The Boeing Company

The Boeing Company

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CONTENTS

1.     COMPANY OVERVIEW………………………………………………p.3 to 4

Company’s vision, mission statement and objectives Vision……………p.3
Boeing- Airbus market share …………………………………………………..p.4

2.     SITUATION ANALYSIS…………………………………………….p. 5 to 10

PEST analysis…………………………………………………………………..…p.5
SWOT analysis ……………………………………………………………………p.7
Boeing Corporate Culture………………..………………………………….…p.10

3.     THE BOEING COMPANY MARKETING POLICY………………p.11 to 30

Segmentation…………………………………………………………………..…..p.11
Boeing’s Positioning and Targeting Strategy………………………….…….p.12
Buyer behaviour……………………………………………………………..…....p.15
Pricing strategy in the Boeing-Airbus duopoly ……………………………. p.16
Analysis of Major Customers………………………………………………..….p.18
Description of Products and Services………………………………….……..p.20
The life cycle of Boeing’s commercial airplanes……………………………p.23
Boeing’s Communication Policy……………………………………………….p.24
Public Relations …………………………………………………………….…….p.27
Distribution policy………………………………………………………………...p.28

4.     PROCUREMENT AND SUPPLY CHAIN MANAGEMENT …….p.31 to 34

Brief overview of Boeing’s procurement activity ………………………..….p.31
e-procurement ………………………………………………………………..……p.32
Recommendations……………………………………………………………..…..p.34

5.     COMPARISON WITH AIRBUS ……………………………….……p.35 to 37

Airbus S.A.S brief overview ………………………………………………….….p.35
Reasons behind the Duopoly ……………………………………………….…..p.35
Comparison of both Boeing and Airbus strategies……………………….....p.36
Latest commercial disputes …………………………………………………..…p.36

6.     ATTACK AND DEFEND STRATEGIES …………………………….……p.38

Attack strategy ……………………………………………………………….….…p.38
Defend strategy ………………………………………………………………….....p.38

7.     RECOMMENDATIONS ………………………………………………….…p.39

8.     APPENDIXES………………………………………………………….p.41 to 45

1.     COMPANY OVERVIEW

Company’s vision, mission statement and objectives Vision

Vision
People working together as one global company for aerospace leadership
Boeing- The future of flight.

Mission
To be the number one aerospace company in the world and among the premier industrial concerns in terms of quality, profitability and growth

Objectives
To achieve the above goals and fulfil Boeing’s mission, the following objectives will guide company:

•     Continuous improvements in quality of products and processes:
Our commitment to steady, long-term improvement in our products and processes is the cornerstone of our business strategy. To achieve this objective, we must work to continuously improve the overall quality of our design, manufacturing, administrative, and support organizations.

•     A highly skilled and motivated workforce:
Our most important resource is our human resource: the people who design and build our products and service our customers. Given the right combination of skills, training, communications, environment, and leadership, we believe our employees will achieve the needed gains in productivity and quality to meet our goals.

•     Capable and focused management
To employ our technical and human resources with optimum efficiency, we must ensure that managers are carefully selected, appropriately trained, and work together to achieve our long-range goals.

•     Technical excellence
In a world of fast-challenging technology, we can only remain competitive by continuously refining and expanding our technical capability.

•     Financial strength
The high-risk, cyclical nature of our business demands a strong financial base. We must retain the capital resources to meet our current commitments and make substantial investments to develop new products and new technology for the future. This objective also requires contingency planning and
control to ensure the company is not overextended should a severe economic downturn occur the plan period.

•     Commitment to integrity
Integrity, in the broadest sense, must pervade our actions in all relationships, including those with our customers, suppliers, and each other. This is a commitment to uncompromising values and conduct.

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It includes compliance with all laws and regulations.

Boeing- Airbus market share

The rivalry between these giants, the only manufacturers of large medium or long-range passenger aircraft, has today reached epic proportions. Airbus overtook Boeing five years ago to be number one, mostly through the success of its medium capacity long-haul Airbus A-330 and its shorter-range variations such as the A-340. This market share pie-chart of the two head to head competitors-Boeing and Airbus shows that Airbus is leading at the moment. Even though the number of orders is higher with Airbus in 2004 but the total revenues of Boeing is still much higher than that of Airbus. This is due to the fact that Boeing gains profit from other activities such as military aerospace, defence, and space businesses. With the launch of Airbus A380, the market share in the coming year will have slightly a change which is better for Airbus. However, Boeing will be able to regain its market share thanks to the new model of 7E7, Dreamliner and making the competition more aggressive. The pie-chart result is based on the revenues that Boeing and Airbus earned in 2004:


Commercial aircraft sales revenues:

Airbus: $25.4864 billion
(€20,224 billion)

Boeing: $32. 2 billion
(Commercial aircraft
accounts for 60% of the
overall revenues of
$52.5 billion )



2.     SITUATION ANALYSIS

PEST analysis

Political factor

•     Policy and regulatory decisions by governments can also have a dramatic impact on the demand for civil transport aircraft.

•     The United States Government and its Federal Aviation Administration (FAA) are particularly influential in this regard since they oversee the largest air transport market in the world. Regulations by the United States and European governments may prove to be a major driving force for orders for new aircraft and engines in the years to come. Similarly, the deregulation of European airlines, already begun in the early 1990s, holds the promise of expanded market prospects for smaller regional jets. Trade in larger commercial jetliners has been virtually tariff-free since 1979 under the General Agreement on Tariffs and Trade (GATT).

•     The high-level political intervention also has an important impact on the sales of aircraft. Different buyer’s decisions of spending such a huge amount of money always rely partly on the political reasons since the support and interference of government could affect the future of buyers. For example: currently China is the biggest market for Boeing and it is expected to remain so for the next 20 years. In fact, China, through its considerable purchases of Boeing planes, has managed to gain a lot of political leverage in the U.S

Economic factor

•     Aircraft manufacturers rely heavily on subsidies. Recently, Boeing and Airbus are on the debate of unfair subsidies.

