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ln Lhe older days alrllne dldn'L segmenL Lhelr markeLs lL soon became clear LhaL passengers
dlffered ln Lhelr expecLaLlons 8uslness Lraveler's valued convenlence comforL servlce whlle
lelsure Lravelers were more lnLeresLed ln lower prlce
A carrler flylng from London Lo new ?ork uslng a 300 seaLed plane anLlclpaLes an average
load facLor of 80 lf lL pursues an undlfferenLlaLed sLraLegy oneclass plane Lhe managemenL can
charge a hlghesL prlce of $230 1o achleve a 80 occupancy raLe Lhe varlable cosL for Lhe alrllne was
$20 per passenger and Lhe cosL ls $ 30000 per fllghL Powever Lo Lhe markeLlng mgmL lL ls observed
LhaL whlle a prlce of $230 already beglns Lo lose Lhe buslness of a few low budgeL Lravelers buslness
people and Lhe more affluenL people would be wllllng Lo pay much more for superlor servlce and
comforL1he resulL was LhaL Lhe alrllnes moved Lo Lhe dlfferenLlaLed sLraLegy whereby Lhe offered 3
levels of servlce on Lhe plane economy buslness and 1sL class aL very dlfferenL prlce levels
1o geL Lhe same 80 occupancy levels Lhe prlce are respecLlvely $ 230 $300 $1000 per
passenger whlle Lhe varlable cosLs per passenger are $20 $40 $ 100 per passenger lL ls esLlmaLed
LhaL Lhe lC would go up by 10 Lo accommodaLe Lhe charges ln Lhe alrcrafL Lo provlde Lhe deslred
comforL Lo Lhe upper 2 classes each of Lhem Laklng 30 of Lhe addlLlonal amounL lL ls also
esLlmaLed LhaL Lhe buslness class passengers would be 3 Llmes Lhe no of 1
class and economy class
would be double Lhe buslness class occupanLs aL 80 planeload facLor 1he consequences are Lo
masslvely enhance Lhe revenue and Lhe proflLablllLy for Lhe alrllnes ln addlLlon Lhe sLraLegy beLLer
meeLs Lhe needs of all Lhe cusLomers by offerlng Lhe value LhaL Lhe parLlcular Lype of passenger
prlorlLlzes And Lhls example of alrllne segmenLaLlon ls exacLly analogous Lo Lhe sLraLegles pursued
by mosL of Lhe sophlsLlcaLed cosL of Loday

1 Ca|cu|ate the prof|ts the prof|tab|||ty the revenues and the costs |ncurred |n both the strateg|es
for the fu|| p|ane for each c|ass and per passengers |n each c|ass assum|ng |n both cases the p|ane
|s 80 |oaded |ease f|nd the breakeven po|nt |n both cases

8efore SegmenLaLlon
W SeaLs 300 [ 80 occupancy 240 seaLs
W 9rlce $ 230
W 1oLal sales 240 * 230 $60000

W 1oLal varlable cosL $20 *240 $4800
W lC $30000
W 1oLal CosL vC +lC $34800

9roflL and 8reak Lven 9olnL
9er unlL 1oLal (240)
8evenue 230 60000
varlable CosL 20 4800
ConLrlbuLlon 230 33200
llxed CosL 20833 30000
9roflL 2167 3200
9roflLablllLy (Lo sales) (3200/60000)*100 866

llxed CosL 30000
ConLrlbuLlon per seaL 230
8reak Lven CapaclLy (seaLs) 30000/230 218
8reak Lven CapaclLy ( of capaclLy) (218/300) *10073

AfLer SegmenLaLlon
Class Lconomy 8uslness llrsL 1oLal
6x 3x x 10x
SeaLs 144 72 24 240
9rlce $230 $300 $1000
Sales $24000 $36000 $36000 $96000

Class Lconomy 8uslness llrsL 1oLal
varlable CosL $20 40 $100
1oLal vC $2880 $2880 $2400
llxed CosL $2300 $2300 $30000 $33000
1oLal CosL vC + lC $63160

LCCnCM? 8uSlnLSS ll8S1
unl1 1C1AL unl1 1C1AL unl1 1C1AL

1C1AL SLA1S 144 72 24

lA8L 230 36000 300 36000 1000 24000

vC 20 40 1000

CCn18l8u1lCn 230 33120 460 33120 9000 21600

llxLu CCS1 20833 30000 243 17300 3123 7300

98Cll1 2167 3120 217 13620 3873 14100

98Cll1MA8Cln 87 434 388
1C1AL 98Cll1 32840
98Cll1(Lo sales) 342

reak Lven Capac|ty
Lconomy 8uslness llrsL
llxed CosL 30000 17300 7300
ConLrlbuLlon per seaL 230 460 900
8reak Lven capaclLy
8reak Lven capaclLy (
of capaclLy)
(131 / 180) x 100 73 (38 / 90) x100 422 (9/30) x 100

