switching behavior

Topics: Markov chain, Andrey Markov, Game theory Pages: 29 (4564 words) Published: May 27, 2014
A Study on Brand-Switching Behavior
and Promotional Strategies
for High-End Airline Flight Services
Mihir Dash* and Jacob Alexander**
This study analyzes the impact of different promotional programs on the brand-switching behavior of students with respect to premium flight services to determine the ‘optimal promotional mix’ that service providers should offer. This study uses the Markov brand-switching model in combination with game theoretic techniques to find the optimal promotional mixes of the two service providers, based on the data collected by a sample survey of customers. The results suggest that both the service providers should adopt a combination of promotional offers, and indicate an asymmetric behavior in response to promotional schemes of the providers. Sensitivity analysis showed that the strategies were quite robust. The study provides marketers with a systematic method for planning promotional mixes by taking competitors’ strategies into account. A possible approach would be to estimate switching rates periodically and to update the optimal promotion mix with the current data. In this way, the estimates would be more accurate and any changes could be detected and incorporated into the analysis. This would result in a more dynamic, reactive strategy.

Introduction
The Indian aviation industry has witnessed major changes in the recent years. Air Deccan’s low-cost-carrier revolution of 2003 created a buzz by bringing air travel to the reach of the Indian middle-class masses. The growth of the Indian aviation industry has not been very rosy, however, especially with the global meltdown. The industry is now in a consolidation phase with Jet-Sahara merger and Kingfisher Airlines’ acquisition of Deccan Aviation. More recently, the global aviation industry has been going through a bad phase, and the Indian aviation industry is no exception to this, with several problems blocking its growth. In particular, year 2009 has been disastrous for many Indian operators, both private and state-owned (for example the tug-of-war between Jet Airways and its pilots, with the arbitrary termination of pilots culminating into a crippling strike that brought the entire industry to a standstill). The Indian aviation industry alone faced a massive loss of $2 bn in 2009-2010. The major factors contributing to this state of affairs are the considerable drop in air-traffic with the global recession/economic slowdown, along with the increasing fuel prices. Also, to some extent, the entry of Low-Cost Carriers (LCC) has caused a decrease in fares to the point of becoming economically unviable. A positive outcome from this difficult phase is that many airlines are offering distinct services, differentiating low-cost flyers from high-end users. *

Senior Faculty, Alliance Business School, Bangalore 76, India. E-mail: mihir@alliancebschool.ac.in

* * Professor, Alliance Business School, Bangalore 76, India. E-mail: jacobalexander99@hotmail.com A Study IUP Brand-Switching Behavior and Promotional Strategies © 2010 on . All Rights Reserved.
for High-End Airline Flight Services

7

Even though there are several companies that provide high-end airline flight services, two service providers, namely Kingfisher Airlines and Jet Airways, control the student segment in Karnataka. In order to attract customers, both companies offer several special promotional schemes, month to month. Some of these promotional schemes are: ‘free ticket’ (which awards a free ticket to a user who books a fixed number of tickets), ‘cashback’ (which awards a cash discount for booking tickets), and ‘Fly-500’ (which awards frequent-travel points that can be either encashed or used to buy tickets). Notwithstanding these promotional strategies, a high level of brand-switching behavior prevails in the high-end airline flight services segment.

Literature Review
Several studies have used the Markov model to study brand-switching behavior (e.g., Bass et al.,...

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