•     Likelihood of increasing fuel costs, congestion and other environmental restrictions, as well as the prospect of higher security and insurance costs to reflect the risk of terrorism. The fuel cost is increasing in the future. International Air Transport Association estimated that airlines' fuel costs would rise by 31% in 2005. IATA, which represents 95% of the world's airlines, also predicted that the industry would lose $6 billion.


•     With several airline companies closing down and the global tourism industry in recession, aircraft prices are down by around 20 per cent. Airbus had quoted around 15 per cent less than Boeing for the IA contract during the bidding earlier in the year.

Social factor

•     Anti-US feeling feelings generated by the events of the past two years had adversely impacted on Boeing's sales, especially in West Asia, which is a lucrative market for the industry.

Technological factor

•     The supersonic transport is also an opportunity because an entirely whole new segment of the market will form. Commercial carriers will buy many of these supersonic aircrafts in order to satisfy the consumer’s need to reach destinations quickly and on time

•     The biggest and most cost effective technological advancement for the commercial aircraft industry is designing planes faster. The increased production time will save costs on labour and enable better resource usage for each plane made. Boeing has utilized this technological advancement by building a new model, the Boeing 777, by using computer technology to build a prototype. This is tremendously cost effective because the company does not have to absorb the cost of the prototype that they normally would have to build.

•     Technological advances will also help companies use resources more efficiently. Airplane manufacturers have been using robots to achieve this. Robots are a very efficient tool in creating airplanes

•     Lighter materials are another way companies are trying to utilize their resources effectively. Research has said that lighter materials used in airplanes are better in aircrafts. Conventional airplanes are made of metal, which adds a great deal of weight. In the past couple of decades, scientists have come up with a new material called composite, a synthetic material made of carbon fibbers.

SWOT analysis

Strengths

•     Strong global network
•     Broad product line that covers most major market niches / R&D development


     Weaknesses

•     A hierarchical, ridged, and semi- autocratic management style, which is a product of its military heritage.
•     Labour problems.
•     Dependence on US government and WTO-incompatible subsidies.


Opportunities

•     New aircraft to gain market share
•     Increase demand for point to point routes


     Threats

•     Slowdown in the commercial jet market
•     Uncertain airline industry environment



Strengths

•     Strong global network
The company has strong international operations with customers in around 145 countries, employees in more than 60 countries and operations in 26 states. Worldwide, Boeing and its subsidiaries employ close to 188,000 people with major operations in Washington State; Southern California; Wichita, Kansas; and St. Louis, Missouri. Boeing enjoys the ownership of a brand with good and far reaching awareness on a global scale. Strong relationships with business partners

Boeing enjoys many strong alliances with many other globally powerful companies. In defence projects Boeing works closely with Northrop Grumman in programs such as the joint common missile program. Boeing is also a 50-50 partner with Lockheed Martin in the United Space alliance. Boeing also works with many other organizations such as NASA in close relationships, which strengthen the company’s position in other markets.

•     Broad product line that covers most major market niches / R&D development

Boeing Company offers a wide range of product lines. For main commercial product such as aircraft, Boeing has 717, 737, 747, 757, 767, and 777 families of jetliners and the Boeing Business Jet. At the moment it is planning to release a new version, 787, which is called the Dreamliner. The company has more than 14,000 commercial jetliners in service worldwide, which is roughly 75% of the world fleet. Its product line is continuing to expand, creating new versions of its family of commercial airplanes. This pioneering technology development helps ensure Boeing stay a leader in the industry.

To remain competitive, Boeing must invest in developing the latest technologies. Thanks to its strong R& D, Boeing has been on winning side in the head-to-head competition with Airbus so far. Total research and development expense in 2003 was $1.7 billion. The company expects research and development expenses to be between 3.25% and 3.75% of revenue in 2004 and between 3.5% and 4.0% in 2005 as spending increases on the 7E7 program.

Weaknesses

•     A hierarchical, ridged, and semi autocratic management style, which is a product of its military heritage.

Since the Second World War, the Boeing company still operates under a management style in which the employers makes decisions on their own with little or no input from employees. This does not fit in the modern management and for this reason; Boeing has several problems in management when it practices racial discrimination, tussles with its union workers, and then lets its executives flee the scene to avoid accountability.

•     Labour problems

When production problems delayed delivery, Boeing was forced to increase its work force, working in three shifts, to complete the planes. This inexperienced work force created additional problems and the cost per plane is increased substantially. Moreover, the inexperienced workforce found the aircraft design too complex to implement. The managers ordered forced overtime: 50-to-60-hour workweeks became common. The problems affected other Boeing airplanes and complaints from customers began to mount. The Federal Aviation Administration (FAA) ordered special inspections of all Boeing jetliners produced since 1980 to look for defects that might affect safety. The strains of the forced overtime contributed to a 48-day strike in the fall of 1989 that hurt Boeing financially.

•     Dependence on US government and WTO-incompatible subsidies

At the moment, Boeing mainly gains the benefit from the US which is 65 % of the company total annual sales. Moreover, Boeing is being criticized by Airbus for the subsidy contracts as well as foreign and domestic support all amount to aid for Boeing’s 7E7 model that is double what was available for the new Airbus A380. Whilst this fact is on one hand a great strength of the company with many opportunities it could also be construed as a weakness.

