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Measuring the Marketing Effectiveness of EasyJet

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Tanja Krawetz

on 15 May 2015

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Transcript of Measuring the Marketing Effectiveness of EasyJet

Margins and Profits: Pricing
Channel Management
Recommendations
Marketing strategy and value proposition

Low-cost
Convenient
Customer-centric
Destination-focused


Margins and Profits: Operational
Contents
Introduction

Marketing strategy and value propositions

Metrics

Recommendations

Measuring the Marketing Effectiveness of easyJet
Metrics
Giovanni - Margins and Profits: Operational

Nigel - Channel Management

Tanja - Margins and Profits: Pricing

Dominic - Share of Hearts and Minds
Cost per passenger
= Total cost (£) ÷ Total number of passengers flown (N)

= £3,946,000,000 ÷ 64,800,000

= £ 60.9
By: Dominic, Giovanni, Nigel and Tanja
Introduction
UK airports handled a total of 228.4 million passengers
9 billion passenger kilometres were flown
Total operating revenue of major UK airlines £22.18bn
64,724 people employed in airline industry
Total media advertising expenditure by UK airlines amounted to £54.5m.
Cost / Passenger

Revenue / Passenger

Marketing costs / Passenger

Operating profit
Revenue per passenger
= Total revenue (£) ÷ Total number of passengers flown (N)

= £ 4,527,000,000 ÷ 64,800,000

Marketing cost per passenger
= Marketing & selling costs (£) ÷ Total number of passengers flown (N)

= 103,000,000 ÷ 64,800,000

=
Operating profit
= Total revenue - (Cost of goods sold + Operating expenses + Depreciation & Amortization)

= 4,527,000,000 - 3,946,000,000

=
= Revenue (from seats) (£) ÷ Units Sold (N)

= 4,462,000,000 ÷ 71,500,000

= £ 62.41
Average Price Per Unit (seat)
Variable cost per unit (seat)
= Total Variable Cost (£) ÷ Units Sold (N)

= 3,704,000,000 ÷ 71,500,000

= £ 51.80
Contribution analysis
Contribution Per unit (£)
= Selling Price Per Unit (£) - Variable Cost Per Unit (£)
= 62.41 - 51.80
= £ 10.61

Contribution Margin (%)
= Contribution Per Unit (£) ÷ Selling Price Per Unit (£)
= 10.61 ÷ 62.41
= 17.00 %
Break-even analysis
Break-even Volume (N)
= Fixed Cost (£) ÷ Contribution Per Unit (£)
= 242,000,000 ÷ 10.61
= 22,808,671

Break-even Revenue (N)
= Fixed Cost (£) ÷ Contribution Margin (%)
= 242,000,000 ÷ 17
= £ 14,235,294.12
1) Keeping costs low by optimizing traveling routes & utilization of aircraft

2) Keeping traveling convenient by landing and flying from primary airports
Passenger Load Factor
"Measure of how much of an airline’s passenger carrying capacity is used. "
Equations
Passenger Load Factor = (Total Number of Seats Sold)/(Total Number of Seats Available)
Total Number of Seats Sold = 64.8 million
Total Number of Seats Available = 71.5 million

Passenger Load Factor =
90.6%
Significance of Value
Industry Average =
79.5%
High Fixed Costs & Capital Intensive
Cost Structure
Efficient Passenger Load Factor is Important
Marketing Mix
The 7 P's
Low-cost
Low-cost media channels
76% digital
Larger Revenues
98% of sales made online --> requires fewer employees
Balance of low prices and high value through efficiency
Efficiency through IT solutions
Limitations of Metric
Trained staff --> customer satisfaction
Based in Luton= cheaper alternative to Heathrow
Distinct branding= orange colour scheme

Does not take into consideration utilization of routes taken and kilometers flown

Does not take into consideration pricing strategy and cost efficiency of seats
Share of Hearts and Minds
On Time Performance
Customer Satisfaction Score
Willingness to Recommend
Profit Per Customer
Constraints and Limitations
Market Share of Airports
"Measures number of flights per company with respect to total number of flights"
Comparison to competitors
= On Time Flights (within 15 mins) ÷ Total Flights

