Business Marketing
The success of many corporations today is directly related not only to their relationships with customers but also to the number and quality of their business relationships with other companies. The reason is simple. Most companies can no longer operate by themselves to fulfill their needs. Alliances are a key to the future for businesses of all sizes and in every industry worldwide.
Nowhere is this statement truer than in the international airline business, where competition for passenger dollars has become cutthroat. The challenge has been to create alliances that offer passengers a seamless travel experience while preserving the unique cultures and products of the individual partners. Recently, a group of five carriers—United Airlines, Thai Airways, SAS, Lufthansa, and Air Canada—moved alliance building into a new era with the formation of the Star Alliance, which presents travelers with a more uniform product while retaining individual brands. Varig has subsequently joined the alliance as well. The alliance integrates the airlines’ frequent flyer programs and offers seamless booking and travel capabilities across all six airlines.
“We believe our alliance helps each of us to secure our place among the successful competitors in a deregulated, liberalized, and highly competitive global air transport market,” says Jan Stenberg, president and CEO of SAS, one of the partners. “But it is not our intention to merge our airlines or develop identical product offerings. Our research tells us categorically that our customers enjoy and appreciate our varied cultures. Our strength is in our diversity.”
The six carriers combined now serve 600 cities in 108 countries—including 16 major hubs—with 6,233 daily departures and 1,334 aircraft. In 1996, their combined revenue was $42.3 billion and combined traffic was 229.3 billion revenue passenger miles, exclusive of Varig.
The airlines have been working closely together for some time to develop their relationship with each other. Dubbed the “Airline Network for Earth” by United Airlines chairman and CEO Gerald Greenwald and hailed by Thai Airways International president Thamnoon Wanglee as an engine of growth that will create world-class opportunities for employees, the new initiative will not only provide better customer recognition worldwide but will also create a powerful framework for future development. In addition, it enables each airline to benefit from considerable synergies, ranging from common utilization of facilities to joint purchasing. The Star Alliance logo will appear as an additional feature on the fuselage of all aircraft in each airline’s fleet and on a wide range of information materials. It will also become a familiar sight at airports, ticket offices, and other locations around the world.
The alliance is committed to the introduction of further benefits for customers, including access to more flights and destinations, simplified ticketing and reservations, more convenient connections, and better baggage and ground services—all of which combine to create a hassle-free, seamless travel experience.
“We want to add more flights, more destinations, simplified ticketing and reservations procedures, easier connections, better baggage and ground services, and more schedule choices, just to name a few of the projects already in progress,” says R. Lamar Durrett, president and CEO of Air Canada. “In short, our global alliance will stand apart from all others as a mark of quality, innovation, and service recognized by customers around the world.”1
Identify several benefits members receive from participating in the Star Alliance. In what ways do customers benefit? Does the alliance threaten competition? These issues are addressed in this chapter.
Global Perspectives
Whirlpool Ventures into a New Frontier
Between 1994 and 1996, Whirlpool Corp. spent $265 million to buy controlling interest in four competitors in China and two in India. Eventually, Whirlpool hopes to become one of Asia’s top suppliers of washers, dryers, dishwashers, refrigerators, and household air conditioners.
According to the Wall Street Journal, Whirlpool management believes that the combination of Asia’s fast growth and low proportion of households with modern appliances provides very promising market opportunities. For example, China has a population of over one billion people, but less than 10 percent of all households in China have air conditioners, microwave ovens, and clothes washers.
Whirlpool also hopes to export appliances manufactured in China to other Asian countries. In order to successfully implement this strategy, Whirlpool must substantially upgrade the quality of its joint venture partners’ products. According to Whirlpool executives, the Chi-nese brands are not as reliable and durable as available Japanese brands. Typical air conditioners manufactured by Chinese partner firms last only five to eight years, which is half the life expectancy of a Whirlpool unit made in the United States. Whirlpool president and CEO William Marohn was quoted in the Wall Street Journal as saying, “Until we have a product that we can feel represents a modern, upscale product, we’re not going to put the Whirlpool name on it.”17
Why would Whirlpool invest $265 million to buy partial ownership in Chinese companies that produce inferior products? Why not just export products made in the United States to Asia or build Whirlpool manufacturing facilities in China and elsewhere? Assess the Whirlpool joint ventures in terms of the general strategic alliance goals, factors that contribute to successful alliances, and the three general problems that commonly plague strategic alliances.
Ethics in Marketing
Gifts from Suppliers: Ford Motor Company’s Policy
What policies do firms set on accepting gifts from suppliers? Here’s the policy at Ford. Although soliciting gifts and favors is never permissible, if there is a legitimate business purpose, it is permissable to accept gifts and favors that are freely offered by suppliers, dealers, and others with whom Ford does business, subject to these important limitations:
• The gift must be of nominal value and must involve no more than normal sales promotion or publicity.
• Social amenities must be appropriate and limited and must never give the appearance of impropriety.
• Any discounts on goods or services offered to you by a supplier must be made generally available and cannot be for your benefit only.
• You may never accept cash or gift certificates or gifts of food or alcohol.
• You may not borrow money, except from qualified financial institutions on generally available terms.