2L|st down a|| benef|ts of segmentat|on to a|| stakeho|ders of a|r||nes
SLakeholders are
Alrllne lndusLry
Lconomy class cusLomers
8uslness class cusLomers
llrsL class cusLomers
Channel 9arLners assoclaLes

enef|ts to the A|r||nes
lncreased revenues proflLs
lncreased cusLomer saLlsfacLlon of all segmenLs
8reak even polnL ls reached early( 186 from 217 passengers)
8rand name / lmage
lncreased saLlsfacLlon of employees (as revenues lncrease Lhelr salarles may also go up)
lncreased revenues can be used for lmprovlng servlce furLher lncreaslng frequency rouLes

enef|ts to the A|r||ne Industry
4 Lxpanslon of Lhe cusLomer base and hence beneflL Lo Lhe lndusLry aL large
4 9ercepLlon of Lhe alrllne lndusLry as an affordable mode of LransporL
4 8eLLer recepLlon ln Lhe mlnds of cusLomer as someLhlng LhaL was unaffordable before has
become affordable

8eneflLs Lo Lhe Lconomy cusLomers low alrfares
8eneflLs Lo Lhe 8uslness cusLomers 8eLLer servlce aL moderaLely hlgh raLe
8eneflLs Lo Lhe 8uslness cusLomers LxcellenL faclllLles

enef|ts to the artners and Assoc|ates
4 As Lhe revenues generaLed by alrllnes lncrease Lhe buslness marglns of parLners also
4 1he loyalLy of suppllers wlll also lncrease
4 1hey geL Lhe advanLage of sLrong brand name of Lhe alrllnes
8eneflLs Lo Lhe Lmployees
4 lncrease ln salarles beneflLs lncenLlves eLc
4 lncreased morale enLhuslasm
4 9rlde of belng assoclaLed wlLh a sLrong brand

Do you th|nk any segment |s subs|d|z|ng on any other segment ?
lf so who Lo whom?
lf noL why noL?
As Lhe proflLablllLy or Lhe proflL of Lhe flrsL class Lhe buslness class ls much more Lhan Lhe
economy class we Lhlnk LhaL Lhe flrsL buslness classes are subsldlzlng for Lhe economy class
98Cll1A8lLl1? LCCnCM? 8uSlnLSS ll8S1 CLASS
(1C SALLS) 87 434 388

4What do you understand by abso|ute sat|sfact|on and re|at|ve sat|sfact|on? Do you th|nk there |s
any customer who may fee| re|at|ve|y d|ssat|sf|ed a|though abso|ute|y sat|sf|ed? When wou|d that
happen? now wou|d management prevent |t?
4 AbsoluLe saLlsfacLlon comes from comparlng Lhe prlce one pays wlLh servlces one geLs
4 8elaLlve dlssaLlsfacLlon comes from Lhlnklng LhaL one ls made Lo pay for oLher people's
4 8elaLlve SaLlsfacLlon ls also percelved producL performance Lo a persons expecLaLlon

My 8eneflLs9rlce raLlo CLher's 8eneflLs9rlce raLlo
relaLlve dlssaLlsfacLlon
My 8eneflLs9rlce raLlo CLher's 8eneflLs9rlce raLlo
relaLlve saLlsfacLlon
My 8eneflLs9rlce raLlo CLher's 8eneflLs9rlce raLlo
relaLlve dellghLmenL

9erformance LxpecLaLlons
absoluLe dlssaLlsfacLlon
9erformance LxpecLaLlons
absoluLe saLlsfacLlon
9erformance LxpecLaLlons
absoluLe dellghLmenL

4 Je do noL Lhlnk any class ls relaLlvely dlssaLlsfled
4 8elaLlve dlssaLlsfacLlon can occur when one class feels LhaL wlLh Lhe prlce Lhey are belng
charged some oLher cusLomers mlghL be geLLlng Lhe beneflLs
4 ln Lhls case all Lhe classes are geLLlng Lhe servlces whlch Lhey are paylng for
When wou|d a customer be re|at|ve|y d|ssat|sf|ed though abso|ute|y sat|sf|ed? now wou|d
management prevent |t?
4 Lconomy class passenger of !eL Alrllnes compares Lo an Lconomy class passenger of
klngflsher Alrllnes
4 Pe may be relaLlvely dlssaLlsfled alLhough absoluLely saLlsfled
4 1he managemenL can prevenL lL by provldlng Lhe amounL of servlces for whlch Lhe
cusLomers are made Lo pay
now can segmentat|on go wrong? now to avo|d the segmentat|on by management from go|ng
wrong? What precaut|ons to take?
4 SegmenLaLlon can go wrong lf Lhe dlfferenLlaLlon beLween varlous segmenLs ls noL clear
4 1hls may encourage compeLlLlon beLween company's own producLs
4 PeLerogenelLy lnslde segmenL
4 SegmenLaLlon wlll noL work lf Lhe LargeLed cusLomer base ls Loo small and ls noL proflLable
Lo serve
4 lf Lhe compeLlLlon ln Lhe segmenL ls Loo hlgh
4 lf Lhe growLh raLe of Lhe segmenL ls Loo low
4 lf Lhe segmenL ls noL accesslble or lf no acLlon can be Laken wlLh respecL Lo Lhe segmenL

1he markeL segmenLlng should be
SubsLanLlal Lhe segmenL has Lo be large and proflLable enough Lo serve
Accesslble lL musL be posslble Lo reach lL efflclenLly
ulfferenLlal lL musL respond dlfferenLly Lo a dlfferenL markeLlng mlx
AcLlonable Lhe company musL have a producL for Lhls segmenL
Measurable slze characLerlsLlcs and purchaslng power of Lhe segmenL can be measured