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Executive Summary
The aim of this paper is to investigate the impact of customer relationship management in the airline industry and its contribution to the success of the business with a case study of Cathay Pacific Airlines. In order to explore this topic area, the introduction of this paper focuses on the background of the research, rationale for the research, significance of the study, objectives of the study, research questions, and signposting.
Moreover, the literature review deals with the conceptual framework of CRM, configuration procedure, strategies, and doctrines, ineffectiveness of the conventional approach, improvement of performance in service industry through CRM approach, measurement and evaluation process of the effectiveness of this concept. Conversely, the research methodology formulates with an introduction, definition of research methodology, research design, quantitative and qualitative research approach, research philosophy, primary data, secondary data, sample size, data collection procedure, data analysis process, questionnaire design, ethics, reliability and validity of the research, scopes of the study, and limitations of the study.
In addition, the data analysis and findings chapter focuses on the background information of the company considering secondary data, analysis of the collected primary data and findings, and responses of the research questions. Finally, the conclusion chapter revisits the objective of the research and links that to findings for primary data and the literature as well as concentrating on the responses to research questions and to provide appropriate recommendations, which are action-based solutions to problems.
Introduction
Background of the Research
CPAL (2009) mentioned that the Cathay Pacific was established in 1946 as a domestic airline company registered under the jurisdiction of Hong Kong and now it is a globally activate aviation giant that operating cargo and passenger flights form 114 airports in 35 countries with successful track record within the industry. The company also involved with technical service for flight maintenance along with ground handling; at the same time, it has involved bulk investment to turn Hong Kong as an excellent cargo hub maintaining with global standards.
The company has strong accord with the aviation sector of China main land by owning a substantial share of the national carrier Air China and it also possesses another subsidiary Dragon Airlines that operate in ten different countries with strong base in the home country. The company has 152 ultramodern aircrafts including its subsidiary Dragon, the number of people serving in the company is about 20,000 at the home country and a large base of workers in the international service points (CPAL, 2009).
With substantial profitability, the company has listed in the Hong Kong Stock exchange and its shares are traded with higher demand in the market, although the global financial crisis has shocked its market price. Due to increase fuel price, unparalleled competition and recessionary impact seriously shocked the companys sales revenue for which the company is eager to improve customer relationship management with the aim to gain the success of the business under the present environment.
Boland et al. (2003) pointed out that the terrorist attack of Nine-Eleven and concurrent global financial crisis had generated serious threat on the sustainability, and economic feasibility of airline industry in the USA, Europe, and rest of the world. As a whole the airlines industry is striving to recapture and get better profitability by improving their service quality, but initiative to reduce operational cost is a conflicting dilemma for the industry.
As cost reduction and service quality improvement cannot go ahead together, the industry has aimed to emphasis of the customer relationships as a strategic tool to achieve competitive advantage with the hope of gaining profitability in long-term. Boland et al. (2003) also added that the historical evidence of the airlines industry demonstrated that this sector has failed to recognise CRM as a management tools to design long-term strategy, but maintained it as a synonymous approach like other frequent promotional offers.
Thus, the industry belongs to huge gap with the long-term output of CRM and required to have vast research in the area of CRM with the aim to re-engineering their strategy in this regards and to gain competitive advantage under the concurrent recessionary economy.
Rationale for the research
The researcher of this dissertation has not very close working relation with the Cathay Pacific, but the author has travelled several times with this airlines and was really impressed with its in flight services, event their regular communication with the author has turned the author to think that Cathay Pacific is the nest of happiness on air. The authors personal feeling to the airlines is that it is his own airlines and it is his moral obligation to contribute Cathay Pacific to improve its CRM.
During the study of CRM for the academic needs, while the question of selecting an aviation industry rose, Cathay Pacific came to the researchers mind above all, thus, the author has aligned to have an investigation with the CRM status and its effectiveness for business success of Cathay Pacific. Thus, the focus of this dissertation is to choose the case study of Cathay Pacific to evaluate effectiveness of CRM for business where the author has an evaluative position to determine his personal likings and interest; however, the readers would get better feelings to go through the dissertation by knowing the authors reason of interest.
Significance of the Study
The aviation industry is under enhanced pressure to gain its competitive advantage with different strategic alignment due to raising fuel price, recessionary economy and unparalleled competition for which the author considered it significant to conduct a study with the impact of CRM in the airline industry and it contributes to the business success where Cathay Pacific is a case study.
