Scandinavian Airlines repositioning strategies - Institute of Marketing and Statistics Master thesis
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Institute of Marketing and Statistics Author:
Master thesis
Peter Ujaraq Lumbye Jensen
Advisor:
Elmer Fly Steensen
Scandinavian Airlines repositioning strategies
Århus School of Business
2010
Table of content
1.0 INTRODUCTION 4
1.1 PROBLEM STATEMENT 5
1.2 THE STRUCTURE OF THE PAPER 5
1.3 DELIMITATION 6
2.0 METHODOLOGY 7
3.0 THEORY 10
3.1 CRITICISM 15
4.0 INTERNAL ANALYSIS 18
4.2 SAS’ CORPORATE STRATEGY, CORE SAS 19
5.0 EXTERNAL ANALYSIS 26
6.0 CONCLUSION BASED ON THE INTERNAL AND EXTERNAL ANALYSIS 27
7.0 SEGMENTATION ANALYSIS AND QUALITATIVE DATA 29
7.1 THE NEW CONSUMER GROUP SAS SHOULD ATTRACT 29
7.2 METHOD 30
7.3 THE FOCUS GROUP FINDINGS 34
7.4 CRITICISM OF THE FOCUS GROUP INTERVIEWS 42
7.5 CONCLUSION ON THE FOCUS GROUP INTERVIEWS 42
8.0 THE RECOMMENDED REPOSITIONING STRATEGIES FOR SAS 44
8.1 CREATING THE NEW POSITIONING 44
8.2 IMPLEMENTATION 48
2
9.0 DISCUSSION: 57
10.0 FURTHER RESEARCH 59
11.0 CONCLUSION 60
12.0 REFERENCES 65
13.0 APPENDIX 74
31.0 Introduction
Since the 1950s it has increasingly been recognized marketing capabilities are necessary in
order for a company to be financially successful. Arguably, effective and efficient marketing
depends on the organization’s knowledge of consumers. Key consumer insights are needed in
order to grow, effectively compete, and remain a relevant player in a given market. A market
orientation makes it possible for corporate survival, even in the face of fierce competition and
a changing market environment. The consequence of this generally applied orientation is
competition has intensified in many industries. New entrants are quicker to enter the market,
and rivals will imitate strong segmentation, targeting, and positioning strategies. This means
companies must be quicker to change these strategies, when needed. The successful
companies of the 21st century understand customers enter a mutually dependent relationship
with the company. The degree of customer value, customer satisfaction, and customer
retention1 will determine, how successful this relationship will be (Schiffman et al 2008).
One sector, which has experienced these effects in recent years, is the aviation industry. The
European market has been deregulated in 1993, and the business model of the low cost
carriers (LCC) has severely pressured the national network carriers (NC). The LCC have
managed to persuade the airline passengers of the imbalance between the price charged and
the product offered by the incumbent airliners (Lynch, 2008; Horn & Willumsen, 2006). The
shifts in consumer preferences also mean passengers are not loyal to any particular airline, as
choice is predominantly determined by price (Datamotor, 2009, a).
One airline company, which has had a difficult time adjusting to these changes in the
marketing environment, is Scandinavian Airlines (SAS). The company has been capable of
staying afloat, even though in the last ten years it has constantly faced bankruptcy (Horn &
Willumsen, 2006; SAS Annual Report, 2009, and 2003). The image of the airline has also
been affected, as there is frequently bad press coverage in the media. One example concerns
the recent financial cutbacks (Olst, 2010; Pinholt, 2010). Another example is Berlingske
Nyhedsmagasin (2010), which recently conducted a company image analysis on 4,057 Danish
business executives. SAS has been ranked with the worst company image out of 140 Danish
corporations for two consecutive years.
1
For definitions of customer value, customer satisfaction, and customer retention see appendix 9.
41.1 Problem statement
This report employs a marketing perspective on the current situation of SAS, which entails
exploring, how the SAS brand is performing. Based on the above-mentioned problems SAS
face, the intensified competition and an affected public image, it is argued by this paper the
concept of repositioning, as contended by Kevin Lane Keller (1999), can be employed. In
short this paper seeks to explore the following research question:
How can the SAS brand be repositioned to attract non-business travellers, without alienating
business travellers, and be perceived by both groups as relevant, distinctive and believable?
In order to answer this, the following investigative questions must be answered:
• What are the internal resources of SAS, and do these provide key competitive
advantages?
• What is the current brand positioning of SAS (i.e. the brand identity)?
• What business environment does SAS operate within, and is SAS competitive?
• Which new consumer age group should SAS attract?
• What is the brand knowledge of this new customer age group with regards to SAS?
• Which new positioning strategies should SAS follow, and how can the marketing mix
support this?
1.2 The structure of the paper
As can be seen in figure 1.2, the paper is based on four parts: Part one deals with the
theoretical foundation of this report, which mainly relates to Kevin Lane Keller (1999; and
1993). The second part can best be characterized, as a strategic analysis and is divided into
two sections: Section one performs an internal analysis to determine the brand image, and the
competitive advantages, of SAS. Section two undertakes an external analysis to determine,
how SAS is performing in the marketplace, as well as the nature of competition in the
industry to establish if SAS in fact has sustainable competitive advantages. Part two is of a
more descriptive nature, whereby the operating performance of SAS can be seen in appendix
4., and the entire external analysis is performed in appendix 5.0.
5Figure 1.2: The structure of the paper
Source: Author’s own creation
Part three deals with the empirical data of this report. This part is based on both secondary
and primary data. The secondary data has been used to determine, which new customer
segment SAS should attract. The primary data has then been collected in the form of two
focus groups. The first three parts are undertaken to justify why SAS should be repositioned.
Part four deals with, how to create, design, and implement the repositioning strategy, based
on the preceding three parts.
1.3 Delimitation
Undertaking a repositioning strategy is a complicated process, and it is impossible for this
paper to cover all of its aspects. Specifically, the purpose of this report is to provide possible
repositioning strategies for SAS. The paper, in order words, does not consider if the
recommendations offered can actually be realized, as they are merely suggestions.