Opportunities

•     New aircraft to gain market share

With the impressive show of Airbus A380 recently, Boeing also plans to release its powerful weapon in the competition with Airbus. The new version Boeing 787 which inherits the most advanced technologies and advantages of the previous models is hoped to be a big hit to the airline industries. At the moment, Boeing has received a number of orders for Boeing 787- Dreamliner and this opportunity actually shows that Boeing still insists on its successful business strategy to build longer-range, more capable, smaller aircraft that could go point-to-point and, therefore, serve city pairs directly rather than having to hook them up through a hub. The new 787 is the proof that Boeing does not lag behind the competition.

•     Increase demand for point to point routes

This is related to the booming market of low-cost airline. All the low-cost airline companies use point to point routes in order to reduce the costs substantially. Fortunately, this is suitable with the strategy of Boeing as mentioned in the previous parts. Airbus A380 is still unsure about its future because most of the big airline companies at the moment are not gaining profit.

Threats

•     Slowdown in the commercial jet market
No industry was hit harder than airline industry after the 11th Sept. Boeing and Airbus as well have to suffer big losses in revenues from 2001. Recently, there are some good signals recently for both of the companies with the increase of order number. The demand for international tourism and delivery is increasing. However, it still does not reach the level before the terrorism event.

•     Uncertain airline industry environment

The airline industry environment is so dynamic and uncertain that to guess long-term or even short-term outcomes is very questionable. Competition in the commercial aircraft industry is particularly
intense with regard to price, operating costs and production schedules. Increasingly, major manufacturers are teaming with global suppliers to reduce their risks, cut costs, and boost profitability.
Besides, a number of low-cost carriers continue to gain market share, remain profitable and are ordering new airplanes. There have been encouraging signs that the US economy and global air traffic are recovering and airline interest is slowly increasing. However, the timing of a commercial airplane recovery remains uncertain. Currently, airplane deliveries are likely to remain roughly flat in 2004 and 2005 and begin increasing in 2006.

Boeing Corporate Culture

The organizational culture of Boeing is hard to identify in the organizational matrix. Because it does not appear any emerging characteristics that we can either put it in high or low boxes. In the recent past, we think that Boeing has a low sociability/low Solidarity. The reasons for this conclusion are below

•     There were controversies five years ago about Boeing treatment towards employees. People were not sufficiently well treated or well trained.
•     A hierarchical, ridged, and semi autocratic management style, which is a product of its military heritage
•     Labour problems - excessive overtime - 48 day strike
•     Turf battles inhibit cross-functional and cross-divisional communication
•     Lack of professional management skills - motivation and leadership (engineering and military culture)

It seems that Boeing had not really cared its employees. The organizational matrix could have been: low sociability/ low solidarity

However, it starts to appear some good signals in Boeing Company. The Board of executives put new emphasis on its employees to reinforce its sociability mainly. This could be read in the company overview available on its web site.

     Boeing’s strength and competitive advantage comes from its employees
     The company strives for continuous quality improvement and invests in the workforce through its benefits programs and by encouraging a balanced work/life culture
     One such program is Boeing’s Learning Together Program, which facilitates advanced learning and career development opportunities for employees at all levels
For these reasons, we can expect the organizational matrix to move towards higher sociability.
3. THE BOEING COMPANY MARKETING POLICY

Segmentation

Since economic and traffic growth rates vary by region Boeing’s segmentation of its customers is done solely through geographic regions. Boeing believes that North America and Europe will continue to order the most airplanes with their mature economies. It believes that airplane traffic within Asia pacific will increase by six per cent annually over the next twenty years and that the market share of flying within Latin America will increase from two per cent to four per cent . One must also consider that single aisle airlines are more popular in the domestic short haul routes of Europe and North America and that in Asia-Pacific a mix of both single aisle and twin-aisle airplanes is required. It is due to these differences in global air travel that Boeing uses Geography as its segmentation tool. Short haul routes represent over ninety per cent of world departures and therefore appear to reveal that Europe and North America is the more attractive segment.

Boeing’s ability to segment geographically allows the company to truly determine each segment’s demand patterns. For example in mature economies such as North America and Europe the company can predict an increase in the demand for regional jets as air travellers in these regions are demanding non-stop flights on thinner routes. Boeing can equally predict that this trend will also occur in China within the next twenty years as the country has a large geographical landmass and would achieve more by using a similar strategy to that of Europe and America which relies more on frequency flying. China’s airline industry is expected to have a network and fleet rationalization process which will pave the way for regional carriers to fly between China’s regional gateway cities and thus provide a more frequented point to point service.

Through segmenting geographically the company can also assemble other probabilities that aid it in its marketing, probabilities like America will require the most airplanes over the next twenty years because it has a large number of experienced travellers and has an aging fleet that will need to be replaced. Other probabilities that Boeing is assuming through its geographic segmentation is that the most 747 or larger aircraft orders will come from Asia with its less developed short haul route infrastructure.

Appendix 1.1 illustrates Boeing’s segmentation of the world market for commercial airplanes; the map of the globe does not exactly represent political or geographical regions it is simply a division for Boeing to use in its segmentation policy.

Boeing’s Positioning and Targeting Strategy

Positioning

From a buyers point of view there are many criteria that apply to buying a new plane from Boeing. The main two criteria we have chosen are capacity and distance. These criteria are relatable to Boeing’s business buyers because for today’s airline companies the choice is whether or not to operate a short distance service or a long distance service and whether or not to have high capacity or low capacity flights. The positioning map below identifies four many positions for Boeing’s clients to be in. Before looking at these criteria in more detail we would first like to mention other criteria which we feel are less important for the buyer but are nevertheless worth mentioning. They include the actual cost of the purchase, the length of their relationship with Boeing, whether or not they will receive a trade discount, the company’s current strategy and if there is financial aid.
