There are huge professional and academic studies on airlines industry as it is one of the most significant sectors of the global economy and the demand of airlines is escalating dramatically, for instance, average growth in last five years was around 58%. However, Cathay Pacific is one of the global market leaders in this industry, which is committed to deal with large aviation projects to play imperative role for the development of the Chinese economy. However, CRM of Cathay Pacific has established in order to enlarge existing customer base and to construct new sustainable connection with the customers in long run in very effective manner to maximize the revenue and growth of the company. As a result, it is significant to conduct the research to enhance the practices of customer relationship management at Cathay Pacific Airlines
Aims/ Objectives of the study
The main objective of this dissertation is to examine how customer relations have changed in the airline industry within the last ten years, taking particular interest in how Cathay Pacific has changed its approach to treating customers in order to keep up with competition from rivals from the Asia-Pacific region and from the entire world. Rather than the main objective, this dissertation has goals and aspirations for the following aspects
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To evaluate theory of CRM.
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To find out the CRM practices of Cathay Pacific Airways.
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To evaluate the relationship, impact of CRM with the company.
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Finally, to provide recommendation for this dissertation.
Research questions
With the prospect of gaining above-mentioned objectives, this dissertation would investigate with following research questions
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What is the best CRM approach designed and practiced in the global airlines industry;
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How the effectiveness of CRM approach are measured;
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How the CRM approach could improve the performance measure in the service industry;
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To what extent the CRM approach of Cathay Pacific are effective.
Brief Methodology
The author of this dissertation has aimed to conduct survey for both the customers and employees of Cathay Pacific including few managers, to conduct the customer survey this paper would follow Quantitative approach and for employees survey the author would use qualitative research approach with open end questionnaire. To collect primary data, the author would distribute questionnaire through fax, e-mail, and postal service to the headquarters of Cathay Pacific in Hong Kong and other station and regional offices in different location including United Kingdom, while for some instance, the author has to interview over telephone.
To conduct customer survey, the author would contact station manager of Cathay Pacific Airline at Heathrow airport Terminal three with the aim to distribute questionnaire among the in-flight passengers. For secondary data, this dissertation would use most influential publications and journal articles of legend authors of CRM including the special research with Cathay Pacific and its annual reports of different years.
Signposting
This dissertation has aimed to illustrate the effectiveness of CRM for the business success of Cathay Pacific connecting the customers responds and employees motivation and exploration within the existing operation of the airway, to scrutinise and explore the topic area; however, this dissertation has structured and contained with the six major chapters presented below-
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Problem Statement: This part of the dissertation has specified why the research with CRM of Cathay Pacific is essential, endow with the underlying problems of CRM practice, identifies the research gaps, pointed out to the agendas for this research; raises the research questions and affirms Signposting for all the chapters;
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Literature Review: This part of the dissertation instigate with the theoretical framework of CRM practice that have been emerged and developed linking with the motivation of modern business; presents too more up-to-date literature of customer relationship management in the aviation industry with the aim to theoretically arguing to the research questions that would make sense for suitable business development;
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Research Methodology: The most essential chapter of the dissertation demonstrates how the chosen research methodology would set up with the prime goal of the present investigation and how it will complete throughout this contemporary study, what would be the data collection method and how they would be analysed to reach at ultimate findings;
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Findings: This chapter of the dissertation concentrates on the collected data, refine them to avoid unanticipated results concreting on the findings as well as hypothetical application for the information delivered from the concurrent CRM practice of Cathay Pacific and proposes idea generation for the present research from primary data generated from the employees and customers responds;
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Discussion: Moreover, this chapter confer with the results by reflecting the outcomes of this study and argue on validation of findings that will ultimately justify the findings from the real life perspective linking to practical evidence of CRM practice at Cathay Pacific;
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Conclusions: This is the last chapter of the dissertation, it will summaries the entire process, advocates sensible outcomes, prepares the solution recommendations to promote conclusions as well as implications of this study pointed to the further research with customer relationship management in the aviation industry.
Literature Review
Introduction
This literature provide theory of customer relationship management as it has a long history of chronological practice by the business community as a strategy with the aim to accelerate marketing, sales and whole business development, from the traditional consideration (Berndt, Herbst & Roux, 2005, p.2; Peppers & Rogers, 2004; and Belch & Belch, 2009; and Pelland, 2007). However, CRM is just a strategy to provide competitive advantage, but in the modern IT era, it is an indispensable tool for business (Oztaysi, Sezgin & Ozok, 2011; Santoso, 2006; Chen & Popovich, 2003; Berndt, Herbst & Roux, 2005; and Nguyen, Joseph, Newby, 2007).
