I. Executive Summary
A. Challenge
United Airlines has been seeing a continuous decline of its profitability and loss of market share as a result of direct competition with Southwest Airlines. The company needs guidance on whether to launch a new sub-brand TED to compete with Southwest Airlines in the consumer segment and move the parent United brand up to the business segment.
B. Solutions
—Launch TED as a business-leisure flexible brand to compete with Southwest for customer segment.
—Reposition United as a premium high end business brand to further secure its business segment.
—Offer low-price, on-time flights through TED.
—Offer high-price, on-time and premium flights through the repositioned United.
II. Introduction
A. Background
United Airlines, Inc. is one of the major U.S. airlines headquartered in Chicago, Illinois with 88 years of history. It is the founding member of the world’s largest airline alliance, Star Alliance. The company had long been the leading player in the market until the recent emergence of Southwest Airlines. Studies suggest that United has been losing its profitability and marketshare to this once upstart competitor. The senior management are considering launch a new sub-brand TED to compete directly with Southwest for the consumer segment and secure the business segment with the parent United brand.
B. Objective
This consulting report aims to evaluate the launching and repositioning options using the results from analyses on current brand perception, value offerings and competitor customer offerings.
The three options to be examined are:
1. Launching sub-brand TED and adjusting United’s current positioning.
2. Not launching sub-brand TED and maintaining United’s current positioning.
3. Launching sub-brand TED to replace United.
C. Approach
The research employs three main analytical tools to gather market insights.
1. Perceptual Mapping is used to understand United and its key competitors’ current positionings, and possible white spaces for launching TED.
2. Conjoint Analysis is used to determine the optimal feature set for TED.
3. Value Curve is used to identify the low-cost, well-differentiated, and profitable value offerings.
III. Findings
A. Perceptual Mapping & Positioning Recommendations
i. Overview
The outcome of Perceptual Mapping is shown in Figure 1. The map consists of four directions. The up direction is “friendly & on-time.” The down direction is “nightmare flight.” The left direction is “saves a bit money.” And the right direction is “makes me feel business success.” United, American and Delta are clustered around the middle to the end of the “makes me feel business success” axis, and perceived mediocre on “friendliness and on-time.” ATA and Frontier sit in the cheap-and-less-service Quadrant III. Southwest occupies the low-cost, “friendly and on-time” Quadrant II.
Figure 1 Perceptual Map of United with Key Competitors
ii. Preference
Currently, customers put United first with American and Delta tightly following behind. Southwest comes the fourth. See Figure 2. It is important to note that the analysis includes both business travelers (business segment) and leisure travelers (customer segment). One simple way to understand these two different groups in one single map is to split the preference vector from the origin into two (shown as the purple wiggle line), then to roughly consider the right half of the preference vector as the business segment and the left half of the vector as customer segment. With this treatment, the map indicates that Southwest is one of the most preferred airlines in the customer segment, while United also has a very advantageous position in the business segment.
Figure 2 Customer Preference & Segments
iii. White Spaces
The current market is saturated with the six aforementioned airlines, each with their own territories in which it is hard and costly for any type of head-to-head competition. There are three spaces left in the market that are comparatively less competitive, which are more suitable for launching TED or repositioning United. Space A is a low-cost, low-service and low-margin “economic customer” space. This space requires the same level of prices as Southwest offers, but slightly lower level of core services (friendliness and on-time). Space B is a medium-cost, medium-service and medium-margin “business-leisure flexible” space. This space requires same level of core services, some extent of extra services and slightly higher prices. Space C is a high-cost, premium-service and high-margin “premium business class” space. This space requires the highest level of core services, a lot of business add-ons and much higher prices.
Figure 3 White Spaces
iv. Recommendation
Space A may seem to be a foothold to compete with Southwest without investing too much in the core services. But the potential risk of this space is falling into Quadrant III and becoming nightmare airlines with bad customer satisfaction. Space C is too far from the customer segment, Quadrant II, and too “business” for TED to go after. TED would also risk cannibalizing the territory that United is currently occupying. The optimal space for TED is Space B. This space is a good blend of core services and manageable cost. It is also a crucial in-between spot to outrun Southwest through providing out-of-expectation pre-business-class level of services to the customer segment.
For the parent brand United, it would be sufficient to just keep the current brand positioning. However, as the map shows in Figure 3, United is at the moment too closely positioned to American. Thus the margin in this space is thin and competition is intense. The ideal new position for United is Space C. This new space would allow United to assume a higher margin and up its current brand image as high-end and premium. Although United would have to provided higher level of core services, the costs could easily be shared between with TED.
