Analysis of the use of social media as a means for providing customer support in the airline industry

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Università degli Studi di Modena e Reggio Emilia D

IPARTIMENTO DI STUDI LINGUISTICI E CULTURALI

C ^{ORSO DI} L ^AUREA M AGISTRALE IN

L INGUE PER LA COMUNICAZIONE NELL ’ IMPRESA E NELLE ORGANIZZAZIONI INTERNAZIONALI

Analysis of the use of social media as a means for providing customer support in the airline industry

Utilizzo dei social media da parte delle compagnie aeree come modalità di assistenza al cliente

Prova finale di:

Silvia Giovannini Relatore:

Eugenio Caperchione

Correlatore

Donatella Malavasi

Anno Accademico 2014/2015

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Abstract

The present study investigates the use of social media as a means for providing customer support and assistance by ten different airlines. Specifically, it aims to find whether different carriers have integrated social media and social networks into their business strategies and how they do differ in their use. Furthermore, the research wants to find whether there exists a difference in the degree in which these tools are employed to provide additional assistance to their passengers between low-cost and traditional carriers.

The dissertation builds upon the existing literature about the airline industry and the problems that affect its participants, particularly the risk of service failure. This issue has led to the need for airlines to develop strategies that take in consideration these eventualities and that aim to prevent them. In particular, attention is given to the integration of the new possibilities offered by social media platforms not only for providing additional support to their customer, but also for allowing the maintenance of the relationship between the users and the company online.

Ten airlines have been analysed in their use of the most popular social networks (Twitter and Facebook) in the period of time between 23 December 2015 and 2 January 2016 to see their use of these channels. All companies show to be conscious importance of social media tools and have assigned employees for this specific task. However, they differ in the way in which they use them concretely and have incorporated them into their overall corporate strategy.

Therefore, all carriers can still improve in the level of interaction and customer assistance they offer to match their passengers’ expectations and needs better.

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Sommario

Lo scopo della presente tesi è l’analisi dei social media come mezzo di ulteriore assistenza e supporto al cliente da parte di dieci diverse compagnie aeree. Nello specifico, l’analisi mira a comprendere quanto questi strumenti siano utilizzati nella prassi e se esistano delle strategie comuni adottate dalle aziende presenti del settore. Inoltre si vuole cercare di capire se esista una differenza tra le compagnie tradizionali e le low cost nel grado assistenza fornita ai propri passeggeri tramite i social media e i social networks.

Il presente studio prende in considerazione la precedente letteratura riguardo l’aviazione civile e i problemi che affliggono le compagnie aeree, in particolare il rischio di non poter sempre erogare il servizio in maniera soddisfacente. La presenza di questa eventualità comporta la necessità di sviluppare apposite strategie che tengano in considerazione la possibilità di queste evenienze e che mirino a prevenirle. Nello specifico, l’attenzione viene posta sull’integrazione dei social media come modalità aggiuntiva di assistenza al cliente e come mezzo per il mantenimento del rapporto tra le due parti coinvolte nella prestazione servizio.

Dieci compagnie aeree sono state prese a campione per analizzare il lor uso dei principali social networks (Twitter e Facebook) nel periodo compreso tra il 23 dicembre 2015 e il 2 gennaio 2016. Tutte le compagnie hanno dimostrato avere compreso il ruolo e l’importanza di questi nuovi strumenti e hanno designato degli impiegati addetti specificatamente a queste funzioni.

Tuttavia, le aziende dimostrano ancora divergenze nelle modalità in cui utilizzano questi strumenti nella prassi e nella loro integrazione nella strategia d’azienda generale. Le compagnie possono pertanto migliorare in termini di presenza e interazione col cliente per meglio adeguarsi alle aspettative e alle necessità dei loro passeggeri.

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Resumen

La presente investigación examina el empleo de los medios de comunicación social por parte de diez diferentes compañías aéreas para garantizar ulterior soporte y asistencia a sus pasajeros.

En el específico, se desea comprobar como diferentes aerolíneas han integrado los medios y las redes sociales en su estrategia comercial y como difieren en su empleo. Además, el análisis quiere deslumbrar las diferencias existentes en el empleo de estos instrumentos para garantizar asistencia al cliente por parte de las compañías de bajo coste en comparación con las tradicionales.

La disertación se basa en la literatura existente sobre la industrifa aérea y sobre los problemas de sus participantes, especificadamente el riesgo de no poder garantizar siempre la prestación optimal del servicio. Este problema ha obligado las compañías a concebir estrategias especificademente para hacer frente a estas situaciones e intentar preverlas. Particularmente, la atención se centra sobre la necesidad de integrar las redes sociales como forma de asistencia al cliente y como medio para el mantenimiento de la relación entre los usuarios y la compañía.

Diez aerolíneas han sido analizadas en su uso de las redes sociales más populares (Twitter y Facebook) en el período entre el 23 de diciembre 2015 y el 2 de enero 2016. Todas la compañías demuenstran haber comprendido la importancia de estos nuevos medios de comunicación y por lo tanto han designado empleados para desarrollar esta tarea. Sin embargo, presentan diferencias en las modalidades en las que los emplean concretamente y en como los han insertado en su estrategia general. Por lo tanto, todas las compañías pueden todavía aumentar su nivel de interacción y asistencia para mejor responder a las expectativas de sus pasajeros.

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The present analysis will investigate the use of social media and social networks by different airlines in particular to provide customer support. The investigation will focus on the time period going from 23 December 2015 to 2 January 2016, which is considered to be of particular interest for the industry due both to an increase passenger traffic and adverse weather conditions. This factor is considered to increase the risk of service failure and problems in the optimal provision of the service. The airlines selected for the study are ten, the first seven being full-fledged carriers (pertaining to the three major alliances in the sector), while the remaining three are low-cost carriers: Alitalia, Air France, Delta, British Airways, Iberia, Lufthansa, Air Canada, EasyJet, Ryanair and Southwest Airlines. All airlines are based in different European and North-American countries and have been selected to represent a varied cross section of this phenomenon.