This literature will analyse the theoretical or conceptual framework of CRM, compare the difference between traditional CRM and modern CRM practices, and provide different CRM strategies and effectiveness of different model to evaluate the performance of CRM to enhance customer base and to recommend for the future success of the Airline industry.
Conceptual Framework of CRM
Customer relationship management is a strategic tool and a managerial philosophy, which use to develop the relationship with the different markets (Peppers & Rogers, 2004; Nguyen, Joseph, Newby, 2007; and Belch & Belch, 2009). Conversely, CRM is an essential issue to congregate instantaneous information about precedent sales, service records, performance records, and unresolved problem calls (Apicella, Mitchell, & Dugan, 1999; Sheth & Parvatiyar, 1995; Oztaysi, Sezgin & Ozok, 2011; Santoso, 2006; and Nguyen, Joseph, Newby, 2007).
Historical Background and Development of CRM
In mid-twentieth century, mass manufacturing procedures and mass marketing altered the competitive landscape and the purchasing process that allowed shopkeepers and customers to know each other was also changed (Chen & Popovich, 2003, Dych, 2001; Ryals & Payne 2001; Kanellakis, 2005; and Friedrich, Sprenger, & Breitner, 2010). Therefore, consumers lost distinctiveness, as they became an account-number and shopkeepers overlooked consumer-individuality; nevertheless, numerous corporations today are racing to re-establish their bonds through CRM applications (Chen & Popovich, 2003; Ryals & Payne 2001; Kanellakis, 2005; and Friedrich, Sprenger, & Breitner, 2010).
However, Dych (2001), Friedrich, Sprenger, & Breitner, (2010), and Pelland (2007) stated that customer relationship management is a deliberated corporate strategy; presently, numerous academics like Ryals & Payne (2001) and Kotler & Keller (2006) believes that CRM is an administrative viewpoint. However, Kanellakis (2005), Chen & Popovich (2003), and Ryals & Payne (2001) stated that it has further added that it seeks to develop long-term relationship with customers in order to boost sales. In addition, it enhances the affiliation with the diverse markets, as well as the final consumer (Dych, 2001; Friedrich, Sprenger, & Breitner, 2010; Kanellakis, 2005; Nguyen, Joseph, & Newby, 2007; Pearson, 2009; Peppers & Rogers, 2004; and Belch & Belch, 2009).
Nevertheless, CRM is an information system that trails clients communications with the corporation that includes the application of technology in the construction of databases that permits the recruits of the company to openly pull up information about the target consumers (Santoso, 2008; Pearson, 2009; Pivotal CRM, 2007; Peppers & Rogers, 2004; Urbanskien, et al 2008; and Nguyen, Joseph, Newby, 2007).
On the other hand, Anton (1996), Parvatiyar & Sheth (2001), Berndt, Herbst, & Roux (2005, p.2), and Kotler & Armstrong (2006) stated that the perception of 4P is developed as a tool for marketing accomplishment and considered conformist paradigm for marketing management, but background and the connotation of CRM has developed with new contour under the present challenging fiscal condition.
Definition and Importance of CRM
The appropriate definition of CRM has generated as a procedure of maximizing customers value (Anton, 1996; Keller, 2009; Peppers & Rogers, 2004; and Berndt, Herbst & Roux, 2005) by synchronized marketing activities, integrated proper management of customers knowledge and information and relation with them (Apicella, Mitchell, & Dugan, 1999; Belch & Belch, 2009 and Greenberg, 2009). CRM is an information system that tracks customers interactions with the company (Peppers & Rogers, 2004; Nguyen, Joseph, Newby, 2007; and Belch & Belch, 2009).
Yet, Sheth & Parvatiyar (1995) and Pearson (2009, p.3) noted that the significant elements of traditional CRM include factors such as sales force automation, marketing automation, knowledge base, and many other criteria that works together to enhance relations with the customers of the business. Regarding this issue, Anton (1996), Baran, Zerres, & Zerres (2009), and Pearson (2009) stated that sales force automation, telemarketing, product configuration, marketing campaign, and support tracking were early drivers of CRM tool; on the other hand, customer portal or web-based customer access to the CRM structure is now a supreme requirement.
Friedrich, Sprenger & Breitner (2006) and Parvatiyar & Sheth (2001, p 6) pointed out that huge efforts of the academia and scholars have been deployed to identify how CRM involves in the modern corporation; and to do so, a number of theoreticians like Borys & Jemison (1989, p234-240) and Wilson (1995, p4-30) have presented several models which are chronologically developed.