The SAS Group is a very large corporation, which is divided into two main business areas;
Core SAS, which consists of SAS Airlines, Blue1 and Widerøe; and Individual Holdings,
which include Air Greenland, Estonian Air, Skyways, SAS Ground Services and SAS Tech
(SAS Annual Report 2009). The paper will entirely focus on SAS Airlines, and unless
otherwise stated, it will refer to this as SAS.
The market investigated is the Danish passenger aviation industry. The reason is it. It is
suggested further research is to be conducted to guarantee the results are not specific for
Denmark.
This paper will specifically not deal with: (A) Organizational behaviour. This refers to the
organizational structure that is best suited to support the chosen repositioning strategy; the
impact of national culture on organizational behaviour; the organizational power, politics, and
6leadership, and their respective impacts on the economical outcome of the company. (B) The
legal issues concerning the aviation industry, such as: pricing policies, securities,
anticompetitive behaviour, the power and legal rights of employee unions, and safety
regulations. (C) A detailed analysis of the troublesome economic situation of the SAS Group.
It will however, be necessary to briefly discuss this condition, since it affects which
recommendations should be pursued.
The reason this paper does not carefully examine the heavy costs incurred by SAS Airlines is
the aim is to determine how the company can be renewed from a marketing perspective,
rather than from an economic or financial perspective. Many of the expenses are difficult to
reduce or eliminate, as the history of the four turnarounds show (see section 4.0). The cost
orientation has been the primary corporate concern for many years, which may have created a
negative spiral. By cutting employee costs, lower levels of customer service may have
occurred. Customers have then sought out alternatives, whereby the ticket price may have
been increased, and more customers have fled. More costs have then had to be cut yet again.
By focusing on how to generate revenue streams (and profit potential) signifies a shift in
thinking from money out to money in. This thinking resembles that used by Brenneman
(1998) on how to save Continental.
2.0 Methodology
The purpose of this section is to explain the choice of procedure used in this paper, which
include a paradigm discussion, the research approach followed, and the research techniques.
Paradigm discussion
The purpose of this paper is providing suggestions for, how SAS can be repositioned. This
entails no definitive conclusion is offered, but rather possible strategic directions are
recommended, and discussed. This report follows a so-called triangulation approach, which
refers to combing two or more paradigms. This report does not only deal with understanding
consumers’ brand perceptions of SAS, but also analysing and discuss these, whereby neither
positivism (i.e. assuming there is only one truth) nor symbolic interactionism (i.e. investigate
individual’s perceptions) are fully followed (Flick, 2006). There is not one “true”
repositioning strategy for SAS to follow, but not all directions will be equally valid.
The choice of research method
The choice of employing a qualitative or quantitative research method, and how accurate their
results are, has been an ongoing debate within the area of scientific research. It is common in
7Economic literature for the majority of research conducted to be quantitative, as this is an
easy and cheap way to obtain a high representation of the estimated population investigated.
The purpose is to establish a causality relationship among the dependent variable (or
variables) and the selected independent variables. On the other hand, qualitative methods such
as words, sentences or narratives, are predominantly used in the field of anthropology. The
reason is such an approach enables specific examination and focuses more on how
interpretations are made in regards to the phenomenon studied. It is however, impossible to
say which type is best or more appropriate, since it depends on what kind of research question
is asked; what sort of information is available for the study; and what the study is to be used
for. It has also been argued a process that examines a new field of research, typically begins
based on a qualitative method. It is then tested for validity by a quantitative approach
(Blumberg et al, 2006). The factors underlying the qualitative manner is also more complex
than its counterpart, as it includes social constructs based on cultural framing (i.e. what one
person believes a word to mean differs from that of another. What differentiates the two is
determined by their distinct cultural backgrounds (Abnor & Bjrerke, 1985)).
In the field of positioning and branding both quantitative and qualitative approaches have
been used. For example, a common quantitative method is executing a correspondence
analysis, which facilitates the perceptual mapping of objects, such as products and companies,
on a set of non-metric attributes (Hair et al, 2006; Gursoy et al, 2005). The qualitative
research method, on the other hand allows examination of attitudes and perceptions, which is
the overall objective of this report (Flick, 2006). It also discovers what customers want, and
what they are willing to pay for, which is difficult to achieve with a quantitive approach.
Based on these arguments, the qualitative method has been chosen.
Research approach
The field of qualitative research covers many more specific approaches, such as comparative,
retrospective, snapshot studies, observations, and expert interviews (Flick, 2006). This paper
employs to approaches:
Case studies:
The traditional approach is to include several studies to support the research findings, but it
has been limited to one single case of Scandinavian Airlines (SAS). It will therefore not be
relevant to include other cases. SAS has, however, not been involved in the development of
8this paper. They have unfortunately, not been interested in answering any questions related to
this project.
Focus group interviews:
The specificities will be provided in section 7.2.
Sources
In this paper both primary (the two focus group interviews) and secondary (non-self
conducted information) data are employed. There are six categories of secondary information
used in this report: peer reviewed articles; published books; journal articles from respected
publications; Internet pages including information from www.flysas.com;
newspaper/newspaper magazine articles; and a secondary quantitive study performed by TNS
Gallup Denmark. The level of reliability of these sources is uneven, where the newspaper/new
magazines are the least reliable. Therefore, they will be supported by other sources to validate
their claims. One of the primary sources is Horn & Willumsen (2006). Jens Wittrup
Willumsen has been vice-president in SAS Denmark, and Peter Horn is a management
consultant, as of 2006. Thus their insights have a high degree of credibility. It should be
mentioned these authors, as well as SAS’ annual reports, are slightly biased by favouring
SAS. Horn & Willumsen (2006) do nonetheless offer critical comments, which limits this
issue. This book is by its nature retrospective. It has however, not been possible to collect
more recent information about the particularities of SAS. This book has, when possible, been
complemented with more up to date sources., such as the annual reports.