     Short distance and low capacity: Many

As can be seen we believe that the most of Boeing’s commercial airplane buyers will require planes that are more effective at flying short distances with a low capacity. The reason for choosing this position as Boeing’s many clients is based mainly on two reasons. Firstly we can note from the major products and services section that Boeing’s most delivered products to date has been its 737 family, with deliveries of over 4500 planes. The 737 family are particularly low capacity designed planes, incorporating seating capacities of between 110-189 seats and are also relatively short distance planes with a maximum range of up to 3365 statute miles which is considerably less than some of the companies other products. From this information it would appear that Boeing’s planes which are suited for low capacity short distance travel are where its current many segment lies.
The second reason why we decided that this segment was where Boeing’s many clients are is because if we look at today’s airline industry post September 11th we can note that many airline operators are bankrupt or close to being bankrupt and that the successful airlines are mainly low-cost airlines operating from point to point routes on a short distance low capacity strategy, Airlines such as Continental Airlines in the United States and RyanAir in Europe. Incidentally both companies have a large fleet of Boeing planes, mainly from the 737 family. The current trend in customer demand is entirely non-stop service until ones ultimate destination.

     Short distance and high capacity: None
We believe that Boeing’s non existent clients albeit there may be one or two, are short distance operators who use high capacity planes. The reason why we chose this segment as the None segment is because when airline companies are operating a short distance route the need for loading the plane with passengers is nonexistent. Essentially if the company wants to transport more passengers from one route to another the plane can simply refuel and return. With high capacity airplanes the travel time is increased. Besides for the companies themselves it’s more profitable to carry lower capacities for short distance routes in a quick and repeated motion.

     Long distance and high capacity: Some
Some of Boeing’s clients will be part of this segment. This segment is the complete opposite to the first segment which was where Boeing had many clients. There will always be a need for long distance travel unless the market was controlled fully by multiple short distance airline companies, however for transatlantic flights and other significantly long overseas travel these types of clients will continue to exist.
Products in this segment include Boeing’s 777 family which have both bigger fuel loads for longer distance travel and a higher capacity than some of Boeing’s other planes. The 777 family can carry up to 451 passengers in a typical two class seating configuration for up to a maximum range of 11,029Km or alternatively to travel from one hemisphere to the next without refuelling. Ironically for Airbus this is the companies many clients segment.

     Long distance and Low capacity: Niche
The final segment for Boeing is its niche segment. This segment of clients is unusual as generally when travelling long distances it’s more logical to use a high capacity plane. When travelling long distances operating costs are dramatically higher for Boeing’s corporate clients, through the use of high capacity planes these costs can be reduced greatly. The typical client in this segment is anyone who finds it essential to undertake long distance travel whilst at the same time not being concerned about operating costs, perhaps clients who like travelling in comfort. Therefore we can conclude that the clients for this segment are governments or governmental agencies, private individuals, organisations, companies offering business flights, Boeing business jet operators. In this segment the Boeing Business Jet epitomizes a typical product offering both long distance capabilities and low capacity; with a capacity for between 8-50 passengers the plane can travel halfway across the globe.
Targeting

Boeing’s targeting is quite limited. Unlike B2C, in B2B there is very rarely a mass market and Boeing is no exception to the rule. The companies targeting is aimed mainly at its existing clients and its profit margins are squeezed by these well knowledgeable clients mainly because they themselves are professionals and know the cost of production for airplanes. Boeing has therefore been forced to offer certain trade discounts and other measurable benefits to its clients with whom it has a strong relationship albeit their clients only have two main suppliers.

Boeing’s existing targeting strategy as aforementioned is aimed at its existing clients. These clients have been discussed in the segmentation section of this report. They are Boeing’s corporate clients and they include commercial airline companies, governments and governmental agencies and other non governmental organisations (N.G.O’s) such as private companies. Boeing’s most valuable target is the commercial airline companies it serves.

There are many types of commercial airplane buyers but the main two are essentially strictly organised short distance low capacity airlines such as RyanAir and all of the “others”. The reason for this uneven division is because although there are more of the “others” operating worldwide a lot of Boeing’s recent revenue has come from the short distance low capacity airlines due to their profitability. Boeing’s targeting is now familiarised with a couple of repeat customers that continue to boost Boeing’s revenue. Boeing targets its low capacity short distance clients through major financial and aviation trade publications with its 737 family mainly and uses clever advertising like its recent 737 advertisement which read “The most comfortable planes in the world are those that leave the gate on time .” This type of advertising appeals immensely to low cost operators as the longer they have they’re plane stationed on the ground the more costly it is for them. Leaving the gate on time is part of the low cost strategy. Other targeting has come through informative advertising using facts about how the more Boeing planes your company has the higher it ranks in profitability and customer satisfaction. The advertisement read; “The most profitable airlines in the world really know their numbers ” and below the text were the numbers of many of Boeing’s low capacity short distance designed planes such as its 737 family.

Boeing’s targeting for its “others” segment is done through advertising also and is devised in a more general manner which can appeal to many different airline companies. Since the “others” segment is quite differential and includes many different clients that range from state owned airlines to niche operators or to package travel operators the advertising has to appeal to all and therefore cant be as specific as the company’s short distance low capacity advertising. One advertisement read “The
quietist, most reliable, most efficient and most comfortable airplanes in the world all take off from the same place ”.
In small print below the main picture of the Boeing planes taking off from a runway there is an interesting small text which reads “That’s why no matter what the criteria, you’ll always find Boeing aircraft at the head of their class”. The implied connotation being that no matter what your airlines buying criteria are and no matter which sector of airline travel you’re involved in Boeing planes will be the best in their class. This type of targeting is indeed broadly based.

