Value Proposition

Question:

Write an essay on Value Proposition.

Answer:

Value proposition can be defined as a statement or promise of value that shall be acknowledged by the customers. The value proposition explains the manner in which the products or services solves customers problems by delivering specific benefits (O’Cass and Sok, 2015). Value proposition also gives the customers an idea of why they should buy products and services from the company and not their competitors. Value proposition plays a key role in setting an organization apart from the competition (Payne and Frow, 2014). This paper shall help in providing a better understanding of value proposition and its importance. 

The organization selected for study for this paper is AirAsia Berhad. Firstly, suitable models of customer value are evaluated and used to identify the perceived value of the products and services offered by AirAsia. A critical evaluation for the existing value proposition is made. It is then compared with one of its leading competitors in the airline industry. Research is made of their press releases and mission statements. The two value propositions are then benchmarked to reach a justified conclusion by looking at their value creation process. A new value proposition is then offered by identifying the weakness in existing value proposition. The new opportunities for the organization are explored and a new mission statement is suggested. Last but not the least; a plan shall be produced to implement the value proposition internally and externally. 

About AirAsia

AirAsia Berhad is a low cost Malaysian airline headquartered in Kuala Lumpur (Airasia.com, 2016). The organization was established in 1933 and commenced its operations in 1996 (Airasia.com, 2016). AirAsia Berhad is a part of the AirAsia Group and has both domestic and international airlines. It is now the largest airline in Malaysia with the largest fleet-size and number of destinations in the Southeast Asia (Airasia.com, 2016). The company slogan is ‘Now Everyone Can Fly’ as they provide the lowest price possible (AirAsia, 2011). The airline has partnered with numerous investors and created ventures in India, Philippines, China and Japan (AirAsia, 2011). 

The organization does not see itself as an airline operator, but considers the stakeholders as family. The company has revolutionized the business of airline industry. The brand continually strives, nurtures and protects itself by offering quality products and services. AirAsia’s vision is to be the largest low cost airline in Asia (AirAsia, 2011). They are increasingly penetrating into potential markets. They further aim to create a globally recognized ASEAN brand (AirAsia, 2011).

Customer Perceived Value

The airline industry is highly competitive as the customers have high expectations. Every airline company aims to attain high customer satisfaction to retain existing customers and attract new customers. AirAsia intends to prove reliable, highly responsive, highly dependable, significantly tangible and empathetic towards its customers. It is important for the organizations to create customer value and equity. There are different kinds of customer value models that are conceptually formed in literature, namely, value components models, means-ends models and utilitarian or benefits/costs ratio models (Ryu, Lee and Kim, 2012). 

The benefits/ costs ratio models are considered for assessing the customer perceived value. Value can be defined as the difference between benefits and costs incurred. The customers receive benefits that may be tangible or intangible in nature (Landroguez, et al., 2013). The costs or sacrifice comprises of monetary and non-monetary factors such as time and effort. The consumers can apply the principles of cost-benefits to assess a purchase made by them. According to the model of Woodruff and Gardial, the four definitions of value are listed as:

The perceived sacrifices of the buyers of AirAsia are the transportation cost, buying cost, delay in services, unsafe travelling and various others. While the perceived benefits include physical attributes, efficient baggage handling, on-time arrival and departure, positive attitude of the flight attendants and various others (Akamavi et al., 2015).

The components of customer value for AirAsia include low price, premium quality products and services, and speedy responsiveness. AirAsia was named the “World’s Best Low Cost Airline” for five years in a row from 2009 to 2013 by Skytrax in the World Airline Survey (Flores, 2013). The company follows a low cost model by focusing on providing air travel at substantially low prices. The organization has managed to maintain lower prices and gain market share. It sold tickets to the passengers directly and a common ticketing system is followed. It sacrificed the fringe services that helped them in reducing overheads and investment (AirAsia, 2011). It is observed that AirAsia meets a few objects as required by the customers. AirAsia provides safe travelling to its customers and keep them away from emotional anguish. The product packages and cheap fares prove economical to the consumers (AirAsia, 2011). 

The customers expect their flight to arrive and depart on time as promised by the airlines. The in-flight and ground services are expected to be fulfilled efficiently. Food and beverage quality is critical for the customers and they expect high quality. The behaviour and attitude of the crew or flight attendants make a difference in the airline industry. Every passenger expects the aircraft and seats to be sanitized, clean and comfortable (Sarkar Sengupta, Balaji and Krishnan, 2015). The customers pay a good price and they expect flight entertainment facilities and programmes. The passengers further expect in-flight phone, internet and fax services for communication. The flight schedules must be convenient and must have enough frequencies. The customers look forward to understanding and responsive behaviour from the crew members. The passengers want individual attention (Chow, 2015). 

The customers find it convenient if the airlines offer different accommodation, car, hotel or rental packages. If the booking facility is available online, it shall save time and effort of the potential travellers for printing their boarding pass. The customer satisfaction depends on the above constraints in the airline industry (Jiang, 2013). Not only do the customers expect efficient service before or during availing the products and services, but they also expect after-sales services such as changing travel class, changing itineraries and re-validating tickets. The customers have monetary and non-monetary costs involved such as the purchase price, switching cost, time and effort (Akamavi et al., 2015). The above mentioned values hold economic, relational and technical service values.

Critical Analysis of Value Proposition

 Air Asia

This section analyzes the value proposition for AirAsia. AirAsia is a low cost carrier (LCC). The organizational mission is to make air travel convenient, simple and inexpensive for the customers (Airasia.com, 2016). The mission is to be the best company as they treat their employees like a family. AirAsia also intends to become a globally recognized ASEAN brand (Airasia.com, 2016). They aim to provide the lowest possible fare so that people can travel anytime and anywhere with AirAsia. They also ensure highest quality of products and services with the application of advanced technologies (Airasia.com, 2016).