Reliability, validity, and objectivity
According to Flick (2006) there currently is not a recognized way of, how to measure the
value of qualitative research. This has been used to question the legitimacy of such a method.
It does seem it would be unreasonable to judge the two approaches on the same criteria. Yet
he argues that while the terms are the same their meanings are different. He defines the
following three factors as2:
“Reliability: Checking the dependability of data and procedures, which can be
grounded in the specificity of the various qualitative methods”.
2
Uwe Flick, qualitative research, 2006, chapter 28, especially pages 371, 373 and 375.
9“Validity: Validation as the social construct of knowledge by which we
evaluate the “trustworthiness” of reported observations, interpretations, and
generalization3”.
“Objectivity: it is interpreted as consistency of meaning, when two or more
independent researchers analyse the same data or material. Arriving at the
same conclusions surmises them as being objective and reliable4”.
It is the author’s belief of this paper the data used and collected, as well as the procedures
followed, are reliable, given the above-mentioned arguments. This leads to the question of
validity or, in other words if the method is appropriate given the sources. It is possible for a
study to be invalid, even though the sources are dependable, and vice versa. The paper
employs theoretical literature and primary data. This method is valid, since it follows the
same construct as many other marketing scholars, who have successfully conducted research
in this area. However, since the research is performed on individuals, the results cannot be
easily compared for verification. Based on Uwe Flick’s (2006) definition the objectivity of
this paper is questionable.
To conclude, this paper follows the qualitative research method, and employs both a case
study and focus groups interviews, which other researchers have followed when studying
issues of market positioning. This has been established as reliable and a valid method, but the
criteria of objectivity is questionable.
3.0 Theory
This sections deals with the theoretical foundation of this report. It begins with explaining the
roots of repositioning, and then continues with a brief review of the repositioning concept.
The conceptual paper “Managing brands for the long run” by Kevin Lane Keller (1999) is
then explained, as it is the main theory employed in this paper. The section ends with a
critical reflection of Keller (1999 and 1993).
Before the literature on repositioning is explored, it is important to first appreciate a clear and
shared understanding of the concepts. There are several definitions used in this report, which
are explained in appendix 9. In this section the most important concepts are dealt with. It
3
Uwe Flick has adopted this definition from Mishler (1990)
4
Uwe Flick has adopted this definition from Maddull, Jordan, and Shirley (2000), who argues that the concept
of objectivity is only suitable to a realistic context.
10should be said there are several definitions of what constitutes a brand. These may refer to
organizational, service, product, or retail brands. These different notions share many similar
characteristics and are used interchangeably (Merilees and Miller, 2008). This paper will
define a brand as: “A brand is the sum of the good, bad, the ugly, and the off-strategy. It is
defined by your best product as well as your worst product. It is defined by award winning
advertising as well as by god-awful ads that somehow slipped through the cracks, got
approved, and, not surprisingly, sank into oblivion. It is defined by the accomplishments of
your best employee as well as by the mishaps pf your worst hire you ever made. It is also
defined by your receptionist and the music your customers are subjected to when they are put
on hold. For every grand and finely worded public statement by the CEO, the brand is also
defined by derisory consumer comments overheard in the hallway or in a chat room on the
Internet. Brands are sponges for content, for images, for fleeting feelings. They become
psychological concepts held in the minds of the public, where they may stay forever. As such
you can’t entirely control a brand. At best you can only guide and influence it” (Bedbury,
2002, p.15).
Keeping the above brand meaning in mind, attention is now given to the concept of
repositioning. This concept has evolved from positioning, as developed by Ries & Trout
(1986). According to them a position is “Like the memory bank of a computer, the mind has a
slot or position for each bit of information it has chosen to retain”. A positioning is “...what
you do to the mind of the prospect” and “Positioning is an organized system for finding a
window in the mind. It is based on the concept that communication can only take place at the
right time and under the right circumstances” (Ries & Trout, 1986, p. 29, p. 2, and p.19).
They furthermore elaborate consumers have constructed a number of ladders in their mind,
where each step on the ladder signifies a product or brand, which has been placed on that step
accordingly to their preferences. The ladder signifies a specific product group. There are then
certain positioning strategies a market leader, and a market follower, can pursue. As long a
leading company owns a position in the mind of the prospect it should not be tampered with.
The company should instead build capabilities to reinforce its position, and incorporate new
functions once these have shown their value. A follower company should find a position not
occupied by the leader, for example a low-price position, and then pursue this strategy.
Interestingly, a repositioning strategy should be followed when “…there are so few creneaus
(non-occupied positions), a company must create one by repositioning the competitors that
occupy the positions in the mind (i.e. convincing the prospect to alter the perception of the
11rivals’ brand)) (Ries & Trout, 1986, p.61). It should be pointed out here positioning and
repositioning are dealt with as a advertising campaign strategy, and is something to be
avoided. A company should find a sustainable positioning and maintain it, but being ready to
size new opportunities.
The concept of repositioning has since then been used to include everything from individual
product/brand alterations to shifting corporate brand strategies (Aaker, 1997; Balmer et al,
2009). As the concept is used to cover such a large spectrum, there is as of this writing, not
an established academic consensus, and repositioning continues to be elusive. There are
numerous aspects of the concept including revitalization, rebranding brand renewal,
refreshment, makeover, reinvention, and renaming. There appears to be two main schools of
thought, those devoted to corporate rebranding, which “refers to the disjunction or change
between an initially formulated corporate brand and a new formulation “(Merrilees &
Miller, 2008, p.538), and those devoted to repositioning referring to “any decision by a firm
to alter the perceptual positioning of a brand” (Simms & Trott, 2007, p.300). The definition
employed in this report follows Keller’s (1999) argument of a revitalization strategy, and is in
the same vein as that defined by Simm’s & Trott (2007).