The analysis aims to find whether airlines present common patterns in the use of the new tools offered by the advent of social media and in which strategies they diverge. In particular, the research will examine whether the reduced cost of fare of low-cost carriers is reflected in a lower level of assistance given to the passengers on online platforms too. Furthermore, attention will be given to the fact that these strategies are used to expand the entire service offering of the airline by integrating the possibility to interact and to receive real-time answers and information on punctual issues that may arise during service provision. It will also try to see whether common patterns emerge among the entire industry and whether there exist some practices that appear particularly relevant in this precise context.

Chapter I will offer a literary review of the airline industry, with an overview of the field and the challenges it poses to its participants. In particular, attention will be given to the issue of service failure, an everyday occurrence in a sector characterised by the punctuality of the provision, different aspects contemporarily involved in it and the unpredictability of weather conditions. This will give the opportunity to investigate the role of advanced planning into a company’s overall strategy, in order to devise in particular a CRM strategy that takes into consideration the possibility of this type of occurrences. The focus will consequently shift to the importance of designing and structuring appropriate service recovery strategies in response to eventual problems.

In Chapter II attention will be moved to the field of social media. After some preliminary considerations on the phenomenon and its distinction from the concept of social network, a

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brief categorisation of its different manifestations, along with a brief history will be offered.

Afterwards the focus will move on the use of social media by enterprises and how these new tools have contributed in modifying the relationship between customers and brands. The result is the creation of a new figure, the social customer who does not only buy a product or a service, but is aware of his or her value and wants to have an active role with the company as well as with other customers, who are considered his or her peers.

Chapter III will offer an introduction to the airlines analysed in the dissertation and to the methodology employed for the analysis. After an explanation of the method used for the research, attention will be given to a short overview of the ten selected airlines in terms of their history, their general characteristics and their present status.

Chapter IV will explain the data obtained from the monitoring and analysis of the airlines’

Twitter and Facebook profiles in terms of interaction with their users, in particular for providing them with ready help and assistance when in need. In particular, the focus will be on companies’

presence on different platforms and how this relates to their overall business strategy.

Chapter V will discuss the retrieved data and how this information relates to the existing literature. In particular, it will highlight the most popular strategies adopted in the industry and it will try to find common patterns among them. The analysis will also examine how airlines use these tools in diverse ways to respond to different needs and strategies. In particular, the research wants to find whether there exists a variation in the level of customer support provided via social networks between legacy and low-cost carriers to see if the difference in ticket price mirrors the traditional distinction of the two opposing business strategies or if the industry is characterised by practices shared among different types of carriers. Notably, different strategies will be evaluated and considered in relation to the company’s overall strategy and its presence on other media channels.

Chapter VI will discuss the results obtained from the analysis and whether they reflect the existing literature on the topic or not. In particular, attention will be given to the phenomena that the airlines under study have in common and to the different strategies they adopt. A series of conclusions based on the observation of the airlines’ social media presence and the behaviour of users on these platforms will be offered, in order to understand what is deemed essential by social customers and how companies can improve their offering for better suiting their needs.

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CHAPTER1: The airline industry

1.1. The airline industry

Even though everyone is acquainted with the concept of airlines, it is challenging to provide an ultimate definition of it.

In the first place, airlines offer a service and their product consists in providing the “complete air travel experience” (Chou, 2015: 119) and transporting people from one place to another via aeroplane (Nair et al., 2012). Nonetheless, the airline industry has been classified as “one of the more intangible service industries” (Baker, 2013: 67) given the role played in it by a series of secondary, abstract subservices. It is very difficult for an airline to differentiate itself from its competitors and gain some sort of competitive advantage in the industry, since different brands essentially provide the same service (Grundy & Moxon, 2013). Their differentiation is thus related to secondary services and nuances in their provision.

The airline business plays an important role in the international economy as it permits people to move around the globe. The airline industry is strictly related to the tourism industry, since its revenues depend on the possibility of people to travel, both for pleasure or for business reasons (Tiernan et al., 2014). Conversely, its development is linked to the condition of global economy and has been affected by the effects of the 2008 global financial crisis (Ibid.).

The airline industry is also an extremely competitive sector for its participants, since it does not provide security of profitability due to the presence of some internal chronic issues, for instance

“fuel prices, instable yields, weak traffic volumes, security hassles, weather disruptions, and increased taxation” (Min & Min, 2015: 734). The sector is subjected both to internal and external pressures that force its participants to continually change and update their offering to remain competitive. As a result, the airline industry is a difficult market that requires its actors to constantly sustain high costs in order to survive in it (Ibid.). Furthermore, airlines need to adhere to and respect restraints and well-defined standards in terms of safety and fleet maintenance in order to be able to remain in the business (Nair et al., 2012). As a consequence, even its investigation by academic researchers has proved to be difficult due to the complexity of factors characterizing and affecting the industry (Joo & Fowler, 2014: 675).

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1.1.1. The service

Defining and understanding the real nature of the airline industry is particularly difficult due to the intangible nature of the majority of additional services it provides (Baker, 2013). As previously stated, in order to be defined as such all airlines should transport people from one place to another on an aeroplane. Together with this central aspect, each airline associates a set of secondary services, which are not necessarily shared by all participants in the market and can vary from brand to brand.

In order to define its business model, every company firstly needs to identify its core competencies and design the entire service offering starting from here, differentiating what should be of primary importance from what is of secondary (Nair et al., 2012). “Core competencies are what set the organization’s products and services apart from the competitors’

similar offerings and companies may have more than one core competence” (Ibid.: 965). The definition of the most appropriate service model for a company is based upon “its industrial, social and cultural backgrounds” (Ibid.: 963). In order to be productive, a company cannot select more than five or six core competencies at a time, as focusing on too many areas will inevitably lead to a less effective management and complicate the task of guaranteeing a high standard of quality in all areas (Ibid.). A company’s core competencies are those that distinguish its offering from that of its competitors and therefore also represents the aspects of the service provision worth investing more money in (Ibid.). The definition of the core competence and the subsequent service orientation are what sets a company apart in an industry where there is limited place for diversified business strategies (Ibid.,). A flawed core competencies’

recognition leads to a flawed general strategy and for this reason brands should try to design their service system bearing in mind their peculiarities (Ibid.). In the specific case of the airline industry, all this results in the ability of a company to organise and combine different resources in order to offer the best service at the best cost (Ibid.).

