Consolidated Airlines – A case

Consolidated Airlines offered passenger air service within northern California. It served a territory of 100,000 square miles with an expanding population of three million. Except for local industry in five reasonably sized cities, the major business of the area was scattered and included forestry, agriculture and recreation as well as a number of plants and other facilities owned by national firms. The geography was extensive and rugged enough that air travel was growing at a rate above the national average and had succeeded in attracting a growing clientele of business people as well as individuals on non-business trips. As a result, passenger miles for Consolidated had been expanding nicely since the firm’s start up in 1965. The rate of growth, however, had begun to taper off in recent years.

The firm’s early success was due to its pioneering a hitherto un-served territory by means of 25-seat turbo-props. The firm’s start coincided with a boom in the territory’s economy resulting from the heavy population flow into California, a decentralization of many businesses, and an expanding tourist business. Consolidated offered a full service package, including convenient schedules, curbside check in extra roomy seats, as well as deluxe cabin interiors, free drinks , a quality deli service, and small gifts for family members. In return, the airline charged a premium price. As Mr Adams, the company’s president said, we are the Cadillac of the industry. We sell entirely on the basis of a quality experience.

During its first five years, the company had no airline competition. The major marketing problems in the early days were: (1) a premium selling price, (2) the need to convince customers that air service was more efficient than the alternatives, (3) the difficulty of identifying potential customers from within the large base that made up the original geographic segment, and (4) developing believability in Consolidated’s ability to deliver what it promised.

Sales were handled through a limited sales force as well as a few independent representatives. The salespeople sold mostly to travel agents, although they did make direct sales to large accounts. The cost of maintaining each company salesperson was about $60,000 – which included salary, incentives, and direct expenses. The reps earned a commission of 7 percent of sales. Advertising, promotion and direct mail were modest with combined costs about equal to the cost of the sales force.

In the early 1970s Consolidated was confronted with its first competition, and by the mid 1980s there were four viable competitors who split 60 percent of the business, leaving the other 40 percent to Consolidated. The competitors’ marketing strategies varied. One for example was a heavy price cutter who offered no frills economy. Another split its business between travelers and cargo and served only the major population at peak hours for a price about 10 to 15 percent lower than Consolidated’s. A third advertised its tie-in to a national carrier operating out of San Francisco and adjusted its schedules to dovetail with the national affiliate’s schedules. A fourth used smaller planes designed to go in and out of rural areas – in a sense, the equivalent of a door-to-door operation. The customer also could save ticket stubs for a substantial future discount.

One informal poll taken by Mr Adams at a recent travel convention indicated that Consolidated was considered a quality house that was getting a little too stodgy and tough to deal with. The cabin crew, for example, were rated as OK but not outstanding. Schedule cutbacks were cited as evidence that the airline was less customer oriented. The sales force was criticized for being overly concerned with large customers and not doing as much prospecting as the competition.

Mr Adams set about to correct these weaknesses and at the end of a six month period had made considerable progress in doing so. He felt it important to advertise this rededication to quality and began discussions with the company’s advertising agency to launch an advertising campaign in the near future.

After studying their assignment for about a month, the agency came up with a campaign based on reaching 65 percent of the target audience four times a month. The target audience was to be defined primarily on the basis of demographics, lifestyle, and flying experience. Since the agency planned to use both local radio and television as the primary media, it was important to obtain estimates of the number of individuals viewing of listening to certain programs during specified hours of the day.

Consolidated’s target geographical area contained only five TV stations, but all were tied into several cable operations that serviced the entire area. Some 30 to 40 AM and FM radio stations could be heard, depending upon the listener’s location.

In order to provide much needed information about program viewing and listening as well as measures of changes in Consolidated’s image, the agency recommended the undertaking of a marketing research study to be carried out in two stages. In stage one, a large sample of households would be contacted by telephone to obtain information about the travel experiences of individual members (18 years and older) during the past 12 months as well as their plans for future travel. All modes of transportation (e.g. automobile, bus, and air) were to be included, as was point-of-origin and destination. Respondents were also to be asked to rate the various airlines serving the area (including Consolidated) on a number of dimensions (e.g. in-flight service, baggage handling, schedules, and on-time performance).

The above information would serve to classify respondents in a variety of ways, including extent of airline usage, ratings of the various airlines, and demographics. A sub-sample of respondents would then be selected and interviewed during the second stage.