Figure 4 Launch & Reposition Routes
The launch route of TED and reposition route for and United are shown in Figure 4. There are three main drivers that move brands across the map. They are competitive prices, secondary drivers, and other primary drivers. Competitive prices penetrates the customer segment (Quadrant II), and it determines how deep TED could go into this space. Secondary drivers, including “friendliness of the flight crew,” “excellent on-time arrival” and “high quality of meals,” determine whether TED and new United could successfully move up the “Friendly & On-time” axis. Other primary drivers, including mostly business add-ons such as “good standby options,” “high level of legroom,” “variety of class seating options” and so on, are optional for repositioning United, but they are helpful to move up along the customer preference vector in the business segment. To reach optimal positions, TED would have to improve on competitive prices along with secondary drivers, and United would only have to improve on secondary drivers.
B. Conjoint Analysis & Feature Set Recommendations
i. Overview
The conjoint analysis results suggest that customers value 3 features the most out of 7 features studied for typical flights offered by major airlines. The features are price (47.73%), number of layovers (24.60%) and percent of on-time arrivals (14.15%). They together account for 86% of the Overall Feature Importance. They are the features that are crucial to the TED’s feature set.
Figure 5 Overall Feature Importance
ii. Feature Set Recommendations
For those 3 features, TED should include “$300 price point,” “0 layover” and “80% on-time arrival” in its feature set to provide the highest possible utility value. See Figure 6. For frequency of desired flight, since “hourly desired flight” only yield 0.01 utility increases as compared to “every 3 hour desired flight,” TED could go for the latter one to lower costs. Different levels of class of seating and percentage of desired destination don’t yield significant utility value increase. TED could choose the cheapest options to include in the feature set. As for food service, the lowest cost option, “snacks,” yields the more utility value than other options, and TED should just include “snacks” rather than “hot meal” or “cold meal.”
Figure 6 Conjoint Utilities
C. Value Curve & Feature Set Optimization
i. Overview
Ideally, TED could offer the best features possible based on the results of Conjoint Analysis. However, the more is not always the better, especially in this already feature-saturated market. Providing more features means most direct costs, and doing so would significantly lower the margin for TED and put it at a disadvantageous position when competing against Southwest for the customer segment. The Value Curve results provide insights on the factors that truly matter to customer and differentiate TED from its competitor.
Figure 7 Value Curves of TED, Southwest and United
As Figure 7 shows, Southwest excels on linear performance factors such as “price” and “on-time arrival.” It also puts effort in providing some delighter factors such as “class seating options” and “desired destination offers.” The company keeps relatively low investments on must-have factors such as “number of layovers” and “frequency of desired flights.” Lastly it also minimizes the so-what factor, “other in-flight services and amenities.”
ii. Feature Set Optimization
In accord with the Conjoint Analysis results, the Value Curve results suggest that in order to compete with Southwest, TED would have to significantly lower its prices and keep flights always on-time. Different from Conjoint Analysis results, the “number of layovers” and “frequency of desired flights” would be ok for TED to make some compromises. As for the delighter factors such as “class of seating options,” “desired destinations” and “food services,” TED could surprise the customers with its above average offerings on those. For “other business class in-flight services and amenities,” TED could totally ditch those as they add costs them benefits.
III. Conclusion
Base on the analyses results. The three options can be evaluated.
1. Launching sub-brand TED and adjusting United’s current positioning.
Optimal. TED would compete with Southwest for the customer segment with better offerings. The repositioned United could better secure the high end business segment.
Optimal. TED would compete with Southwest for the customer segment with better offerings. The repositioned United could better secure the high end business segment.
2. Not launching sub-brand TED and maintaining United’s current positioning.
Bad. As the perceptual map suggests, it would be impossible to win the customer segment with the current United brand perception.
Bad. As the perceptual map suggests, it would be impossible to win the customer segment with the current United brand perception.
3. Launching sub-brand TED to replace United.
Bad. TED would succeed in competing with Southwest for the customer segment but lose United’s current business segment.
Bad. TED would succeed in competing with Southwest for the customer segment but lose United’s current business segment.
To successfully execute the optimal option, on the brand level, TED should be launched in the business-leisure flexible space to compete with Southwest for the customer segment. TED should be a brand that is perceived with the same level of “friendliness of the crew” and “on-time arrival” as Southwest, but with slightly higher prices to maintain its profitability. The parent brand, United, should reposition itself into the premium-business space with the same level of core services as TED, but with more premium features and much higher prices.
On the feature level, TED should offer its customers flights with competitive prices and “on-time arrival,” ok “number of layovers” and "desired frequency of flights,” out-of-expectation “food service,” “seating class options” and “desired destinations,” and minimize “other in-flight services & amenities.” For the repositioned United, it’s important to offer the similar flights as TED with much better add-on services and higher prices.