Additionally, models of CRM have come into practice to reveal the process of how it involves with firms; however, this paper would present four- folded CRM practice framework that encompass customer relationship configuration process at first, a course of action relationship governance at second, a relational evaluation system at third, and a CRM evolution procedure at last step. The following figure provides an overview about the method through which customer relationship management incorporates and functions in the modern corporation by integrating numerous strategic tools:
Kanellakis (2005), Gummesson (1994), Borys and Jemison (1989, p. 235), Pearce & Robinson (2006) and Kotler & Keller (2006) pointed out that the general rationales of involving with CRM in business organizations are to rise up the marketing efficiency along with improved reciprocal values for both the customer and company connecting through bilateral relationships in the marketplace.
The recuperating marketing is effectual, and generation of shared values could be gained next to the accelerating marketing success, while for the companies, the route to gaining such operational objectives are dependable on lesser distribution costs with rehabilitated order-handing system, vibrant inventory management scheme, with decreasing customer attainment cost compared with expenditure for customer retention, which would provide superior marketing-efficiency.
There are so many processes to improve marketing efficiency for the companies starting from cautious choice and categorization of customers by addressing each customers individual needs, enhanced loyalty along with promise, pointing to the competitive advantage of the brand, offering pioneering product line and adding new market drives (Kanellakis, 2005; Dych, 2001; and Kuusik, 2007).
As a consequence, in deciding the grounds of involving with CRM and its goals within the system, the companies would carefully assist to illuminate the characteristics of CRM programs along with functions, which the companies are practicing or thinking necessary to integrate by their own CRM department or by outsourced associates (Gummesson, 1994). At all pace of expounding the reason of involving with CRM, the companies must identify the potential relationship of collaborators along with identifying the relationship of partners with the indispensable prospects and capabilities to accomplish common objectives in easy way.
It is also vital to assess the achievements of the CRM program by defining and comparing with the financial objectives of the company, its marketing ambitions, long-term and short- terms strategic goals as well as operational and organizational objectives of the company (Kotler & Keller, 2006; and David, 2008). At the same time, by relying on the market condition, the companies would take into account that the customers are always eager to fulfil their objectives effectively, which points to their consumption behaviour that is concerned to have necessary motivation by addressing psychological and sociological benefits (Kotler & Keller, 2006).
Configuration Procedure, Strategies, and Doctrines
Borys and Jemison (1989) and Doney and Cannon (1997, p. 41) mentioned that configuration procedures, which the companies put into practice for CRM integration is the scheme to manage and administer the relational actions to their customers who are already been engaged with the purchase of some manufactured goods or service or are going to purchase. During the post purchase scenario, the firms are enthusiastic to employ in an accommodating or mutual relationship with the aim to retain while in the pre-purchase step it drives to convey marketing message target customers.
The firms would do the most momentous congregation of categorized customers identifying them with different attributes of the individual groups by configuring the CRM process (Borys and Jemison, 1989 and Doney and Cannon, 1997). Within the configuration procedures of CRM, it has identified that there exists three essential decision-making vicinities, such as, deciding the reason of involving with CRM, deciding the customer groups for whom the CRM scheme would be suitable, and budding different action plan to build effectual relationship with the potential customers. The following figure shows the configuration procedures in brief
Friedrich, Sprenger, & Breitner (2010) and Parvatiyar and Sheth (2001, p.6) identified that after cautious evaluation of marketing literature the marketing practitioners have identified many approaches of CRM programs. From greater amalgamation, these schemes could be sorted out into three classes, such as, continuity based marketing, next is one-to-one marketing and the rest is collaborating programs (Friedrich, Sprenger, & Breitner, 2010; Johansson & Sparredal, 2005; and Parvatiyar and Sheth (2001, p.6).
Amongst the three classes of CRM programs, all could shape diverse forms connecting with the category of end user clients, integrated distributor channel of the customers as well as B2B- customers while there are also opportunities to develop further categorization depending on bilateral interest of concerned parties; however, from the viewpoint of business concerns, not all customers are equally valued
Lieberman (2011), Lawson-Body & Limayem (2004) and Sheth and Sisodia (1998, p.11) expressed that in the modern business eighty percent of the revenues of a company have generated by only twenty percent prospective customers and the rest twenty percent revenues comes from inferior eighty percent clients. As a consequence, it is most essential duty for the CRM program initiators to recognize the potential customer fragment to provide superior class of service delivery for them by allocating higher resources than the ordinary customers, such discrimination allocate and enhance the customers psychological alignment to stay in the superior class increasing their purchase volume.