We believe that Boeing’s targeting will continue in an identical manner to its existing for the foreseeable future. Boeing’s current targeting is aimed at a broad segment and its more profitable segment which is the low capacity short distance segment, the assumption we have is that the current demand will remain in the airline industry. The driving factors of today in airline travel are international trade and lower fares as well as airline network improvements such as increased frequencies and more direct service; we believe these driving factors will remain. The only future change that we can envisage is that the company may begin to target geographically as opposed to targeting its existing clients based on their individual buying criteria as according to some of Boeing’s economic models air travel is highly correlated to economic growth measured as GDP.
Most importantly Boeing’s current targeting is measurable upon the company’s existing customer orders, substantial with a great deal of potential through increased point to point route demand, accessible through the companies procurement on EXOSTAR, stable since the airline industry is now built upon relationships and is becoming less fluctuated and reasonably compatible since the companies low capacity short distance target is slightly atypical to its “others” target.

Buyer behaviour

With sales processing, Boeing has Boeing International Sales Corporation for international sales and Boeing Sales Corporation for domestic sales. Boeing depends on a limited number of customers, including the U.S. Government and major commercial airlines. It can make no assurance that any customer will purchase additional products or services after our contract with the customer has ended. The loss of the U.S. Government or any of the major commercial airlines as customers could significantly reduce its revenues and its opportunity to generate a profit. Several of the commercial airlines, including United Airlines and Hawaiian Holdings, Inc. have filed for bankruptcy protection.

Sometimes, in aircraft show, buyers can propose Boeing on aircraft purchasing but the negation is not actually happened. The negotiation officially starts when Boeing sends its representatives to the buyer’s place. Aircraft buyers now become more sensitive with the price due to intensive competition with Airbus and a fact that almost all of the airline companies go bankrupt at the moment. Therefore, the benefit of aircraft sales is being squeezed. Major buyers tend to exert buyer power through demands for price and financing concessions.
The negotiation has to go through 5 processes: preparation, establishing positions, developing proposals, bargaining and closing.

The influencer most of the time is the government as mentioned in the political factor of the PEST analysis

Pricing strategy in the Boeing-Airbus duopoly

Strategic objectives for Boeing pricing policy

First key point for the Boeing pricing strategy is linked to an environmental analysis. Saving money is vital for success as well as responsiveness to customer needs. Boeing is striving hard to achieve economies of scale from its procurement process to designing and manufacturing. One of its core missions is to leverage economies of scale opportunities so.

This had been achieved through horizontal integration. Indeed made alliances with other aircraft to create the EXOSTAR platform, an online business to business trading platform for procurement. Moreover, the American aircraft manufacturer made strategic mergers and acquisitions such as McDonnell Douglas in 1997, the space and defence business of Rockwell Intl., and Hughes Space & Communications, among others.

Second key point remains Boeing strategy which is to focus on the point to point route travels increase. Boeing made the all new 787 product development to extend its jet portfolio to serve that new point to point travel segment market.

The duopoly and its impact on Boeing pricing policy

One of the most important key points about the pricing strategy is linked to the duopoly commercial airplane structure. The duopoly increasingly means a likelihood of imperfect competition where the two firm Boeing and Airbus can affect the prices of their products. Actually, the two firms are far from being to set their own prices . The buyers, who have the choice only between these two manufacturers, have a considerable bargaining power.

Power of buyers

Airlines are becoming more “price sensitive”. Indeed, major airlines are striving hard to cut their operating cost to survive in a turbulent environment still affected by the 9/11 turmoil.

Their profits are lower and only the low fare/no frills airlines remain profitable. Because of the fact that an average commercial airline such as the well known 737-700 model can cost anywhere between $50.5 - 59.0 million, airlines are now more concerned about cost structure and quite sensitive to discount or financial support through leasing services. All these parameters have affected Boeing pricing policy.

How price is fixed

     Experience curve effect
Boeing benefits from learning/experience curve effect that can enable the company to benefit from economies of scale.

     Large-Scale System Integration as a core competency to provide economies of scale.

     Perceived value system
Boeing pays attention to the perception of their value creation towards customers by focusing on services and reliability: see matrix price/quality below. The goal for Boeing is to be perceived as either High quality Medium Price: good value for money.


     High     Medium     Low
High     Luxury strategy     Good value for money     Bargain
Medium     Bad value for money     Average     Good value for money
Low
Rip-off     Bad value for money     Economy


     Leasing
Boeing Capital Solutions offer leasing services to airlines. Leasing is a very common practice for Boeing to build long term relationships with its customers. Airlines can not afford a 59.0 million jet if considering the turbulent environment in which they operate. Leasing has a strategic importance so.
Discount policy

Airlines are quite sensitive to discount as previously described above. Discount is an important matter for Boeing pricing policy to retain established customers and attract new ones. Like other retailers and manufacturers, Boeing periodically cuts its prices to make a sale. RYANAIR, a low cost Irish carrier disclosed the size of Boeing discount. It paid $ 51 million each for the 70 737-800s it ordered from Boeing earlier this year. This represented a discount of about 20 percent off the posted list price ($61 million to $68 million).

Analysis of Major Customers

We will now take a brief look at some of Boeing’s major customers. Boeing’s sales are almost entirely B2B driven, apart from certain B2C operations such as the companies Connexion by Boeing offering and also some of the company’s technological offerings. However for the purpose of this report and the course at hand the proceeding analysis will only be concentrated on the companies B2B operations. Boeing’s B2B customers for its commercial airplanes unit are its corporate clients.