As in the case of all services, in the airline industry the entire service provision is centred on the ‘moment of truth’, in other words the moment when the service is actually provided and in which customer’s expectations are met or not met (Baker, 2013). Nowadays firms compete on the basis of services, rather than on products (Nair et al., 2012) and for this reason personnel plays a key role in it (Zaid, 1995). Employees’ proper training and the sense of belonging to a strong corporate culture is pivotal in providing a service that satisfies consumers’ expectations.

In order to achieve this goal, internal communication in the company must be good at first

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between the different levels of the organisation and all employees should share the same values and corporate vision. Only in this way, it can translate into an effective external communication towards its customers at the moment of service provision. The satisfaction of a company’s own workers is proved to be at the core of a successful service experience, since “a service company can only be as good as its people” (Zaid, 1995: 27). A good staff can help in improving the service quality and maintaining customers’ satisfaction even in negative instances. From the customers’ point of view, their relationship with the company’s personnel is what ultimately characterises and influences the service experience as a whole (Baker, 2013). As will be analysed later, a successful interaction with a properly trained and sympathetic contact personnel can ultimately overturn the outcome of a problematic situation (Wittman, 2014).

In order to be appreciated by its customers, a service company must put their needs at the centre of it business strategy (Baker, 2013). The airline industry is a ‘chain of services’ where the different combination of elements is what ultimately differentiate one brand from its competitors (Nair et al., 2012). The customer is therefore the ultimate judge of the entire process, the person who must be satisfied and whose expectations must be met (Zaid, 1995). It is therefore of vital importance for airlines to understand what their users really want and expect from them, in order to build a service system around their passengers’ needs. The ability of an airline to accommodate its customers’ needs is directly linked to a reduction in complaints and an amelioration in service provision, which in turn leads to their loyalty (Baker, 2013). Loyalty is a goal that all companies strive to achieve because it is associated with the intention of a customer to patronise the brand again in the future, which is a guarantee of future revenues.

Accordingly, it is important for a company to make realistic promises in order to not disregard their customers’ assumptions at the moment of truth, as in terms of customer satisfaction it is better to exceed their preconceived ideas rather than risking to disappoint them (Ibid.).

Unfortunately, many airlines tend to publicise their companies in a way that is not consistent with their actual service provision and to promise more than what they can effectively deliver.

This can lead to the inability to meet their passengers’ expectations and to disappoint them, thus increasing the risk of them never using their service again (Zaid, 1995).

1.1.2. A competitive environment

In the airline sector, the competitiveness is so high that the capability to contain the costs has become a strategic target for all its participants (Joo & Fowler, 2014). However, the focus on

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containing and cutting costs in many cases became counterproductive because it has had negative impact on service quality (Min & Min, 2015; Nair et al., 2012). In fact, notwithstanding its importance and its expansion on a worldwide level, the industry is far from being profitable for its participants (Tiernan et al., 2014). The high-costs related to the service provision make the volume of passengers crucial in guaranteeing revenues. In turn, passenger demand varies in accordance to different external factors, namely the time period and the course of the general economy (Ibid., 2014). Since cutting costs is not always feasible, the alternative is to try to enhance productivity and to provide secondary services in an innovative or more cost-effective manner in the system organisation (Min & Min, 2015; Nair et al., 2012).

Many factors can influence customers’ opinions about a specific airline. Service quality is particularly difficult to measure due to the role played in it by personal evaluations and preferences; in international businesses the task is further complicated by cultural differences (Min & Min, 2015). In fact, the impossibility to have common data regarding airline performance and customers’ satisfaction from different countries makes the comparison between international brands extremely difficult, if not impossible at all (Tiernan et al. 2014).

The revenues of the airline industry ultimately are dependent on a series of external factors and on the trends of the global economy. The demand is also unpredictable and not consistent: it can change from one period to another, or also in accordance to the hour of the day (Tiernan et al., 2014; Hecker, 2008). Other pressures are exerted by external variables such as climate, changing markets, environment, fuel costs, and competition from different means of transport (Tiernan et al., 2014). As a result, the sector is subjected to a series of factors, which do not directly depend on its participants. For example, in spite of reassuring data on the matter, there is still an irrational fear of flying and people may opt for alternative means of transportation other than airlines (Ibid.). All of these factors have contributed to increase profitability problems in an already challenging industry.

As a consequence, the airline industry is renowned for being an extremely competitive sector.

Indeed, it is one of the less faithful service sectors, with only 14% of passengers declaring to be loyal to one company (Trejos in Joo & Fowler, 2014: 741). In managing their relationship with their passengers, airlines must take into account that their customers’ personal evaluations and opinions are dependent upon intangible variables and perceptions, rather than on unbiased parameters (Tiernan et al., 2014). As demonstrated in the study by Min and Min (2015), this is particularly true for the airline industry where passengers’ impressions about safety and

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reliability are not always supported by objective measurements of the service performance.

Popularity proved to be an important factor distorting reality and ultimately giving an important competitive advantage to well-known and more publicised companies over minor carriers operating on smaller markets (Joo & Fowler, 2014).

In recent years, more attention has been given to passengers and their needs, in relation to the possibility for dissatisfied customers to be protected and reimbursed also by external authorities in case of service failure (Tiernan et al., 2014). Consequently, increased attention has been paid by airlines to matters concerning the prevention of service failures and the maintenance of their passengers’ satisfaction. In an industry where competitiveness is high, offering reliability and service quality has become a means to conquer customers' loyalty (Ibid.). The fear of being considered the worst company in the sector has pushed companies to try to enhance the quality of their offering in general (Baker, 2013).

Competitiveness is further stressed by the fact that airlines substantially offer the same service.

As a consequence, what really contributes to differentiating one company from its competitors is the ability to provide peripheral services in an innovative or more cost-effective manner (Nair et al., 2012). Simplicity can be a positive asset, as long as it is linked to greater flexibility of the airline to adapt to a changing environment (Ibid.). The tendency to consider costs-effectiveness and containment a more important issue than customer satisfaction is however a common issue in the sector (Joo & Fowler, 2014). Indeed, great efforts have been made to try to reduce fuel and labour costs, instead of analysing the factors influencing positive customer perception of the service. As a result, the airline sector has registered a stronger decline in consumers’

satisfaction than other industries (Ibid.; Baker, 2013). This has proved to be strategically counterproductive, given that consumers are the ultimate judges of the service provision (Zaid, 1995). In fact, without their customers’ patronisation, services would have no reason to exist (Nair et al., 2012). Moreover, it is widely accepted that in the service sector “retaining customers is more profitable than building new relationships” (Chen & Popovich, 2003: 681).