According to Keller (1999) if a brand is performing badly or in fact has failed it either needs
to be reinforced or revitalized. These two directions are based on the Customer Based Brand
Equity (or CBBE) Model as developed by Keller (1993). This model, defines customer-based
brand equity as “the differential effect that consumer knowledge has on the customer’s
response to marketing activity. Positive customer-based brand equity results when consumers
respond more favourable to a product, price, or communication when the brand is identified
than when it is not” (Keller, 1999, p.102). This model describes consumer brand knowledge
in relation to brand awareness (i.e. brand recall and brand recognition) and brand image (i.e.
favourability, strength, and uniqueness of customer perceptions). A strong performing brand
is one where: “Sources of brand equity occur when consumers are aware of the brand and
hold strong, favorable, and unique brand associations. There are a number of ways to create
those knowledge structures in the minds consumers. Broadly, they involve choosing brand
elements, developing supporting marketing programs, and creating secondary associations”
(Keller, 1999, p.102).
12Any change in these elements can alter the sources of brand equity, whereby companies need
to carefully consider its marketing decisions. The way to reinforce, i.e. enhance, brand equity
is dependent on the bearing the brand is given financially and consistently communicating the
brand meaning to consumers. The danger of not reinforcing a brand will lead to a situation
where the brand needs to be revitalized. Consistency entails a dedication to maintaining the
strategic focus of the brand as well as the brand meaning, and not the market tactics, like price
changes, product features, different creative advertising campaigns, and changes in brand
extensions. These tactics are often needed to alter in order to create strategic force. The brand
equity reinforcement strategy is also dependent on whether the brand associations are
connected to product attributes (i.e. functional benefits) or they are non-product connected
(i.e. symbolic or experimental benefits). Product related associations can be reinforced
through innovation, in for example design features, and/or promotions influencing brand
performance. Non-product related associations can be reinforced by emphasizing the brand’s
relevance for the consumer and in the consumption situation. It is however, important not to
change these associations too much, as they may devalue the CBBE (Keller, 1999).
In certain situations brand reinforcement strategies are not enough to alter a troubled brand’s
performance. These situations are catalysed by changes in consumer tastes and preferences,
new competitors or technology advances, or other alterations in the surroundings of the
company. Revitalizing a brand involves either lost sources of customer brand equity are
regained, or new sources are generated. It is therefore important to access the breadth (the
way consumers think of the brand) and the depth (consumers ability to recognize or recall the
brand) of brand awareness and determining the strength, favourability, and uniqueness of the
brand associations of consumers. According to the customer-based brand equity model, two
approaches are possible (Keller, 1999, p.112):
1. “Expand the depth and/or breadth of brand awareness by improving consumer recall
and recognition of the brand during purchase or consumption settings. This is
achieved by increasing the level or quantity of consumption, and/or by increasing the
frequency of consumption”.
2. “Improve the strength, favourability and uniqueness of brand associations making up
the brand image. This approach may involve programs directed at existing or new
brand associations. This is archived by retaining vulnerable or recapturing lost
customers, identifying neglected segments, and/ or attracting new customers”.
13Regardless of the direction taken, changing the brand elements, altering the supporting
marketing program, and creating secondary associations can regain sources of customer brand
equity. If a troubled brand is performing badly due to lack of brand awareness the company
should communicate new ways the brand can be used, and improve brand recall by
communicating closely to the point of purchase. On the other hand, a troubled brand is
usually performing badly due to lack of strength, favourability, and uniqueness of brand
perceptions, i.e. problems with brand image. The company needs to establish if there are
positive associations, or if they have been substituted by negative ones, which will determine
if points-of-difference (POD) or points-of-parity (POP) need developed to either differentiate
the company from rivals, or make consumers include the brand in their consideration set, see
appendix 9 for definition. Several options are available to reposition the brand, which include
changing brand associations, analyse if there are neglected customer groups in the market, or
if the existing consumers should be discarded to attract an entirely new group. In any case the
company needs to carefully nurture its CBBE, and should, if possible, make the brand
relevant for both existing and new customers. This is a difficult task to manage, where several
companies have had to completely cut the ties to its past to be perceived as relevant. Other
organizations employ different communication tools to become relevant in the eyes of the
consumer. Yet others again have instigated brand extensions. In certain cases a brand is
simply not worth revitalizing, because there are no sources of customer brand equity, or
negative associations have superseded the positive perceptions, where the strategies are to
milk the brand, fade it out of the market, or disregarded it entirely (Keller, 1999).
To conduct actual research based on Keller (1999) and (1993) is difficult, although
suggestions for measuring brand awareness and brand image are provided, see appendix 1,
and a supporting marketing mix needs developed. Therefore other theories have been
consulted. In regards to brand perceptions the philosophy Smash your brand (Lindstrom,
2008, a) is employed, because is breaks the brand into several parts, and recognize a brand is
much more than its logo. The idea is to break the brand at all customer contact points with the
brand, in order to develop or maintain the brand image. The framework is designed as a tool
to offer insights into, how a company can use other brand elements than the brand logo. These
elements refer to: imagery, colour scheme, form, name, language, icon/symbol, sound,
behaviour, service, tradition, ritual, and navigation. These all need to exhibit significance
individually, and support each other to generate synergy to institute a strong brand
(Lindstrom, 2008, a), see appendix 2 for details. Moreover, Lindstrom (2008, a) argues
14companies should move away from a 2D (i.e. appealing to the senses of sight and hearing)
brand orientation to a 5D (i.e. stimulating all five human senses of taste, smell, hearing, and
touch) perspective, as these will create a more authentic brand in becoming more credible,
real, and true. It will also create a strong customer bond.
To be able to develop a supporting marketing mix for the new positioning the 7ps framework
offered by Booms & Bitner (1981, as cited in Rafiq &Ahmed (1995)), has been followed. The
concept of the marketing mix has originally been developed by McCarthy (1964; cited in
Rafiq &Ahmed (1995)) and consists of 4ps, product, price, place and promotion. The
framework has been criticised, especially from service marketing, as the 4ps do not
incorporate the characteristics of services, as the 4ps are based on manufacturing companies.
