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Singapore Airlines (SIA) was created in 1972 and was fully state owned. The company expanded rapidly, and with a strategy of concentrating on customer needs by providing exceptional in-flight service, the airline quickly became a noteworthy competitor in the market. During its formative period in the 1970s, SIA developed all the hallmarks that made it one of the most successful and consistently profitable airlines in the world. Through a constant investment in personnel skills and other sources, the company has achieved a sustainable competitive advantage, as well as a reputation for classy elegance.
This paper reveals the strategies that have been used by SIA, with backgrounds on their sustainability and sources of advantage, the way these strategies changed over the years and how to continue.
The slides for the presentation that accompany this paper can be found in the appendices.
1. Then & now: Strategical stability and change at SIA
This paragraph contains an evaluation of the value strategies of 1972 and the current value strategy and evaluates the changes that have been made. A description of the 1972 strategy will be given first, thereafter; the current strategy will be discussed.
The marketing strategy that was envisioned by the creation of the SIA had a focus on customer needs by providing exceptional in-flight service. This required the on board flight staff to be of excellent quality. At SIA, there was a constant emphasis on training (including social training and etiquette) and customer service. Ever since, the exceptional in-flight service has become a part of the company culture and image. All of this suggests a strong product-oriented strategy, a value strategy that Treacy and Wiersema (1993) define as product leadership. Competitive advantage came from a good product; the high profitability in the 70's was helped by low labor costs in Singapore.
Improvements that have been made since 1972 are foremost improvements to the product of "traveling": better in-flight entertainment, an upgrade to ground services, more flight destinations through the "Star Alliance" network and improved seats and space on board. There are however improvements in other areas than product improvements: 2 kinds of loyalty programs have been introduced, premium passengers' preferences are filed and the complaint management has been improved over the years. The differentiation of types of passengers and the expectation that they will fly SIA again, retaining clients through complaint management and loyalty programs all suggest a move into a customer intimacy value strategy. As service and CRM become more and more integrated at SIA, customer intimacy is strategically embedded in the organization.
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The heavy investments in the product are continuing too however. It thus appears that SIA is currently trying to master 2 value strategies: Product leadership and customer intimacy. This is perhaps the most fundamental change in the value strategy of SIA.
As there is a clear focus on product quality, as opposed to cost which is hardly mentioned in the case, it is clear that SIA has a differentiation strategy.
2. Superior sources and skills underlying Singapore Airline's positional advantage
The ability of SIA to exceed and perform better than many of its competitors is attributed to the distinctive capabilities and skills of its personnel. Especially the cabin crew plays a major role in this aspect. From the very beginning applicants are screened on very concrete capacities and once selected they undergo rigorous training in order to live up to certain standards of behaviour. Furthermore, to reinforce the service culture and encourage greater interaction among the staff, crew members regularly attend different training sessions as well as participate at numerous activities. All these factors, combined with the empowerment of each employee to solve problems and complaints on the spot, facilitate the effectiveness of individual function performance and contribute to maintain a high service level. According to Day and Wensley (1988), superior skills are the distinctive capabilities of personnel that set them apart from the personnel of competing firms. This is exactly how the personnel of SIA can be characterised. Especially the personnel which is in direct contact with the customers, is educated, mannered and trained to take actions in order to optimally satisfy the customers. Besides the educated and team-oriented personnel, SIA has other sources of advantage. Day and Wensley (1988) define superior sources as more tangible requirements for advantage that enable a firm to exercise its capabilities. The superior sources of SIA are: a very young aircraft fleet, in-flight comforts such as state of the art seats and entertainment systems, the "Singapore Girl", the brand, country of origin, and the location of its headquarter. All these additional sources combined, contribute to maintain a high service quality level and a high satisfaction among the customers of SIA.
3. Sustainability of Singapore Airline's resources and skills
A continuous investment in the different sources and skills of SIA, as well as the effective and efficient deployment of these sources of advantage, has resulted in a positional advantage for the airline. By these means SIA has been able to differentiate itself from competitors as a customer-oriented and elegant airline. The value-adding activities of SIA such as the exceptional in-flight service, new and comfortable planes, and an outstanding ground service have resulted in a perceived superior service, highly valued by customers. Especially its cutting-edge service has enabled SIA to be a very noteworthy competitor in the highly competitive airline industry. Thereby, the airline has been able to achieve superior value equity, which has resulted in performance outcomes such as customer loyalty and profitability.