It is consequently important to keep customer satisfied, since they are more likely to return in the future and bring further revenues, whereas dissatisfied ones are more tempted to look for alternatives (Baker, 2013). Passengers are the customers of the airline industry and therefore firms in this sector have to satisfy their expectations and provide them with what they want (Zaid, 1995). Attentive management should monitor passengers’ feelings and perceptions about service quality in order to be able to adapt and improve the offering in deficient areas. Indeed,

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flyers have little tendency to complain directly to the airline, but a high defection rate and high tendency to tell other people about their experience (Zaid, 1995).

The competitiveness in the industry is further increased by the creation of alliances and of mergers between airlines to better compete one against the others (Joo & Fowler, 2014; Min &

Min, 2015). If on the one hand, this tendency shields brands who become part of a group, on the other hand, it intensifies the competitiveness of the market and in particular for those airlines who do not participate in these policies. It is important for airlines to compare their performance to that of their competitors, in order to comprehend the areas in which their service provision may be lacking or falling below the standard set by the market (Ibid.). The ever-changing competitive environment has made life even harder in the industry: every advantage or innovation is always relative and short-lived, due to the constant and unstoppable evolution which the sector is subjected to (Nair et al., 2012: 960).

1.1.3. Need for constant innovation

The airline industry is an extremely competitive environment, submitted to multiple pressures from different sources. At the same time, it is also a dynamic sector, which constantly demands the adoption of innovations and ameliorations in order to satisfy the ever changing and evolving passengers’ expectations (Nair et al., 2012). As a consequence, the companies operating in this sector have to constantly improve their offering, in order to adapt to new challenges and to not succumb to the forces of the market (Min & Min, 2015).

In a firm's perspective, what is particularly important is the ability to adapt to the external competitive environment to react to the changes that directly or indirectly affect the industry (Nair et al., 2012). Airlines should be flexible enough to be able to always “change focus in response to external factors” (Ibid: 969). Flexibility is easier to maintain in companies that have a simpler structure, in other words in airlines that focus on fewer, more essential aspects of the service provision (Ibid.). It comes as no surprise that the most successful companies in this aspect are usually the airlines that adopt a low-cost strategy (Ibid.).

In this regard, newer companies have the advantage of being less tied to previous business models and consequently are more open to the experimentation of new strategies and changes (Nair et al., 2012,). The inability of a firm to recognise the outdated and non-functional parts in

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its service structure represents a big strategic handicap, as it impedes to invest the resources in the right areas (Nair et al., 2012).

Technology is a more complex issue and the advantages it provides are limited in time, since other airlines will inevitably try to copy the innovation (Nair et al., 2012). At the same time, carriers should be aware that their passengers are becoming more and more aware of their value and specifically demand the adoption of the innovations presented by other actors in the industry. As a consequence, airlines should not only monitor their own flyers’ satisfaction, but they must also be constantly up-to-date with the latest innovations introduced by their competitors if they do not want to be left behind in this competitive environment (Min & Min, 2015).

1.1.4. Risk of service failure

Service failure is a reality of every service industry, and as such, it should be taken into consideration in the strategic planning of a company. The airline industry is particularly exposed to service failure, due to its own characteristics and the nature of all the different processes involved in its delivery (Chou, 2015). Every single participant in the industry is subjected to this risk and even the best airlines succumb to service failure (Chang & Chang, 2010). Given the impossibility to completely prevent these eventualities, airlines must focus on learning how to cope with them and on developing appropriate strategies to adopt in the aftermath (Ibid.; Chou, 2015). Specifically, the airline industry is prone to different service failures such as on-time performance, flight delays or cancellation, behaviour of both cabin and ground staff, strikes, reservation or overbooking problems, baggage handling and air safety (Ibid.; Baker, 2013; Min & Min, 2015).

The effects of service failure are particularly important for airlines, an industry characterised by little retention rate and a high tendency to change the service provider (Chou, 2015). In this perspective, learning how to appropriately manage service recovery can becomes a means to promote customer satisfaction, which in turn is positively associated with customer retention and loyalty (Ibid.). In this way, airlines can prevent negative consequences of service failure such as negative word of mouth and the passing to competition (Ibid.). Service failures can represent opportunities for a company to understand better its passengers’ point of view and identify where there is a “gap between customer expectations and perceptions of the service”

(Tiernan et al., 2014: 215). The analysis of service failures can be used in order to recognise a

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company’s own shortcomings and problematic areas, and subsequently work to improve them.

As a matter of fact, more than half of dissatisfied passengers will not return to the same airline and only one fifth are willing to give it a second chance after a disappointing experience with it (Min & Min, 2015).

Airlines are also subjected to the so-called ‘challenge of crowds’, which means that their passengers’ perception of the service quality is usually lower than what is registered in official statistics (Tiernan et al., 2014). Even just one unsatisfied customer can abandon the airline and spread negative word of mouth to different people. Too many airlines focus on containing costs and on the business side of the company, rather than focusing on customer’s satisfaction (Ibid.).

Service failures are particularly dangerous when they are affecting the core values of a company, as they put at risk the envisaged image the brand tries to convey of itself (Grundy &

Moxon, 2013). Service failure is an everyday occurrence for airlines around the globe. Even if their consequences are not as serious as those presented by proper crisis (Ibid.), their possible repercussions should not be undervalued. It is important for a company to think about the eventuality of service failures, in order to try to incorporate it into a consistent business strategy designed to manage their recovery and prevent negative outcomes.

1.1.5. Low-cost carriers

As previously stated, the airline industry is a dynamic sector, where lots of changes and challenges are an everyday occurrence. In particular, competition between airlines has exploded following the introduction of deregulations, which happened in 1978 in the United States (Min

& Min, 2015; Baker, 2013), and later in Europe, in 1986 (Joo & Fowler, 2014). These measures, along with other agreements on liberalisation in different nations of the world (Tiernan et al., 2014: 214), gave bigger freedom to airlines in terms of operating routes and rates, rest assured the observance of insurance and safety requirements (Baker, 2013). This resulted in the entrance of new companies on the market and therefore even stronger competition among its participants (Min & Min, 2015). The new order of the airline industry permitted the creation of new brands and new forms of business, as well as opening the doors for competition from all over the world.