Corporate Clients:
Boeing’s most valuable customer is the many airlines worldwide that purchase from the company. It’s difficult to truly calculate how many airlines have purchased Boeing aircrafts since its foundation in 1916; however we can look at some of the company’s most recent valuable customers. Last year alone the company sold to over 145 countries and estimates that its aircraft now account for over three quarters of the world’s fleet with nearly 12,000 jetliners in service .
The following diagram depicts certain products and services and their respective order and delivery amounts. All the information given below was collected from the Boeing website.
Selected Orders and Deliveries since Boeing’s creation:
Model Number     Orders     Deliveries
747-400     1385     1353
777 Family     673     499
767 Family     950     925
757Family     1049     1047
737 Family     5530     4754
717 Family     169     137
787     67     0
Total     9823     8715
In fiscal 2004 Boeing sales in its commercial airplanes business unit were approximately $21 billion. One can postulate that much of this revenue was made up of purchases from airline companies. Much of Boeing’s fleet is more accustomed to completing short range travel in a quick timeframe with a medium amount of passengers whereas the Airbus strategy appears to be more directed at long distance travel with larger passenger numbers this is evident by looking at the company’s completion of its new A380 model. Since Boeing’s airplanes are more suited for the predominately favoured low-cost no frill airlines these are the company’s main commercial airplane customers. Companies like RyanAir and Easyjet and Southwest Airlines all appear to use a considerable amount of Boeing’s products, mainly the 737 model which is quite efficient at reducing travel times and also at reducing the costs of crude oil; two essentials for operating a low-cost airline.
However it is not just these low-cost airlines that use Boeing products, all of the following airlines have recently purchased extra airplanes from the company; Japan Airlines, Air Europa, Continental Airlines, KLM, Etihad Airways, Singapore Airlines, China Airlines, Turkmenistan Airlines and the list continues. In fact there are very few worldwide airlines that don’t avail of any of the companies’ products or services. Boeing has become the Microsoft of the aviation industry; its existence is evident everywhere where planes are used.
Another corporate client worth mentioning is governments. Governments such as the U.S, however it is not just the U.S government that is providing Boeing with its yearly earnings, as aforementioned other governments are also contributing to the companies staggering revenues, mainly allies of the U.S. Boeing sells to these governments on a much smaller basis but they are nonetheless worth mentioning. Boeing not only sells military related equipment to governments worldwide, it also sells its commercial airplanes to state run airlines. Earlier this year following a tender put forward by the Indian government Boeing completed a sale with the state-run Air-India company for five 777-200LR, 10 777-300ER, and 20 787-8 airplanes, with options to buy three additional 777-200LR Worldliners, five 777-300ERs, and seven 787-8 Dreamliners at a later date.
The entire purchase agreement could allow Boeing to realize anywhere up to a further US$ 7 billion for the company’s commercial airplanes business unit. Following the decision by Air India to purchase from Boeing, its main competitor Airbus immediately began to cry foul play. Airbus believes the deal was influenced by politics as India hopes it will lead to high-technology sales from other US firms in the future and also will aid the country in winning US support on New Delhi's bid for a seat on the UN Security Council. Politics aside Airbus has asked the Indian government to order a new tender and the vice president of Airbus Nigel Harwood was quoted as saying "We are not disappointed, but astonished. We were not given fair and equal treatment."
Airbus should however be more concerned about its home market in Europe and France where it appears to be losing many of its hitherto trustworthy customers. Even Air France recently ordered further aircrafts from Boeing. Air France ordered four additional Boeing 777-300ERs these airplanes are valued at $920 million at list prices. However this is not entirely surprising when one considers that over thirty five per cent of Boeing’s produce is made in the European Union.
Description of Products and Services

Boeing’s products and services are amongst some of the most expensive in the world. An average commercial airplane such as the well known 737-700 model can cost anywhere between $50.5 - 59.0 million. The company has an uncountable array of products and services that range from the typical 747 to the more imaginable Boeing Business Jet (BBJ). The company’s products and services are produced, marketed and sold in an almost pure oligopoly environment.

We will now take a more detailed look at Boeing’s Commercial Airplanes unit and briefly analyze the companies Capital Corporation unit as it has a vital role in Boeing’s business of today. Appendix 1.2 below provides a diagrammatic illustration of the company’s individual business units.

Commercial Airplanes
One of Boeing’s main units is its Commercial Airplanes unit. So far this year this unit has had a strong operating performance and has delivered seventy airplanes to the market. Although this unit has underperformed compared to its first quarter results for the previous year the rest of the year is expected to be more positive with a dramatic rise in revenues expected. For the first quarter in 2004 this unit boasted revenues of $5.3 billion however for 2005 this unit has raised only $5.1 billion in revenues for the company, a decline in revenues of ~3.8%. The most enlightening information for the company is that despite the decrease in revenues the earnings from its Commercial Airplane operations rose by eleven per cent to $389 million. The drop in sales was due to fewer deliveries in the first quarter of this year compared to last. Operating margins increased from 6.6% to 7.7% in the company’s first quarter results for 2004 and 2005 respectively, probably due to Boeing’s limited competition and its strong operational advantage.

In total the unit has managed to capture sixty-three gross orders so far this year and is expected to perform exceptionally well for the rest of the year with the introduction of its latest model the 777-200LR which will be forthwith the company’s longest range commercial airplane. The 777-200LR has already undertaken its maiden flight successfully. The company’s most predominately desired commercial airline is its 787 model which is continuing to make excellent progress whilst displaying key technological superiority. As of April 2005 the company has announced that so far to date it has taken 237 orders and commitments for its reputable 787 model from over nineteen airlines. In the first quarter of 2005 alone the company has received a further sixty two orders and commitments for the luxurious 787.