The high profits and cash flows generated have been used to recycle aircraft
much faster than standard practice in the industry, to invest in state of the art entertainment systems and comfort in the planes, and most importantly in training programmes for the personnel in order to unite the circle and live up to the superior service quality expected by the customers.
Numerous sources of SIA, such as airplanes, entertainment systems, food and drinks on board etc, are easy victims of imitation by competitors. What is less imitable is the service culture build up around the delivery of superior service. According to Porter (1996), companies must face some trade-offs in order to achieve a sustainable competitive advantage. In the trade-off between cost and differentiation, SIA has opted for the differentiation alternative and aimed at realizing this position through providing a unique travel experience and not merely a transportation possibility. In order to achieve this position SIA has continuously strived to integrate its different activities in order to accomplish a fit among these. Every activity carried out has the customer and the fulfilment of his/her satisfaction as the main target. Each activity performed by SIA is consistent with its overall strategy of customer satisfaction. This is related to the first-order fit discussed by Porter (1996). Furthermore, the fast recycling of aircraft
, the ground service, the company culture, and the investments in other airlines, such as Virgin Atlantic (VA) and Air New Zealand (ANZ) to expand its number of routes, are all reinforcing and tailored to offer the customers of SIA a unique experience and satisfaction. Lastly, in order to optimize its effort on customer satisfaction SIA joined the global airline network "Star Alliance" and thereby achieved the ability to further optimize its service. According to Porter (1996), competitive advantage grows out of an entire system of activities and that the whole matters more that any individual part. With respect to SIA it can be said that the company has been able to achieve a fit between all the above mentioned activities, and thereby created a chain which is very difficult to untangle from outside the company and therefore hard to imitate.
The main advantage of SIA is that it has been able to build up a corporate service culture, which clarifies throughout the company what the major tasks are and how they should be performed. As Mr. Chong argues, Singapore Airline's sustainable competitive advantage resides with its culture of "we care for our customers, and we all sense that we have a reputation to keep up". According to him, there is a sort of unspoken routine characterized by similar thinking and understanding of the different tasks that need to be fulfilled. With this service culture as the backbone, it can be concluded that SIA has achieved a sustainable and inimitable position in the airline industry.
4. Building SIA: the next step in developing the product
SIA is now dealing with question whether to adopt a new Space bed in its business class passenger department with acquisition costs of US $100 million. One of the reasons why this strategy is under discussion is because their main competitor British Airways (BA) has similar beds in their business class department since 2000, and at the moment some of SIA's first class customers are migrating to BA which might be a reaction to BA's strategy. While the costs are high for this project, it seems to be a good investment and a continuation of SIA's current product leadership strategy to keep customers satisfied and deliver the best service available.
On the other hand, because of the uncertainty which dominates the aviation industry since September 11, SIA will be investing capital in something that seems risky at the moment; the chance exists that less people will fly the coming period, hence it takes longer for the investment to be earned back, with the risk that at the time the investment will show its benefits and customers are willing to exploit the service to its full extend, a competitor might have come with a new and more advanced type of space bed since the producers of airline seats will continue to innovate as well, and the investments are spiralling upwards for the airlines as they attempt to outperform the competition. Another downdraft to the idea is that the differences between the first and business class become even smaller, so first class premium customers might get the feeling that they pay too much for the extras over the business class, since both the classes have beds in which you are able to lay down.
Next to the last two mentioned negative impacts based on costs another important issue is the impact of losses caused by customers who might move away to a competitor such as BA, with in mind it is usually cheaper to sustain customer than to win them back.
Since in this time the market is very uncertain and unstable, the costs plus that risks are high, and there is a problem of price differences between services within the company. Currently we give SIA the advice to postpone the implementation of the space beds until the market has settled down to a normal or more predictable level and there is a better overview of customer's needs.
In the meanwhile, the company should focus on other factors of its superior customer service and listen to what people need in order to feel more comfortable in such turbulent times. Maybe an emphasis on security can be among the needs of current customers and improving it can help to set SIA apart from the competition. A side advantage of postponing the introduction is that at that time of introduction more advanced space beds might be available; SIA is a leader instead of a follower on this product plus there is time left to continue to think about levelling the difference between first- and business class service.