In the past a company may had a comparative advantage based on its geographical location (Joo

& Fowler, 2014), however nowadays this is no longer possible due to the international character of the industry.

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An important consequence of the deregulations in the industry has been the birth of low-cost carriers. For the first time airlines eliminated a series of secondary components that enabled them to contain the costs, not only internally but also for their passengers (Baker, 2013). Low- cost carriers, also known as ‘no-frills’ or ‘discount’ carriers (Min & Min, 2105), are airlines that aim to contain costs by eliminating all those secondary aspects offered along the transportation. Their main objective of low-cost companies is to obtain price leadership through the minimisation of operational costs, while still maintaining a profit margin (Tiernan et al, 2014; Min & Min, 2015). In other words, low-cost carriers cut costs in order to offer and guarantee to their passengers’ lower prices (Baker, 2013). The service is stripped to its essential parts (the coach transportation of people and little more) and all secondary aspects are dropped in favour of cost containment (Ibid.). This gives passengers the possibility to travel at contained prices as long as they are willing to give up some comforts and additional services.

The entrance on the market of low-cost carriers has added pressure to existing airlines and contributed even more to increase competition in the industry (Joo & Fowler, 2014). In order to have a chance of survival in such a ruthless market, low-cost companies must specialise in a niche or area. Otherwise they need to be able to develop unique service or route that differentiate their offering from that of their rivals (Min & Min, 2015). Contrary to expectations, low-cost carriers rank lower than legacy airlines in terms of customer satisfaction and popularity (Ibid.;

Baker, 2013). This result is associated with different expectations their passengers have, since low-cost ones are willing to accept lower service standards according to the lower ticket price they have paid (Wittman, 2014). However, low-cost carriers advantage is partial and limited to their specialised niches, since in terms of overall service quality they tend to rank lower than legacy carriers and therefore they cannot fully compete with them (Min & Min, 2015). In recent years, low-cost carriers appear to be the predominant business model in the sector, especially in the areas where the airline industry is growing, like in Asia (Baker, 2013). Europe in particular represents the airline market with the most important low-cost carriers share worldwide with an estimated 38% share of the total (Ibid.).

Low-cost airlines present also a series of characteristics that distinguish them from traditional carriers. In the first place, they offer a more essential service (transporting people on an airplane) in which secondary comforts are completely eliminated or are sold apart from the ticket. Low-cost carriers have promoted the unbundling of a series of secondary, peripheral services that can be bought separately from the standard price of the ticket with the integration of additional fees. In this way, low-cost brands can offer the provision of the core service at the

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minimum fare, but passengers can eventually decide to buy additional comforts according to their own desires and preferences (Fageda et al., 2015). Along the same line, low-cost companies have just one standardised class of passengers, whereas legacy ones differentiate between different classes in terms of fares and included services (Baker, 2013). Moreover, in order to contain costs, low-cost carriers rely highly on the willingness of the passenger to cooperate in the service provision and in performing autonomously some tasks, such as buying on-line the tickets (Joo & Fowler, 2014). Low-cost airlines also operate on shorter routes, leaving international, long-haul routes to legacy carriers (Fageda et al., 2015). In order to cut costs, low-cost companies use secondary, less important airports in turn of some advantages such as less traffic congestion and subsequent better on-time performance (Baker, 2013).

Furthermore, since they are usually newer in their establishment than legacy ones, they are more open to innovation and have invested in developing technologies and systems that have permitted to save in terms of employees and operating costs (Ibid.). Nonetheless, the pressure to maximise all investments and to contain costs has made companies overlook the importance of guaranteeing some basic service standards, as in the case of the shrinking size of seats and problems resulting from overbooking. The non-observance of these essential, minimum measures has resulted in negative outcomes and increased their passengers’ dissatisfaction. As a result, the once promising no-frills approach has backfired companies which have carried it too far, sacrificing too much in terms of service quality and making them ultimately lose in competitiveness (Min & Min, 2015: 735).

1.1.6. New tendencies

The traditional distinction between low-cost and legacy airlines seems to be becoming fuzzier and less clear-cut as the time goes by. Given the profitability problems in the industry, many legacy carriers have restricted their service to a more essential offering in order to contain costs and to remain competitive on the market (Hecker, 2008). The 2008 global financial crisis is responsible for this evolution of legacy carriers, since the economic consequences have forced providers to rethink their business model and start cutting costs of staff and inefficient aircrafts which wasted too much fuel (Ramsay et al., 2013) At the same time, low cost-carriers are differentiating their offer by incorporating innovative strategies (Hecker, 2008). For instance, while the majority of low-cost carriers still focus on extreme cost reduction, others are varying their offering with additional, unbundled services that can be added to the standard ticket

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(Fageda et al., 2015). In this way, they are approaching a market portion that has been prerogative of legacy carriers so far. Even though the price gap between low-cost and legacy airlines still exists, it is becoming narrower (Ramsay et al., 2013). Furthermore, the sharing of many intermediate characteristics created new hybrid models of doing business for both type of carriers alike (Fageda et al., 2015). At the moment, the portion of market where low-cost and legacy carriers can still be traditionally differentiated is on long-haul flights (Ramsay et al., 2013). However, Ryanair’s failed attempt at expand its business model to transatlantic routes as well¹, even if unfeasible in the short term, has opened new horizons for further future evolution (and convergence) in the traditional distinction between the two conventional and opposite business strategies in the business (Fageda et al., 2015),

1.2. Corporate Relationship Management (CRM)

Corporate relationship management, hereafter referred to with the acronym CRM, is a set of strategies implemented by a firm in order to maintain and maximise the value of the relationships with its customers (Zineldin, 2006).

It is difficult to describe CRM with a concise, univocal definition, since it involves different aspects and authors focused on different facets of it. This has ultimately resulted in a fragmented literature on the matter with different definitions and opinions about it (Zablah et al., 2004).