Boeing has a total of sixteen commercial airplanes that are divided into five families. Appendix 1.6 shows a complete list of these families and their respective products. As can be seen the cheapest airline is the 717-200 which can cost anywhere in between $38.0 - 42.0 million, alternatively the most expensive commercial airplane on offer at present is the 777-300 ER which costs between $218.0 - 245.5 million. Indeed with such enormous sales prices one can truly begin to realize the true extent of operating in the airline industry. The 717-200 will however cease production in the near future with Boeing Commercial Airplanes President and Chief Executive Officer Alan Mulally conceding that “the 717 brings tremendous value to the airlines that operate it. Unfortunately, the overall market for the airplane does not support continuing 717 productions beyond delivering on our current commitments.”
The 717-200 had an overall passenger capacity of 106 seating places whereas the new 787-9 Dreamliner will boast an overall capacity of 259 passengers in a three-class configuration. Although incomparable to Airbus’s new A380 in size the 787-9 will bring other benefits to potential clients as it uses twenty percent less fuel than any other airplane of its size in the market. This belief was reinforced by Hans Weber, the US-based president of a successful management and consulting agency named Tecop International. Weber indicated that "With the 787, the cost level is lower than any airplane. As soon as you fly a 787 you spend less money."
However it’s the 747 family that are Boeing’s largest capacity airplanes, offering seating capacities of between 416-524 persons. One of Boeing’s jewels is its 737-800 model or as it is frequently referred to the 737NG which is often requested by many of today’s successful low cost airlines.
The 737NG is ideal for low cost airlines as it can carry up to 189 passengers rapidly across short distances from point to point routes. Earlier this year one of Europe’s leading low-cost airlines RyanAir
gave a commitment to Boeing for the purchase of seventy 737NG aircrafts. Boeing announced that the deal was worth US$4.6 billion at list prices, plus there were options for up to 70 more airplanes .
Another product worth mentioning is the Boeing Business Jet (BBJ); which was developed by the Boeing commercial airplane unit in 1996. So far to date this majestic airplane has been bought ninety seven times and BBJ President Steven Hill is confident that it will reach sales of one hundred by the end of the fiscal year, especially since in the last six months alone the company has won another six orders. Hill announced that "the interest and orders for the BBJ continues to grow. We're confident that the record sales pace will continue and that we will achieve 100 orders before the end of this year." The BBJ is essentially an airplane constructed solely for the purpose of dignitaries and others of great importance. The Geneva News Publishing Company commented that "Without a doubt, no other long-range business jet can be configured in so many uses ..." and they were not far from the truth, the BBJ boasts extra space, unsurpassed comfort, an unmatched array of onboard utilities to allow one to be productive whilst living a busy and hectic lifestyle which includes an executive conference area. The plane allows one to travel from over long distances in a relaxed environment.

Boeing Capital Corporation (BCC) - A related service

Although this report is mostly based on Boeing’s commercial airplanes unit we feel that another of Boeing’s business unit’s should also be included as it is a relatable service. This other unit is the Boeing capital corporation. Boeing’s capital corporation’s business unit is a subsidiary of Boeing. It provides asset-backed lending and leasing services to some of the company’s major clients, however its main function is to support the companies other business units with adequate financing for the extensive costs attached to selling and delivering Boeing products. The main services that are provided are asset-based lending, operating leases, finance leases, leveraged leasing, sale/leasebacks, freighter conversion finance, long- and short-term financing, secured loans - senior and subordinated and asset value guarantees. So far this year the unit has underperformed compared to its first quarter results in 2004. In the first quarter of fiscal 2004 the company had revenues of $251 million for its capital corporation unit, however for the first quarter of this year this figure has dropped to $237 million, therefore the units revenue has dropped by a total of six per cent. The unit’s pre-tax income fluctuated more adversely with a drop of around forty per cent; total income fell from $73 million to $44 million. This decrease in income can be accounted for through the unit’s gains on asset sales in 2004. The unit has a total of 170 employees spread out in seven different locations.

BCC is aiding the company in lowering its yearly risks and in contributing to the company’s overall portfolio. Recent years have seen an increase in the demand for aircraft financing and consequently lease rates are on the rise. For the first quarter of 2005 the BCC paid a $55 million dividend to Boeing thus allowing Boeing to realize $760 million in cash over the past fifteen months. BCC expects to have total sales of ~$.9 billion by the end of the year.

Importance of asset-backed lending and leasing in today’s market

Today the airline industry is very turbulent and many of today’s modern airlines apart from a couple of exceptions are bankrupt. The exceptions include companies like RyanAir who announced net profits for its year end of €268.9 million. Bankruptcy has now become a part of doing business for many airlines. The Air Transport Association estimates there have been "well over" 100 filings of bankruptcy since de-regulation occurred in 1978 . Therefore these airline companies cannot remotely afford to fully purchase Boeing’s products. Such was the case in March 2003 when Hawaiian Airlines had to file for Chapter 11 bankruptcy protection. The BCC then had to reach an agreement with the airline over the restructuring of its long term leases for 11 Boeing 717-200s and three Boeing 767-300ERs and also on the amount of Boeing’s claim resulting from the bankruptcy. For airline companies to survive, they now have to find other means of acquiring aircraft.
Boeing Capital Corporation offers these airline operators financial alternatives and advice and offers them financing to buy and/or lease commercial jet airplanes. The Aircraft Financial Services group specializes in arranging creative finance and lease structures; administration of Boeing financing commitments and guarantees; and offers a broad range of financing options and solutions. The advantage the unit has over other finance companies is that it has significantly more knowledge in pricing, credit, and legal and tax expertise when dealing with aircrafts.
The life cycle of Boeing’s commercial airplanes
The life cycle of Boeing’s airplanes is favourable for the company. Boeing’s aircraft are probably at there growth stage since the world population is constantly increasing and there appears for the moment an ever increasing market for airplanes. Since there is currently no new mode of transport and the airplane revolution has not yet been surpassed Boeing can expect to continue selling its aircraft. Boeing and Airbus operate as a Duopoly and as such Boeing’s product life cycles depend almost solely on continuing to improve its offerings relative to its main competitor. One can postulate that the airplane industry will not reach saturation for many years especially since there are not many effective alternatives for transatlantic travel and other long distance travelling and also since there are now new economies growing significantly rapidly, such as China. Boeing expects that the demand for its commercial aircraft in China will increase dramatically as the countries growth continues to produce remarkable growth figures.