These issues have caused Boom & Bitner (1981) to specifically design the 7ps for service
marketing, which relate to: product, price, place, promotion, participants, physical evidence,
and process, see appendix 3 for what constitutes each element. The new elements are essential
for how the customer perceives the customer experience, both before and after it has been
encountered. Furthermore, the company can manage these different elements to affect
customer behaviour, which are the reasons for their enclosure in the expanded marketing mix.
It is important to point out these elements need to have value in themselves, and should
support each other to generate synergy (Rafiq &Ahmed (1995).
3.1 Criticism
The customer based brand equity philosophy, which the reinforcement and revitalization
strategies are based on, is not without critics. According to Punj & Hillyer (2004) some
commentators have wondered if this approach enhances the theoretical value of consumer
behaviour by utilizing existing concepts, like for example brand loyalty and attitudes toward
the brand. Punj & Hillyer (2004) therefore instigate a model of a cognitive model of customer
based brand equity in regards to frequently purchased products, which they test empirically.
Other critics, like Rust et al (2004), contend brand equity has suffered from lack of adequate
measurability, because most methods assume brand value is stable, as well as measuring
brand equity by a condensed metric of brand strength. The model developed by Rust et al
(2004) captures both customer equity and brand equity by appreciating the drivers of each
construct and their individual effects. The authors moreover claim the model offers financial
accountability for marketing choices. The problem with employing this model to the research
paper, is the three identified drivers value equity, brand equity, and relationship equity are
15defined too generic to be of practical value. For example the driver value equity is defined as
“the objectively considered quality, price, and convenience of the offerings” (Rust et al, 2004,
p.116). Specifically for Keller’s (1993) model Ponnan & Kishnatray (2008) argue the
framework only considers CBBE in isolation, and does not capture the importance of
evaluating, how the brand is performing with rival’s brands. This is important, because
consumers respond to other elements than those of the marketing mix. It is also contended the
definition of brand associations regarding strength neglects to consider that such associations
can also be formed subconsciously. Moreover, the uniqueness of the brand associations is
difficult to conceptualize.
According to Beverland (2009) the approach undertaken by Keller (1999) falls into a
traditional model of brand equity accentuating brand meaning occurs in consumers’ brains.
Nevertheless, many companies do not include consumers in the creation of brand meaning, as
it is believed this is the responsibility of the marketer. Brand meaning is established by
producing favourable brand associations using one-way top-down communication
instruments. The author elaborates, “Brand marketer’s main job is to measure the gap
between how consumers should view the brand (brand identity) and how they currently see it
(brand image). Strategies like “reinforcement” and “repositioning” are then used to close
this gap. As part of this approach brands must stay on message by repeating their core
message – change, ambiguity and inconsistency should be avoided” (Beverland, 2009, p. 17).
Therefore to include consumers’ role in constructing brand meaning it is said brands should
become authentic (where authenticity is defined as “the manifestation of the search for what
is real”(Beverland, 2009, p.17), which can be archived through seven strategies (or habits as
it is called in the book). It is however, outside the scope of this report to cover all seven
strategies in their entirety. The one followed in this report is that of story telling, because it is
important to have a story, as it adds a layer to the brand meaning. It is also important to
recognize a brand becomes more authentic when consumers are allowed to continuously
create their own stories (and meanings) of a brand. The company should in other words not be
afraid to include consumers in creating brand meaning (Beverland, 2009).
There are of course many ways a company can shift its strategic focus other than employing a
branding repositioning strategy. According to Andersen et al (2010) a number of new theories
have the last couple of years emerged, where each argue their unique approach leads to
financial success, especially the theory of Blue Ocean Strategy by Kim & Mauborgne (2005)
16and the theory of Discount Strategy by Andersen & Poulfelt (2006; cited in Andersen et al
(2010)).
Box 3.1.1: The four strategic perspectives and their characteristics of modern strategic
thinking
The positioning The resource-based The Blue Ocean The Discount
perspective perspective Strategy perspective perspective
Rivalry Compete on Compete by Create a market that Compete on markets
existing markets developing strong renders the competition described by hyper-
resources irrelevant competition
Sustainable Beat the Resources should be Make competition The company creates
competitive competition with valuable, rare, costly irrelevant value for itself while
advantage a strong market to imitate and at the same time
achieved by positioning exploitable by the value is destroyed for
organization: the rivals
VRIO framework
Demand Exploit existing Exploit strengths to Create and maintain new Both supply push and
demand create a strong demand demand pull
resource profile
Strategy Cost leadership Optimise resources Create value free of Form strategy with
or differentiation competition disruptive effects
Most Michael E. Porter Edith Penrose, Kim & Mauborgne Christensen,
significant Berger Wernerfell, Moesgaard Andersen
Contributors Jay Barney & Poulfelt
Source: Originally developed by Andersen et.al., 2010, but have been translated by the author of this report,
who has also made a few additions.
These theories argue against the traditional strategic thinking consisting of the positioning and
resource based perspectives, as among others advocated by Keller (1999). Together these four
perspectives, positioning, resource-based view, Blue Ocean Strategy, and the Discount
Strategy view, represents the modern strategic thinking, which can be seen in box 3.1.1.
Although Andersen et al (2010) argues these four perspectives should be combined in order to
create a strategic map consisting of four main strategic positionings, this paper will only
include the thinking behind the Blue Ocean Strategy (BOS), see appendix 9 for what is meant
by a Blue Ocean and a Red Ocean. This theory contends a company needs to offer new
factor(s) the industry has not previously provided to customers, in order to create a blue ocean
(uncontested market space). This is achieved by examining non-customers’ preferences,
whereby the BOS perspective mimics one of Keller’s (1999) ideas for a company remaining
relevant it can attract new customers. Andersen et al (2010) further point out creating a BOS
is only temporary, as the competition cannot become irrelevant indefinately, as argued by
Kim & Mauborgne (2005), because rivals are quick to either match or copy new offerings.
