balance. Since loyalty programs are nothing new to the airline industry, as in fact they were invented by an airline, it is interesting to see how even in old programs there is still the opportunity to innovate. And this attempt at innovation might make Lufthansa a leader all over again. Time will tell if their idea is genius or a futile waste of time and resources.