= 190,080 ÷ 223,621

= 85% OTP

Equations
Forecasted future performance
Market Share of Airports = (Number of Flights for Specific Company)/(Total Number of Flights from Airport)
Revenue Structure
Comparison to competitors
Significance
Appropriate Asset Allocation
Landing in airports that customers want to go to
+
Wide Selection of Routes
=
Better Connections for Customers (Convenience)
£69.9
=
Founded in 1995 by Sir Stelios Haji-Ioannou

226 Aircraft
675 Routes to 134 destinations
Serviced 64.8m customers in 2014

Market share
20% in UK
8% in Europe
Marketing Strategy
Comparison to competitors
Future marketing actions
Limitations
Forecasted future performance
Does not consider whether routes are efficiently operated

Does not take into account profitability of routes and destinations
Erode market share from flagship carriers
Improve turnaround time to benefit OTP
Asset Utilization
"Measures the management's ability to make the best use of its assets to generate revenue."
Equations
Asset Utilization = (Number of Hours Flights Operating Per Day )/(Total Number of Aircraft)

Number of Hours Flights Operating/Day =2,486 hours
Total Number of Aircraft = 226

Asset Utilization = 11 hours Per Day
Farris, P.W., Bendle, N.T., Pfeifer, P.E., & Reibstien, D.J. (2006), “ Marketing metrics:50+ Metrics Every Executive Should Master”, Pearson Education Inc. ISBN 0-13-187370-9

Ghosh, S. (2014, 11 27). 'We weren't making travel easy for our customers,' says EasyJet chief. Retrieved 5 6, 2015, from Marketing Magazine: http://www.marketingmagazine.co.uk/article/1324047/we-werent-making-travel-easy-customers-says-easyjet-chief

International Air Transport Association. (2014, 2 6). Passenger Demand Maintains Historic Growth Rates. Retrieved 5 6, 2015, from International Air Transport Association: http://www.iata.org/pressroom/pr/pages/2014-02-06-01.aspx

Hucker, R. (2014). Airlines Industry Market Report 2014. London: Key Note.
(EasyJet, 2014: 23-24)
"Cutting out the fat"
Emphasis on digital advertising expenditure which consists of 76% of media investment

Reduced network partners from 14 to 3, saving £2.09 mil and creating a cost per sale improvement of 81%
Ian Cairns
"EasyJet is committed to lowering its marketing spend every year as part of a larger department efficiency drive. My role is to do more with less.”
£ 581,000,000
Comparison to competitors
= Customer Satisfaction (somewhat satisfied (4) or very satisfied (5)) ÷ Total Response

= 312,000 ÷ 400,000

= 78%


= Likelihood to Recommend ÷ Total Responses

= 340,000 ÷ 400,000

= 85%
= Profit (£) ÷ Customers (N)

= £581,000,000 ÷ 64,800,000

= £8.97

Review of the UK market: low-cost air travel

Dramatic increase since 1996: 4.3m 91m

EasyJet is the second largest low cost carrier behind RyanAir

Other competitors
Low-cost carriers
-RyanAir
-Monarch
-FlyBe
-Norwegian
-Iberia
Flagship carriers
-British Airways

Forecasted future performance
Higher operating profit due to:
Cheaper fuel & oil
($1000 per metric tonne in 2014)
($550 per metric tonne in 2015)
2013 Airline Industry Statistics
Growth in revenue
500,000 new seats installed for 1st quarter of 2015
1st quarter sales grew 3.8%
Significance
High Asset Utilization Rates
Lower Costs & Higher Revenue
Cost Savings for Consumers
£ 1.59
Surveys which generate Customer Satisfaction and Willingness to recommend are not wholly representative

Disappointed or angry customers are often the most common respondents

OTP rates can be affected by uncontrollable factors
Low-cost pricing = competitive edge

Price is an important input decision for customers.

Adoption of dynamic pricing model.