The CRM realm can indeed be observed from various points of view, involving different processes, people and parts of the company, complicating the task of finding a commonly shared definition of the concept (Boulding et al., 2005). However, despite the lack of consensus on an academic level, CRM is an area of extreme importance for the conduction of business in different industries and many companies have started investing in it since its beginnings in the 1980’s (Zablah et al., 2004; Boulding et al., 2005).

CRM is an ever-evolving realm that resents from advances in other areas of knowledge, in particular marketing, technology and organizational forms. CRM implementation aims to increase customer satisfaction and to enhance a firm performance in the long term (Boulding et al., 2005). It deals with a set of non-defined, intangible elements that vary according to the setting they are applied to and which are difficult to describe (Zablah et al., 2004). CRM

1 http://www.theguardian.com/travel/2015/mar/16/ryanair-plans-to-offer-flights-between-europe-and-america

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ultimate objective is “to efficiently build and sustain a profit-maximizing portfolio of customer relationships” (Zablah et al., 2004: 485). In order to achieve this result, CRM aims at gaining a deeper knowledge of a firm’s clientele, which is obtained through the collection of data from all the different interactions between a company and a customer (Chen & Popovich, 2003: 682).

This data can be analysed and utilised as a key to improve the company’s operations and to overall efficiency in the future (Boulding et al., 2005; Mithas et al., 2005). CRM is particularly important for services organisations, since they register a lower customer’s satisfaction rate than manufacturers. The collected data can therefore be used as an insight into the causes of their clients’ dissatisfaction (Mithas et al., 2005).

CRM promotes the integration of all the different parts of a business organisation, along with the coordination of the relationships between all subjects involved in the service provision (Chen & Popovich, 2003). In order to be competitive, firms should take into account the market in which they are situated, in terms of competitors, customers and of their own capabilities towards these factors (Boulding et al., 2005). If correctly adopted, CRM can lead to higher revenues and lower operational costs, which in turn can positively affect a firm’s competitiveness on the market (Chen & Popovich, 2003).

In brief, in order to summarise what has been hitherto described, we can quote Boulding et al.

(2005: 157) that have listed all the focal points of CRM that will be hereafter analysed more in- depth:

Specifically, CRM relates to strategy, the management of the dual creation of value, the intelligent use of data and technology, the acquisition of customer knowledge and the diffusion of this knowledge to the appropriate stakeholders, the development of appropriate (long-term) relationships with specific customers and/or customer groups, and the integration of processes across the many areas of the firm and across the network of firms that collaborate to generate customer value.

1.2.1. Dual creation of value

CRM tries to build value in the customers’ eyes, in order to entice them to buy again the company’s products or services in the future. This is a desired outcome since it ultimately results in additional value for the firm and increased chances of survival on the market (Boulding et al., 2005). Creating long-lasting relationships with the customers is particularly crucial in a competitive market as the airline industry is, since this can act as a barrier that

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prevents them from switching to their competitors (Zineldin, 2006). Loyal customers are more apt to forgive mistakes and shortcomings in comparison to the new ones. Accordingly, the investments made for their retention result to be more profitable than those diverted in marketing and technology (Ibid.). CRM strives to understand the factors that enable the construction of a mutual beneficial relationship, in which both parts involved in a service interaction are receiving some advantage from it (Boulding et al., 2005). Throughout CRM, firms desire to learn more about their customers to extract greater value from the interaction with them and maximise their profitability over time (Ibid.). In order for the relationship to be successful, it is important that even customers feel like they are gaining some value from it. As a consequence, organisations must prevent them from being dissatisfied and tempted to ruin their mutual collaboration (Zablah et al., 2004).

CRM adoption must be associated with a customer-centric approach that puts the consumer at the core of the business strategy designed by the company. The capability of a firm to understand their customers’ needs and to act accordingly can represent a comparative advantage over their competitors (Mithas et al., 2005). Attracting new customers is not enough in terms of profitability in the long run and, for this reason, organisations must try to establish relationships that last in time (Zineldin, 2006). In fact, retaining existing customers is estimated to cost five times less than creating new ones (Maxham, 2001; Blodgett et al. 1993). As a consequence, the retention of existing clients is crucial for all companies that want to increase their profitability and chances of survival on the market (Zineldin, 2006). A company must understand how to keep their customers satisfied, in order to encourage them to return, which translates in repeated orders and certain revenues in the future (Ibid.). The aim is to obtain their loyalty over time and to construct a relationship that lasts, in order to maximise their profitability (Berry, 2009). If appropriately managed, this can build a positive and mutual beneficial relationship for both parties, the company and the customer (Zablah et al., 2004).

No interaction between the two parties happens in isolation, but it is part of an ongoing relationship (Zablah et al., 2004). Accordingly, any contact of a firm’s representative with the customer should be aimed at the maintenance and enhancement of this ultimate goal (Ibid.).

Each interaction a company has with its purchasers must be consistent with the expectations they have inferred from the previous ones to further strengthen their trust in the brand (Ibid). In order to achieve these results, companies must promote a customer-centric view among all the employees (Ibid.). The establishment of long-lasting relationships with the existing customers is extremely important for companies, as it decreases the necessity to acquire new buyers and

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the subsequent costs linked to an aggressive marketing strategy (Zineldin, 2006).

Unfortunately, many firms have failed to understand the importance of a customer-centric approach and still put their own interests at the centre of the service provision, with negative consequences in terms of customer satisfaction and loyalty (Berry, 2009).

Customer needs and preferences evolve over time and it is important for a company to understand this issue in order to be prepared to satisfy their changing necessities (Zablah et al., 2004). In order to better satisfy its clients, a company must be able to divide them into different segments to better identify their needs and serve them accordingly (Chen & Popovich, 2003).

Consumers can no longer be considered a unified, indistinguishable mass, but rather they are recognised in their heterogeneity (Boulding et al., 2005). This has had significant repercussions on business and marketing strategies, as companies have started to become more and more customer-centric (Chen & Popovich, 2003). It is crucial for a firm to be flexible enough to change according to customer’s evolving expectations and external market pressures all along (Ibid.). The actions of the two parts involved in the service interaction (the brand and the customer) are indeed interrelated and evolve in relation the one to the other (Boulding et al., 2005). On the one hand, companies try to change in order to better accommodate the mutable desires of their customers and to secure their return in the future. On the other hand, customers act strategically too in order to gain some benefit from the relationship with the firm (Ibid.).