Therefore, under these circumstances, the CRM program will be suggested going for offering product or services mentioning customers segmentation as well as program differentiation with elevated revenue prospective justifying the greater assessment of costs and service comparison; if not, competitors would take hold of the chance through offering enhanced service with greater provision of resources for high end customers.
In the meantime, a major part of the lower-end customers would attempt to lift their position, while firms would align to gain cost savings by allocating less expensive resources for this class. Some studies suggest that the revenue and cost- reallocation opportunity zone is needed for the companies to integrate CRM program for their customers and the administrators argue that companies could choose to engage with an average cost per customer rather than spending proportionately to revenue generation by the concerned customer group (Lawson-Body & Limayem, 2004).
According to Kotler & Keller (2006), such alignment would provide cost-reducing arrangement for the CRM program, but this practice would facilitate the competitors to attract high-end customer by allocating high-end resources, which will seriously threaten the overall enlargement of the corporation. The following table shows some examples of the crucial characteristics of the conventional mode of customer relationship management by the companies:
Table 1: The key characteristics of the conventional mode. Source: Self generated from Wilson (1995), Urbanskien (2008), and Dimitroff (2006).
Pivotal CRM (2007) suggested five key doctrines of CRM, which are discussed at this section of this paper; it has been pointed out that by adjusting a structural design of CRM, which is organized with the following five principles in mind, the basis for CRM-success can be further assured by the organization operating in any particular industry of the world. The CRM strategy of the corporation must fit with its strategic objectives and goals, and the workers must work in accordance to the way the corporation runs; with no alteration in the procedures, which make the corporation idiosyncratic; furthermore, the workers must possess access to all the consumer information they need, whenever they need it, and in their selected view.
On the other hand, the corporation should construct the CRM vision first by describing a valuable consumer experience and it should conduct its operations on the customers terms, with one global view, and innumerable local relationships, making user adoption a top priority. The organization should also formulate a precise Customer Relationship Management infrastructure, which works in compliance with its tactical decisions; on the other hand, the entire system must be flexible enough to build in complex business processes by ensuring better administration; most importantly, the CRM should help the organization to grow and grow along with it.
CRM makes it simple to convey rapid and acquainted service; at some point, the majority of businesses will have a need or want to calculate the success of CRM execution; so the objectives and metrics should be enumerated and benchmarked right from the beginning to make sure that the right information is detained to compute results acceptably down the line. In addition, the organizations must judge Total Cost of Ownership (TCO) watchfully and appreciate that industry- specific CRM lowers total costs; moreover, in order to handle cost expectations in due course, firms should analyze and conduct TCO with a perceptible scrutiny; furthermore, a sound scaffold for evaluating results over the life of the project must be stated at the beginning.
Conversely, the corporation must try to think beyond some confined features, and pick the right collaborator, as an accommodating collaborator can make all the difference; they should use industry knowledge and experience to pay dividends; on the contrary, it is vital to evaluate company aims, technology-strategy, IT-budgets, opportunity-costs, customization-requirements, and industry sector requirements before choosing a perfect CRM solution.
Ineffectiveness of the Conventional Approach
In analyzing the cause of why the conventional approach of customer relationship management is turning out to be increasingly ineffective, a number of scholars have argued in different manners. Kotler & Keller (2006) and Pearson (2009, p.13) mentioned that half of CRM projects were ineffective to bring on anticipated savings and competitive advantages; in addition, Oztaysi, Sezgin & Ozok (2011, p.2) suggested that the success rates of the existing projects of giant or small or medium sized companies were disappointing as the rates were up and down from 10-30%.
However, Oztaysi, Sezgin & Ozok (2011, p.3) contrasted data of quite a lot of companies to compute annual success rate from CRM projects, for instance, positive return on CRM investments of Meta Group was only 10% in 2003, and success rate of CRM initiatives of Cap Gemini Ernst & Young was about 30%. Moreover, Greenberg (2010) noted that CRM possess superb prospects in spite of a narration of ineffectiveness of conventional CRM; however, such failure from traditional CRM influenced the companies to drive into better options; the following figure shows the most common reasons for ineffectiveness of the conventional approach:
It is notable that the traditional theoreticians of CRM has observed the issue as a customer faced point of reference for marketing direction that basically engaged for either sales promotion or else service quality improvement while the marketing literature of eighties were interested to concentrate on the customer and market rather than any other issues. However, Nguyen, Joseph, Newby (2007) pointed out that the modern business has recognised customer at the top priority of organisations where the every success of busin
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