Prices are kept low through various components of Marketing Mix.
-IT solution reduces cost

Values taken from 2012, 2013 and 2014 EasyJet annual reports
Values taken from 2012, 2013 and 2014 EasyJet annual reports.
Last-minute deals to improve passenger load factor
Dynamic pricing model makes APU harder to determine
Assumes that costs remain the same throughout the year

Assumes selling price is constant
-Dynamic pricing model
-Seasonal nature of industry
Volatility of costs
(Freedman, 2015; McFarlane, 2011)
Suggests VCU remains the same at any level of output - unrealistic assumption

Dynamic pricing model threatens reliability of results
(Chand, 2015)
(Keynote, 2014)
Values taken from Ryanair, EasyJet and BA 2014 annual reports
Values taken from Ryanair, EasyJet and BA 2014 annual reports
Values taken from Ryanair, EasyJet and BA 2014 annual reports
Head of Marketing Communications & Branding
(Wall Street Journal, 2015)
CAA, 2014. No Title. Civil Aviation Authority. Available at: http://www.caa.co.uk/application.aspx?catid=14&pagetype=65&appid=7&mode=detail&nid=2377 [Accessed May 11, 2015].

EasyJet, 2011. Europe by easyJet. Marketing Society. Available at: https://www.marketingsociety.com/sites/default/files/thelibrary/easyJet.pdf [Accessed May 10, 2015].

FlightStats, 2014. On Time Performance Awards. FlightStats. Available at: http://www.flightstats.com/company/media/on-time-performance-awards/ [Accessed May 11, 2015].

Keynote, 2014. Airlines Industry Report. Keynote. Available at: https://www.keynote.co.uk/market-report/travel-leisure/airlines?page=4 [Accessed May 10, 2015].

EasyJet, 2014, Making Travel Easy and Affordable. EasyJet plc. Annual report and accounts 2014. EasyJet, Bedfordshire, UK.
Chand, S. (2015). Benefits and Limitations of Break-Even Analysis |Financial Management. Available: http://www.yourarticlelibrary.com/financial-management/benefits-and-limitations-of-break-even-analysis-financial-management/29421/. Last accessed 3rd of May 2015

Freedman, J. (2015). Advantages or Disadvantages of Contribution Margin Analysis. Available: http://smallbusiness.chron.com/advantages-disadvantages-contribution-margin-analysis-65329.html. Last accessed 3rd of May 2015.

Gornall, E. (2013). Low-cost air fares: How ticket prices fall and rise. Available: http://www.bbc.co.uk/news/business-22882559. Last accessed 3rd of May 2015.

McFarlane, S. (2011). Pros and Cons of Using Contribution Margin Analysis. Available: http://www.brighthub.com/office/finance/articles/97862.aspx. Last accessed 3rd of May 2015.

IATA. (2014). FACT SHEET: Industry Statistics . Available: http://www.iata.org/pressroom/facts_figures/fact_sheets/Documents/industry-facts.pdf. Last accessed 6th May 2015.

References
International Air Transport Association (2014)
Camilla Canocchi. (2015). More business customers and extra seats help easyJet revenues grow as airline says it will cut fares thanks to oil price falls. Available: http://www.thisismoney.co.uk/money/markets/article-2927981/More-business-customers-extra-seats-help-easyJet-revenues-grow.html.

Edward Clayton. (2014). 2015 Aviation Trends. Available: http://www.strategyand.pwc.com/perspectives/2015-aviation-trends.

Joseph Clift. (2013). How easyJet used data to cut spend and boost its brand. Available: https://www.warc.com/Blogs/How_easyJet_used_data_to_cut_spend_and_boost_its_brand.blog?ID=1765.

Robert Wall. (2015). EasyJet Says Revenue-Per-Seat to Rise.Available: http://www.wsj.com/articles/easyjet-says-revenue-per-seat-to-rise-1422344018.
Limitations and Constraints
Interest and Tax not included in cost calculations
The idea is to show the background work required for an airline company to successfully implement a low cost, customer centric marketing strategy
On Time Performance (OTP)

Customer Satisfaction

Willingness to Recommend

Profit per customer
Full transcript