To recapitulate, on part 1 of this paper, the concept of repositioning has its roots in the
positioning field, as developed by Ries & Trout (1986). The concept has since then evolved to
17include individual product/brand alterations to corporate brand changes. The one employed in
this paper follows that of revitalization and reinforcing strategies, as contended by Keller
(1999). Two other theories are necessary to conduct actual research on Keller’s (1999) theory,
those of Smash your brand and 5D branding by Lindstrom (2008, a), and Booms & Bitner’s
(1981) framework as argued by Rafiqu & Ahmed (1995). For creating a more authentic brand
Beverland’s (2009) story telling strategy is also followed, as it allows consumers an active
role in creating brand meaning. The thinking behind the Blue Ocean Strategy, as developed
by Kim & Maugborne (2005) is also considered.
4.0 Internal analysis
This section initiates part 2 of this paper. Specifically this section is an outline of what SAS is
and what it does. It begins with a brief review of the company history. The section ends with
an explanation of the current corporate strategy, as well as the branding and positioning
strategies.
Figure 4.0 The main historical developments of SAS
1940s/1950s 1960s/1970s 1980s 1990s 2000s
SAS is formed as The first hotel, By the SAS celebrates its The toughest
a consortium by SAS Royal Hotel stewardship of 50th anniversary. period in SAS
(DDL), (DNL, in Copenhagen is Jan Carlzon is the The company is history occurs in
and (SILA)). The opened. Arne 2nd turnaround harmonized, and 2001 in the wake
first Jacobsen designs strategy initiated. establishes the of 9/11 in NY.
intercontinental the entire The profit-centres Jørgen
flight from building. Curt Businessman’s SAS Denmark Lindegaard heads
Stockholm to NY Nicolin initiates airline concept is A/S, SAS Norge the 3rd turnaround
is launched. SAS the 1st turnaround introduced with ASA, and SAS strategy whereby
is the world’s first strategy. the new segment Svergie AB. the firm cut costs
airline to fly from EuroClass. SAS Focus is on by 14 billion
Copenhagen to In 1971 the first is the most operationalizing SKR. A single
LA via the North Boing 747 jumbo punctual airline in the firm. SAS SAS share is
pole in scheduled jet is taken into Europe. SAS established, offered. Mats
flights. The service. receives the among others, Jansson becomes
airline extends “Airline of the Star Alliance. Jan the new CEO,
the routes to Year” award. Carlzon, Jan and introduces
include Tokyo, Reinås and Jan S11 and Core
whereby SAS can Stenberg each SAS.
offer “around the are CEOs in this
world services period.
over the North
Pole”
Source: Author’s own creation based on information from SAS (2010, a) and Horn &Willumsen (2006), and
Dickson (2006)
18There have been many events throughout the 65 years SAS has existed. All of these cannot be
covered in their entirety, but the most important ones can be seen in figure 4.0. According to
Horn & Willimsen (2006) SAS has always been a company employing a top-down
management approach, although the CEOs’ strategies have not been followed through after
they have lead the airline. They furthermore, highlight these strategies undertaken by the
various CEOs have been viable and economically sound, yet the company boards have not
been able to demand clear market orientated strategies, causing each CEO to loose focus. The
history clearly shows a number of turnaround strategies have been initiated to make the
company financially strong, but the outcomes of these strategies have not always been
satisfactory. The company is still in a dire financial situation, whereby remaining an
independent airline for the future may seem bleak.
Figure 4.0 shows the history of SAS and illustrates the company has instigated many
initiatives to become more competitive. For a more detailed description of the company’s
history see Horn & Willumsen (2006), SAS (2010, b), and SAS (2010, c). The company has
since its establishment been owned by the Swedish, Danish and Norwegian governments,
which respectively own 21.4, 14.3, and 14.3 per cent (SAS (2010, d), Largest shareholder
information). Furthermore, the pioneering spirit of the 1940s, 1950s and to some extent the
1980s, have provide the company with a rich heritage with many great achievements and
strong ties to the business world. The pioneering spirit has however been replaced with
streamlining the business, and make it more cost efficient, since the 1990s. Cost efficiency
has despite these initiatives remained the Achilles’ heel for competitiveness. Other national
airliners (or flag carriers as they are often referred to), like British Airways, have had to be
privatized in order to become competitive in a deregulated market (Balmer et al, 2009).
Perhaps SAS needs to do the same.
4.2 SAS’ corporate strategy, Core SAS
The main business areas and the operating performance of the company can be seen in
appendix 4.. The business area with the lowest percentage EBIT has been experienced on
international travel, although SAS has not managed to reach the profitability target the last six
years. The most prominent costs are payroll expenses and jet fuel costs, which respectively
account for 38.9 and 16.6 per cent (SAS Annual Report 2009). The corporate strategy Core
SAS has been designed to deal with the financial problems of the company and is explained in
detail below.
19Core SAS has been launched in 2009 to complement the previously designed corporate
strategy S11, since this has not been sufficient to bring the company to profitability. It is
based on five pillars aiming at strengthening the long-term situation of the company by
making it competitive and profitable (SAS Annual Report, 2009). Each of these five pillars
are now explained:
(1) Focus on the Nordic market
The strategy Core SAS has been created to streamline the company by concentrating on the
core business, aviation, of the company in its home market. As previously mentioned, the
international flights EBIT performance has been the worst. This has caused SAS to capitalize
on its home market, as it has a strong market presence in Scandinavia. It has 54, 43, 33, and
15 per cent of the Norwegian, Danish, Swedish, and Finnish markets. The economic
operations in 2009 have been negative in Europe, and in the Scandinavian market, when
compared to 2008 (SAS’ Annual Report, 2009).
(2) Focus on business travellers and strengthened commercial offering
As can be seen from figure 4.2,1 part a, the number of passengers on scheduled flights has
increased from 2000 to 2006, which in large part can be attributed to the strategy S11,
implemented in 2003. The passenger volume has since 2006 been declining, most
significantly from 2006 to 2007. The number of passengers has been fairly stable in 2008, but
declined with 14.1 per cent from 2008 to 2009, leading the SAS Group to transport a total of
24.9 million passengers in 2009. A large part of this decline is attributed to the global
Financial Crisis, which has hit the entire airline industry hard, especially in 2009.
