Delta Airlines AMA Boston Meeting

At a recent AMA Boston Meeting I took come notes about a Delta case study on the companies efforts to firm up their brand to meet the increased competition from low cost airlines.

Beth Paschetto, is the managing director of customer products and services for Delta Airlines, she recently gave a presentation to the Boston Chapter of the American Marketing Association.  Beth has worked for both American Airlines and the Walt Disney Corporation.  She had left American for Walt Disney, but had to return to the airline industry, she thought, “Jet fuel must be running through her veins”.

Delta CEO, Gerald Grinstein joined the company about 16 months ago, Delta has been in the red by about $1billion for three straight years.  It’s been a tough time for the airline industry since 9/11 and especially for the legacy carriers like Delta.  The company has high labor costs and expensive corporate pension schemes to support when compared with new airlines like Southwest and JetBlue.  Plus as a 75-year-old company Delta has a lot of infrastructure issues, both institutional bureaucracy and an aging and complicated fleet, with 18 different types of planes.

Like many legacy carriers, Delta has experienced competition from rapid growth low cost airlines. Customers have lost faith in the airline, and employees were tired and cynical.

Gerald ordered a strategic review of the company in February 2004, reporting to the board in Aug 2004.  The review looked at the marketplace, the company’s cost structure and overall products and customer service.

In the airline industry today, travelers no longer really use travel bureaus, even corporate travelers have become price shoppers.  Orbitz and Travelocity have really changed the landscape of how customers are delivered to airlines.  The industry has changed so much that Delta’s real competition is no longer from legacy carriers but low cost providers like JetBlue and Airtran.  The strategic review recognized the changing realities in the industry, and those new realities guided Delta’s transformation.

Delta looked at their customer base and discovered that most customers fly short haul, and 1/3 fly to or from Florida.  To understand the changing needs of their customers Delta asked the following questions.  (1) who is our customer, (2) what do they want?, (3) how do we change and (4) what will tie everything together?.  Delta’s previous personality model of their typical customer was called Ted, a business traveler based in Boston, who traveled a lot during the month.  Delta’s customer’s no longer resembled Ted.

Delta reviewed the whole potential market, everyone, narrowed that down to air travelers and new travelers and then determined there were three types of travelers, (1) only concerned about price, (2) looking for super premium service and (3) value seekers.  Delta determined that Delta stands the best chance of growing their business by focusing on the value seekers.  Their challenge is to make all value seekers “advocates of delta”. 

Characteristics of value seekers include: Value seekers are willing to pay a little extra for a small amount of extra service and style. Value seekers actively participate in all that they do.  They have the ability to influence others.  50% of value seekers are more likely to use PDA’s, they are leaders, risk takers and are sought out for advice.

Delta conducted a lot of research, sampling travelers and set up focus groups.  They even set up an auditorium and recorded how participants responded to ads.  The research helped Delta to determine that the airline has to offer customers a unique experience.  One that is comfortable and put them at ease, an experience that is affordable and has value.  Is simple and everyone can understand and lastly inviting.

The pricing structure in the airline industry has been very complicated for many years.  Customers were charged one rate in one market by delta that was very competitive because that market had a lot of competition.  While another market had a lot higher rate as there was little competition for Delta in that other market.  Delta decided to change its fare structure to bring down its prices across the board so that every market made sense for customers.  The change in fares really helped with customers and employee morale.

Also in the last year Delta has implemented a new snack service, they now provide 5 different snack products with the drink service.  Flight employees feel that they have something better to offer customers.

Delta has concentrated a lot on operational excellence; they hired an airplane traffic manager to do a better job of managing airplanes on the ground both with Delta employees and Delta’s service vendors.  Delta now does a better job of turning airplanes around.  Delta has improved its on time performance by really changing the management of getting out on time.

The company will also work on reducing its number of different types of airplanes, to get greater economics of scale with servicing its planes; it’s a slow process in making the change.

The company has brand new leather interiors for all the cabins by August 2004.  They are also improving the seat covers.  It’s interesting, that customers will rate you better overall if they are sitting on better seat covers.  Leather is also easier to clean.

Overall I was very impressed by the presentation, essentially, Beth was able to demonstrate that Delta’s re-branding efforts were paying off in increased customer satisfaction and higher employee morale.  The big take away was the operational excellence efforts, though sometimes we forget as marketers, the mechanics of delivery of product can be the most important aspect of brand.