CRM is a dynamic process and requires the company to be flexible enough to evolve in response to its customers’ changing needs and the subsequent new behaviours they may show (Zablah et al., 2004). Managers must be aware that the CRM adoption must be associated with the willingness to change and to evolve in accordance with the tendencies signalled by the data on their customers’ behaviour (Ibid.). This implies accepting the fact that their customer portfolio is dynamic and that even stable customers can change in their requests and characteristics (Boulding et al., 2005). In some cases, this may lead the company to interrupt the relationship with those customers whose necessities do no longer coincide with the firm’s interests (Zablah et al., 2014). It is important for a brand to show some degree of consistency with previous interactions and future ones, but at the same time a company should be able to implement changes and improvements in inefficient and problematic areas (Ibid.).

CRM enables companies to obtain a variety of information regarding their customers gathered from different transactions and sources over time. These data is valuable as it gives companies the possibility to understand their customers’ needs and habits in order to improve their future

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offering (Mithas et al., 2005). Consequently, a choice must be made about which consumers are worth focusing on and which ones are not of primary importance, since some segments appear to be more rewarding than others in terms of profitability and future revenues (Boulding et al., 2005). Because “no company can be all things to all people” (Zineldin, 2006: 433), decisions should be made about which areas to invest in and which customers to target (Chen

& Popovich, 2003). CRM permits to understand the characteristics of a company’s customers in terms of behaviours, costs, advantages and disadvantages (Boulding et al., 2005). A company must subdivide its customers into segments and decide the most appropriate strategy to adopt for each one of them, in relation to their characteristics and peculiarities (Zablah et al., 2004).

Accordingly, a firm may decide to limit its marketing strategies only to those customers who appear to be naturally more interested in its offering and minimise the efforts directed towards the less likely ones (Boulding et al., 2005). In some cases, it can be more profitable for a brand to choose not to build a relationship with some customers at all, as it is beforehand known that the effort will be not rewarding in terms of projected outcomes and profits (Zablah et al., 2004).

This results in a convenient situation for both parties, as companies avoid wasting resources on unrewarding customers and, in turn, customers are not annoyed by companies whose products they are not interested in buying (Boulding et al., 2005).

CRM gives insight into a deeper knowledge of the customers and their changing needs (Mithas et al., 2005), offering companies the possibility to adapt their behaviour towards individuals or specific groups of consumers (Zablah et al., 2004). This can be a starting point for the design of products and services that can better accommodate their buyers’ expectations (Mithas et al., 2005) and can lead to ultimately serve “the ‘right’ customers with the ‘right’ products and services” (Zablah et al., 2004: 484). The collection of big CRM data can also help firms to better understand their customers’ past behaviour and predict their future actions (Mithas et al., 2005). Furthermore, customer knowledge obtained from CRM implementation is also positively related to customer satisfaction (Ibid.). It is in the firm's own interest to try to increase its customer satisfaction, due to the positive effect it has on different dimensions such as future repurchasing intentions, customer loyalty and positive word of mouth (Varela-Neira et al., 2008).

Customer satisfaction is an important issue for all services. It is directly linked to customer loyalty and retention, which in turn has a positive impact on costs and profitability (Zineldin, 2006). CRM has a positive effect on customer satisfaction as it provides knowledge of their buyers and therefore enables companies to tailor their offering based on their actual needs

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(Mithas et al., 2005). Customer satisfaction does not automatically equal to customer loyalty, however it is at the basis of the construction of profitable relationship a customer establishes with a company (Zineldin, 2006). Customer loyalty can be built over time with the accumulation of satisfying service encounters a customer has had with a brand that have met his or her expectations (Mithas et al., 2005). Loyalty is a consistent attitude that the customers display over the course of time towards those “organisations that display consistency, reliability and fairness in the provision of their service” (Tiernan et al., 2014: 214). It is particularly relevant for organisations, since it can help customer detention and act as a barrier that decreases the risk of them passing to competition (Bloemer et al., 1999). Loyalty appears to be associated more with interpersonal relationships than products, and it is a desired quality for intangible services in particular (Ibid.).

It is important for companies to retain their customers and increase their loyalty to their brand, as this is linked to future purchasing intentions and enables to maximise their profit share over time (Chen & Popovich, 2003; Chang & Chang, 2010). In this perspective, it is more rewarding for a company to spend money to immediately resolve a problem that has arisen with an existing customer, rather than risking of losing him or her (Zablah et al., 2004). A customer who is satisfied with the resolution of a failure will be encouraged to opt again for the firm in the future, instead of switching to competitors (Chang & Chang, 2010). However, this is not always enough and a company must actively strive to create and establish a long-lasting relationship with its customers by enticing them to remain faithful to the brand (Zineldin, 2006). In the airline industry this is the case of ‘frequent user’s incentives’, which offer some kind of advantage to their loyal clientele, in order to encourage them to choose them over their competitors (Ibid.). One way to measure and monitor customer satisfaction is through the analysis of their complaints made to the company (Mithas et al., 2005). Consumers are also attentive in evaluating the service they are being offered in relation to other clients that are perceived as similar or equal.

1.2.2. Technology

CRM also relies on technology, as it provides the basis for gathering a series of data about customers that can be used for the subsequent improvement of the company. However, data collection alone is not sufficient and many firms fail to understand the full potential of CRM (Boulding et al., 2005). A successful company recognizes the value and the possibilities the

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information obtained from different transactions with customers entails, in order to use it at its own advantage to improve its offering and its customers’ satisfaction (Boulding et al, 2003).

CRM applications take full advantage of technology innovations with their ability to collect and analyze data on customer patterns, interpret customer behavior, develop predictive models, respond with timely and effective customized communications, and deliver product and service value to individual customers (Chen & Popovich, 2003: 677).