This has particularly been the case for the business travel segment. The SAS Group’s
passenger volume is in 2009 back to its level in year 2000. To match the declining passenger
numbers the capacity has been cut back with 57 routes, mainly on leisure destinations, which
the passenger load factor is an expression for, see appendix 9 for a definition. This can be
seen in figure 4.2.1 part b. The aircraft fleet has been cut with 18 units. It can be seen in part b
the passenger yield has also been declining from 2002 to 2004, and has since then increased.
It has however not reached its 2000 level (SAS Annual Report, 2009).
Though the business traveller segment has declined in 2009, it remains the largest part of the
SAS Group’s customers. To accommodate the different customer needs, and these customers’
different price sensitivity, each customer segment has tailored offerings, which can be seen in
20figure 4.2.2. These segments are based on a turnaround strategy launched in 2003 to provide a
future for the troubled company. The purpose of this strategy has been to reposition SAS,
which should be established by an altered product offer to the market. To achieve this a
substantial amount of research has been undertaken through key constituents, and through a
quantitive analysis in eight countries. The research revealed the market for consumers, who
used the price of the ticket as the only criterion for a destination accounted to 40 per cent of
all consumers. This is especially the case for Denmark. Another segment, called productivity,
focused on punctuality regarding take off and landing, which accounted for roughly 40 per
cent. The remaining 20 per cent concentrated on being comfortable onboard. The results
clearly indicated SAS could regain market shares within the business travelling segment.
These product and service offerings are provided on international, European, and
Scandinavian destinations. Domestic travel, for example within Denmark, is only offering
economy class. These strategies are still employed by the company (Horn & Willumsen,
2006; SAS Annual Report (2004); SAS’ website, 2010).
Figure 4.2.1: The passenger development on scheduled flights, and the passenger load factor
and yield performance.
Part a Part b
Source: Part a is the authors’ own creation, based on figures from SAS Annual Report, 2009, and part b is a
copy from SAS Annual Report, 2009, page 48.
It can be observed, the Business class offers numerous other services to increase the level of
comfort, when travelling. The Economy Flex class offers important services for a business
traveller, but at a lower airfare than the Business Class ticket. The Economy class offers a
basic product for those travellers only interested in cheap airfares and they avoid paying for
unnecessary extras (i.e. no frills service). In comparison, Norwegian offers two classes,
21namely full flex and low fare (www.norwegian.com), and Cimber Sterling only offers one
class, although the ticket price depends on when the booking is made (www.cimber.dk). It
therefore seems the customer offerings of SAS indeed are more suited for business travellers,
than the offerings of the airliner’s main competitors. This is reflected in the customer
categories, where business travellers have been roughly 60 per cent of all customers from
2007 to 2009. Charter passengers have increased with 5 percentage points, and leisure
travellers have decreased with between 5 to 10 percentage points in the same time period
(SAS Annual Report 2007 and 2009).
Box 4.2.2: The three main customer segments of SAS, their respective product offerings, and
their percentage of all SAS Group’s customers.
Business Economy Flex Economy
Offer SAS Fast Track SAS Fast Track Competitive fares
Lounge Internet/telephone check-in No advance reservation
Empty middle seat At the gate 20 min before requirement
More legroom departure Food and beverages may
Internet/telephone check-in Priority boarding be purchased on board
Priority boarding Food and beverage incl. No changes once booked
Food and beverages incl. Ticket can be Basis service commitment
Ticket can be changed/refunded EuroBonus points
changed/refunded Basic service commitment Snowflake fares (i.e. extra
Basic service commitment EuroBonus cheap fares)
EuroBonus points
Price Premium Medium Low
Source: Author’s own creation based on information from SAS Annual Report, 2004, and SAS Annual Report
2008 and 2009.
To support these segments, and their respective customer offerings, the positioning It’s
Scandinavian has been created along with the corporate strategy S11. To make the positioning
relevant the company implemented the marketing strategy through its corporate identity, the
customer service, the product offerings, and through its marketing communications (Horn &
Willumsen, 2006). But, as mentioned, the S11 strategy has not been enough to make SAS
profitable, whereby the new corporate strategy Core SAS has been implemented. With Core
SAS a new positioning strategy has been launched, which is called Service And Simplicity.
The idea is to “minimize travel time and maximizing perceived customer value” (SAS Annual
Report, 2008, page12), and can be seen in figure 4.2.3.
The new positioning is furthermore, the brand promise, and it is to be fully implemented in
the organizational culture. The customer experience is designed to make it easier to fly, by
flying on time, flying to destinations the customers want to fly to, minimize the travel time
22spent, and increase the customer perceived value during flights. The brand vision, which is
also the corporate vision, is to be perceived as the obvious choice. The three individual
brands, SAS, Widerøe and Blue1 together stand for reliability, flexibility and punctuality
(SAS Annual Report, 2008).
Figure 4.2.3: The SAS positioning.
Source: Copy from SAS Annual Report, 2008, page 12.
To achieve this positioning the company have designed a supportive marketing mix, which in
the framework developed by Booms & Bitner (1981;cited in Rafiq and Ahmed, 1995) is
explained below.
In regards to the product, the tailored customer offerings will be supplemented with, among
others, an extended EuroBonus program, with the Membership Rewards Loyalty Program in
cooperation with American Express, mobile phone boarding passes, a kiosk where customers
can self label their luggage carried, and free wireless internet services in the airport lounges.