Boeing’s Communication Policy

Boeing’s communication policy relies heavily on electronic communication; it also uses specialized presses and often uses signs, moving communication and gadgets for its communication policy. We feel Boeing utilises its advertising techniques as follows, they are in rank order of importance.

Most Important
1: Electronic Communication
2: Institutional Communication
3: Mass Media
4: Moving Communication
5: Signs
6: Gadgets
7: Paper Communication
Less Important

Electronic Communication
In speaking about electronic communication we refer to Boeing’s use of its intranet and extranet and most importantly its website. Boeing’s uses its intranet to communicate with its employees. With its intranet Boeing is able to communicate its beliefs internally to all who are an integral part of the company. This advertisement is posted on Boeing’s intranet yearly albeit a different version is used each year. Appendix 1.3 is a typical advertisement that is aimed internally within the company. As can be seen the message is simple, the company is trying to influence its employees to subscribe to payroll reductions that will be put towards the employees community fund to help those in need within their respective communities.

Apart from reaching its employees the company also uses electronic communication to promulgate.
If one connects to the Boeing website there will be numerous news headlines which allow the company to express its opinions with the general public, the website is also used to advertise to the company’s customers. The website contains a comprehensive section for company news which allows one to search for multiple articles of interest. The internet is not a very widely used advertisement technique for the company however it does support the company’s other advertising this is mainly done by providing links to the company website for more information at the bottom of its advertisements. On the company website there are many links to other Boeing web pages that are almost entirely business to business targeted pages. An example of these pages would be the Boeing capital corporation webpage.

The final electronic tool the company uses to communicate with is it’s extranet. Boeing uses the extranet that it has with its suppliers to communicate directly with them. Boeing’s extranet is used extensively within the company for targeting new potential suppliers.
Institutional Communication
The second most used communication technique by Boeing is institutional communication. Through this type of advertising Boeing is able to promote its ideas and political opinions. As can be seen in the advertisement on appendix 1.4 the company is trying to inform that it is an honoured partner of the National Symphony Orchestra and that it believes in music connecting and inspiring. This particular advertisement is quite old and was used in May of 2002 to state the companies support for musicians who were to undertake a 15 city European tour. Earlier this year in February the company was once again announcing their support for celebrating music with an advertisement called “A single note can change the world.”

Whichever type of opinion or belief the company is trying to promote it uses institutional advertising.
In fact institutional advertising is used very frequently by Boeing. Another effective such example is the advertisement in appendix 1.5 this advertisement was launched in June of 2002. The advertisement reads “Together we soar”. This advertisement was launched to promote the companies ideas on working with small, minority and women owned businesses. It says “we never underestimate the value of a good thought” and invites the reader to find out more by once again visiting the Boeing website. This advertisement was evidently aimed at showing that the company enjoys working together with everyone.

From these advertisements we can indeed note that Institutional Advertising plays a pivotal role in Boeing’s communication policy

Mass Media
We believe that Boeing’s use of the mass media is more limited to its use of other communicational methods. For Boeing trying to sell multimillion dollar airplanes to airline companies it would make little sense to advertise over the airwaves as would be the popular choice with most pure Business to Consumer companies. Whether it’s by Radio or television the company would not effectively reach its target market. We also believe that the company would have an identical problem if it tried to use cinemas or the general press to advertise. However we believe that one of the company’s most suitable advertising techniques lies within this communication segment. That technique is of course the use of specialized press, press such as Industry Week.

We feel that for Boeing the use of specialized press is advantageous as the readers will more than likely be involved in the industry or at least have an interest in the industry. Through specialized press the company can advertise more in-depth as the readers will be educated in the industry. Through specialized press the company can even advertise technical specifications of some of its commercial airplanes to its corporate clients. The main advantage of using certain specialized press for Boeing is the ability to directly reach the company’s target audience.
The advertisement shown in appendix 1.6 was used by the company for specialized press and tries to illustrate to the company’s target market that Boeing aircrafts fly faster and longer distances than its industry competitors, essentially implying that the company’s aircraft are better than those of Airbus.

Moving Communication
We feel that the fourth most important method of communication for Boeing is moving communication. Before delivering completed aircrafts to its corporate clients Boeing marks its aircraft with the company logo and the aircraft model number. This in itself is advertising. When Boeing planes are either airborne or preparing for takeoff the planes will be a moving advertisement. Since Boeing’s products are built for the sole purpose of becoming airborne this type of communication is always used.

Signs
Once more the company’s logo can be used as an advertising technique. As aforementioned the company prints its logo on all of its aircraft and when these aircraft are stationary in an airport or elsewhere these planes will be advertising for the company. This type of advertisement like the above is however limited as it doesn’t convey a message, it simply reminds people of the company and its logo. The company also uses signs on all of its premises worldwide and the company name is now a prominent feature of the western edge of Chicago city's skyline, its backlit Boeing logo on top is visible for miles at night.

Gadgets
One of the less useful methods of communication for Boeing is through gadgets. We feel that the company can use gadgets such as pens, model airplanes, pens, hats and t-shirts as gifts rather than as an advertising technique.

Paper
We feel that the least important communication method for the company to use in marketing to its corporate clients is through paper advertising. Paper advertising does not seem like a viable option as brochures and catalogues for Boeing products are not distributed by the company randomly and are only offered to existing customers. Boeing printed packaging also seems like a less useful advertising technique for the company than it would be for example with a stationary company. Throughout the company special Boeing headed paper is used with the company logo printed on the left hand side of each page however it does not appear to be used so much for advertising.



Public Relations

Internal target

As previously described in the communication policy part, Boeing uses its intranet to communicate with its employees. Employees are the first key internal target for Boeing’s Public Relations. Moreover, if one connects to Boeing’s web site, information about employment s
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