Technology definitely is an important component of CRM, but it would be wrong to restrict its definition just to this aspect (Zineldin, 2006). Successful CRM needs appropriate technology to function at its best, but at the same time technological potential cannot be fully exploited without being integrated into a suitable CRM strategy (Boulding et al., 2005). Information technology (IT) enables firms to gather high volumes of data about their customers, their suppliers, their stakeholders and the market they are part of (Zablah et al., 2004). In turn, electronic components enable companies to reinvent themselves, in order to improve both in the service delivery and in their own internal organization (Chen & Popovich, 2003; Mithas et al., 2005).

Technology offers the possibility to gather customer information in specific databases, which can be used as tools to deepen the knowledge brands have of their clients. All databases are gathered together in data warehouses that enable firms to amass information about their customers deriving from different sources over time. These collected data can be used as a point of departure for the design of strategies that are aimed at better satisfying their buyers’ needs and maximise their potential in terms of future revenues (Chen & Popovich, 2003; Mithas et al., 2005). Technology helps firms to gain insight of their different clients and the behavioural patterns they share. In turn, this helps companies to understand towards which segments and how to invest in terms of profitability and expected investment return (Chen & Popovich, 2003).

Furthermore, technology frees firms from certain administrative and customisation tasks, which can be automated thanks to designated tools (Ibid.). In a nutshell, technology helps companies develop a one-to-one approach, as it gives insight into their customers’ behaviour and necessities. If properly managed, this can represent a substantial competitive advantage for the retention of customer loyalty and the development of a trusting relationship with them (Ibid., 2003; Zablah et al., 2004). Technology also enables firms to share all these data with the different parts of the organisation and improve the communication among different branches (Mithas et al., 2005).

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1.2.3. CRM adoption

CRM is an integrated approach that requires the involvement of all employees operating in the different branches of a company (Boulding et al., 2005). A firm’s CRM approach must be designed taking into consideration a firm’s own peculiarities and needs (Ibid.). Every single employee must share the customer-centric approach that the CRM adoption entails and the management must actively discourage every resistance to it (Chen & Popovich, 2003: 684). In particular, it is of vital importance for a company to assess that the results and the ideas behind the CRM implementation arrive at the service touchpoints where the actual interaction with customers happens (Mithas et al., 2005). Nevertheless, in order to achieve the desired outcomes it is important that this view is shared at all levels of the organisation.

In many companies, the adoption of this new strategy may involve a paradigm shift. In fact, in many organisations different branches are thought to be independent from one another and they may feel more entitled to access customer information than other units (Chen & Popovich, 2003). However, in order to fully exploit the benefits of CRM, it is crucial to share available information with all the different parts of the chain in order to permit everyone involved in the service creation process to benefit from it (Mithas et al., 2005; Zablah et al., 2004; Boulding et al., 2005; Chen & Popovich, 2003).

CRM is a key tool for the observation and the storage of customer knowledge coming from different transactions through different sources, channels and touchpoints (Mithas et al., 2005).

Supply-chain integration and the sharing of information between a firm’s different branches is indeed at the core of a successful CRM strategy (Ibid.). The top-management must be directly involved in its implementation and promote the new customer-centric view inside the company (Chen & Popovich, 2003; Zineldin, 2006). Technology is an important element since it provides the means that support and ultimately allow the sharing of this information to all parts of the company (Mithas et al., 2005).

1.2.4. The role of the employees

Employees play a fundamental role in the provision of every service and subsequently they are important in CRM implementation too (Boulding et al., 2005). Every staff member must be directly involved in the relationship the company has with its customers and, as a consequence, no CRM strategy can be truly successful if not firstly shared and promoted among its personnel

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(Boulding et al., 2005). The collection of customer data alone is not sufficient if not paired with an appropriate strategy on the part of human resources at the moment service provision (Ibid.).

The functional integration of CRM between people and processes may be difficult to duplicate by competitors and thus can represent a competitive advantage on the market (Ibid.). CRM involves a series of changes at the level both of service provision and of conduct with customers. For example, each employee must have clear in mind what the new vision of the company entails and what he or she is expected to do in order to contribute to its success at the moment of the service provision (Zablah et al.; Chen & Popovich, 2003)

Obviously, CRM implementation is not always smooth sailing and can lead to unsuccessful outcomes too. Even though it can have positive results, the introduction of CRM is not free from the risk of failure (Chen & Popovich, 2003). If not thoroughly and appropriately thought in accordance to a precise business strategy, CRM can lead to a worse firm performance than before (Boulding et al., 2005). CRM is not an exact science and therefore it does not exist an answer that is successful for all companies (Chen & Popovich, 2003). Many factors can affect CRM integration into the organisational routine, including oversights in its design, unpredictable consumer behaviours, employees’ reaction to it and inadequate return on investment (Ibid.). CRM failure can depend on the company’s own responsibilities and on its lack of comprehension of what makes it function properly (Ibid.). Another recurring mistake is the lack of an integral vision that conjugates CRM implementation with an appropriate supply chain integration (Mithas et al., 2005). Companies may also fail to understand the value and the potential the collected data can have in the construction of their own customer portfolio and therefore how to exploit their potential fully (Zablah et al., 2004).

Consumers may not trust a company, especially when they think that the data about them will be used for purposes that do not directly benefit them or even be damaging (Boulding et al., 2005). Consumers may decide to act strategically and modify their behaviour throughout different interactions, in order to make the data a company has acquired about them substantially useless (Ibid.). This is particularly true in the case of the Internet, where the perception of privacy is low and consumers may prefer not to give too much insight into their personal information for fear that it may fall into the wrong hands (Ibid.). Nevertheless, a company must strive not to lose its customers’ collaboration if it wants to continue to build a relationship with them, which is at the basis of a successful business venture (Ibid.).

Analysis of the use of social media as a means for providing customer support in the airline industry

Università degli Studi di Modena e Reggio Emilia D

C ORSO DI L AUREA M AGISTRALE IN

L INGUE PER LA COMUNICAZIONE NELL ’ IMPRESA E NELLE ORGANIZZAZIONI INTERNAZIONALI

Analysis of the use of social media as a means for providing customer support in the airline industry

Utilizzo dei social media da parte delle compagnie aeree come modalità di assistenza al cliente

Prova finale di:

Silvia Giovannini Relatore:

Eugenio Caperchione

Correlatore

Donatella Malavasi

Anno Accademico 2014/2015

Table of contents

C ^{ORSO DI} L ^AUREA M AGISTRALE IN