These elements will not be available to all customers, as they are dependent on which type of
ticket is bought. The frequent flyer program, is separated into two parts: Companies using the
airliner obtains SAS Credit points each time an employee fly with SAS, and the travelling
employees obtain EuroBonus points. These can then be exchanged for new air travel. For the
Economy Extra and Business classes discounts are offered via the SAS Travel Pass
Corporate, and the Fast Track lane offers a quick security check to meet these customers’
expectations. In regards to price, SAS concentrates on offering competitive total airfare,
which means seats, luggage, and credit/debit card charges, are all included in the price. The
total flight ticket should thereof be lower than what competitors can offer. According to SAS’
own claim it is no longer perceived as being expensive (SAS Annual Report 2009). In regards
23to place, the main locations used are the national airports located in, Copenhagen, Billund,
Aarhus, and Aalborg. The main distribution channels are SAS’ own website, and through
airfare comparison websites, such as ww.Momondo.com. In regards to promotion for most of
the business travellers this occurs through a negotiation with individual companies on special
travel deals (Horn & Willumsen, 2006). For non-business people promotion mainly occurs
through mass marketing, such as TV and on the Internet via: banner ads, SAS own website
(www.flysas.com), a Facebook group on www.facebook.com, and ads in the business paper
Børsen. SAS also promotes through its own in-flight margazin called Scanorama (see
http://www.scanorama.com). The company is also known for using sponsoring, especially in
Denmark, where the Superlega in football is referred to as SAS Ligaen5. In regards to
participants, the people who are important for delivering the service offerings will generally
be the personal at the check-in counters and the cabin crew, which can be seen wearing
clothing in the brand colour deep-blue6. These people are very important, as they significantly
shape the customers’ perceptions, especially with regard to service quality. Other passengers
also have a significant influence on the service quality perceptions, which will be formed,
based on the number, type and behaviour of these other customers (Rafiq & Ahmed, 1995).
In Denmark SAS has employed celebrity endorsement in TV ads promoting the brand with
people, such as Nickolaj Costa Waldau, Tina Dicow7, as well as former and present Danish
Ministers, like Uffe Ellemand Jensen8 and Ulla Tørnæs9. The slogan of the TV ads is SAS as
good as home. This slogan, along with the brand promise, is to be delivered through the
physical evidence of the 7ps. In regards to the physical evidence the environment in which the
service is offered relates to: the check in counter, the lounges at the airports, and the on-board
experience. There is not much to say about the check in counters, but the lounges are designed
to mimic a regular home with a minimal noise level, bright colours, and comfortable
furniture. The on-board experience is designed to continue this level of comfort, where
business passengers are most comfortable, and the economy passengers are the least
comfortable. The airplanes external and internal features are kept in the corporate brand
colours of deep blue, white and orange (SAS annual Report 2009; SAS, 2010, e). With
respect to process most business travellers do not spend much time on acquiring the ticket as
5
http://www.superliga.dk/superligaen/om-superligaen.html
6
See any number of Scanorama.
7
Nickolaj Coster Waldau TV ad: http://www.youtube.com/watch?v=_RjQ7rzIM5U and Tina Dicow TV ad:
http://www.youtube.com/watch?v=MRG0WCOdMkY
8
Uffe Elleman TV Ad: http://www.youtube.com/watch?v=S6SLRjBMd0g&feature=related
9
Scanorama (2010) no. 1 Febuarary accessible via www.Scanorama.com
24these are included in the specific negotiations with each firm. As for non-business they
mostly find their tickets through price comparison sites like momondo.com (Datamotor, 2009,
a, and b).
These initiates seems to be well suited for SAS’ customers, as the customer satisfaction index
has increased from its level in 2007, which can be seen in figure 4.2.4. part a. According to
SAS, the increase in the CSI is attributed to the quality of the service offerings (i.e. the high
punctuality and regularity of flights), and a higher customer perception of value for money
(SAS Annual Report, 2009). It can moreover, be observed the CSI level in 2009 corresponds
to the level in 1996, which is not impressive over a fourteen year period. Despite the positive
development in CSI from 2007 to 2009, the total number of members in the EuroBonus
loyalty program has declined by 6% from 2008 to 2009, which can be seen in figure 4.2.4,
part b.
Figure 4.2.4: The development of the customer satisfaction index, CSI, from 2005 to 2009,
and the development of EuroBonus members, from 2008 to 2009.
Part a Part b
Source: Part a is the author’s own creation, based on information form Horn& Willumsen, 2006, page 126 and
SAS Annual Report, 2009, and part b is a copy from SAS Annual Report, 2009, page 13.
According to SAS, this change is mainly a consequence of 111,000 members had to be
deregistered, since these were not active, but included in the membership numbers, from the
takeover of Braathens Norway (SAS Annual Report, 2009).
25(3) Improved cost base
To increase profitability, and lower the cost structure, substantial cost cutting measures have
been implemented. These initiatives have occurred in all areas of the business, including
administration, personal, and SAS Tech. The personnel costs have been achieved through
negotiating with the trade unions. The cost cutting program is performing as anticipated, and
is expected to result in a total cost savings of 7.8 billion SEK (SAS Annual Report, 2009).
(4) Streamline organization and cost orientated culture
The organization has also changed with Core SAS, which is covered in greater detail in
appendix 4..
(5) Strengthened capital structure.
To implement Core SAS in 2009, it has been necessary to offer a rights issue of roughly 6
billion SEK. This rights issue has however been exceeded by 24.2 per cent, and in 2010 it has
been planned to offer a new rights issue of roughly 5 billion SEK (SAS Annual Report,
2009).
To recapitulate, in terms of percentage EBIT the worst performing part of the operations have
been international travel. The corporate strategy Core SAS has been designed to turn the
company back to profitability by concentrating on business travellers in the Scandinavian
market. These passengers account for approximately 60 per cent of all SAS’ customers, but
the passenger numbers have been declining mainly due to the global Financial Crisis. This
partly explains the company’s current financial predicament. The Company’s brand
positioning is Simple and Simplicity, which is supported by the marketing mix. The marketing
program is consistently communicated and each element generates synergy.
5.0 External analysis
This section deals with the external environment (i.e. everything and everyone outside the
organization, as defined by Lynch (2006)) of SAS. It can be seen in appendix 5.0, but the
conclusion is summarized here.
To conclude, on this analysis, the Danish market, along with Swedish and Norwegian
markets, is small compared to the other European countries. The Danish market has
experienced a lower CAGR from 2004 to 2008 than the overall European market. The fact
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