The organization began with a simple notion and is considered their value proposition. They want to take their guests or customers to the destinations on time. They also strive to achieve lowest possible fares while ensuring that they have a good time flying with the airlines (Airasia.com, 2016). Their value proposition is such that the customers travel more often in their airlines. As seen in the earlier section, the customers value high quality and affordable food. AirAsia considers the fact that not all customers would want to purchase food, so they offer options to the customers thereby cutting the cost (Airasia.com, 2016). The organization also offers online check-in that helps in saving time, effort and congestion at the airport (Airasia.com, 2016).

However, AirAsia does not provide refund as they believe the airlines waste a lot of time, money and resource for arranging flights (Airasia.com, 2016). So they do not provide refunds in case the passenger does not show up or misses their flight. This is not considered valuable by the customer as they do would not wish to pay a price for the service they have not availed (Airasia.com, 2016). The passengers look forward to a safe flight. AirAsia Indonesia flight 8501 met with an accident caused due to mechanical system malfunction that was not fixed before the flight killing 162 passengers onboard (Freed, 2015).

Malaysian Airlines

One of the leading competitors in the airline industry is Malaysia Airlines. The airline operates from Kuala Lumpur and covers destinations worldwide. The mission statement of the organization is ‘To provide air travel and transport service that rank among the best in terms of safety, comfort and punctuality’ (Malaysia Airlines, 2016). According to Fernandez (2015), Malaysia Airlines is too expensive to run and the new operations are run for ground handling, IT, maintenance and office equipment. The organization lays its focus on the cost as one of the critical values perceived by the customers is fair price (Malaysiaairlines.com, 2014). 

The value proposition of the organization involves to be sustainable that shall be anchored in financial competitiveness, operational excellence and optimum utilization of public funds (Malaysiaairlines.com, 2014). The customers value safety while flying in the air. Malaysia Airlines has reported two missing flights in the recent years namely the MH370 and MH17 (West, 2014). The airlines often rebrand after a crash, but these two planes went missing that is a major concern for the customers. Hundreds of passengers went missing on board  (West, 2014). The airlines went through significant financial losses as the public confidence was blown. However, the customer trust was regained as they freshly painted the planes. The organization is also restructuring its plans on other cost-saving measures by installing a new management team (West, 2014). 

Malaysia Airlines has always been famous for its efficient customer service. The organization is making significant improvements for building a strong and sustainable future. Malaysia Airlines claims that they offer better deals and services than AirAsia (Chen, 2016). However, AirAsia beats them in lower prices. Malaysia Airlines claims that AirAsia does not pay charges to the airport that makes them liable to pay the airport a huge sum of money. The CEO further adds that judging on the basis of price in comparison with AirAsia would not be a level playing field or a fair competition (Chen, 2016). 

Benchmarking Value Propositions

This section focuses on the value chain analysis to identify the activities undertaken by the organizations, i.e. AirAsia and Malaysia Airlines. The findings also link with the competitive advantage. An organization creates value by using the inputs and converting them into some useful output. The difference between value created and the cost of creating the value is known as margin. It is critical for an organization to create greater value so that the margin shall be more profitable. Michael Porter created a general purpose value chain for examining the activities and connections. There are two kinds of activities namely Primary Activities and Support Activities.

The primary activities directly relate to the physical creation, maintenance, sale and support of the products and services. 

Inbound Logistics- Currently, AirAsia only runs Airbus planes while Malaysia Airlines has a fleet of Boeing and Airbus (Airasia.com, 2016). Since AirAsia does not offer food compulsorily, and intends to provide best quality food, there is a need to add local delights in their menu. Not only AirAsia, both the airlines can produce and promote local food. The airline industry also includes the fuel control efficiency and planning routes in the inbound logistics. AirAsia is planning new routes and adding destinations (Airasia.com, 2016). Malaysia Airlines needs to plan new routes and unveil profitability. AirAsia can save cost on training and engineering while focusing on promotion and innovation (Airasia.com, 2016).

Operations- AirAsia has a low cost carrier business model. They also focus on self-automation where the customers can book, print tickets and check-in online (Porter, 2012). This helps in reducing congestion and cost of counter services. AirAsia excludes various frills in the daily operations that add to cost such as free food and beverages, assigned seating, no refund and ticketless travelling (Airasia.com, 2016). Since it is a single type of aircraft, there is no need for costly re-training or extensive knowledge and skills for operations. AirAsia also adds a self bag drop feature that shall securely deposit the bag into the baggage handling (Airasia.com, 2015). Malaysia Airlines has different departments for maintenance, cargo, baggage handling and various others. Malaysia Airlines needs to improve on the baggage handling systems that shall reduce time and effort of its customers (Malaysiaairlines.com, 2016). 

Outbound Logistics- The outbound logistics involve the activities that can delay or intrude the final product or service such as purchasing airline ticket. The customers of AirAsia can easily get flight services in all the airports in Malaysia. Same goes for the Malaysian Airlines that has flights operating from both Kuala Lumpur international Airport and other secondary airports. The online booking and check-in makes it convenient for delivering services (Sultan and Saurabh, 2013).

Sales and Marketing- For analysing the needs and demands of the customers, campaigns may be created. AirAsia holds a strong brand name that has a significant impact on the sales. The company sponsors “The Amazing Race Asia” that is a reality game show based on the American series (AirAsia, 2011). AirAsia also sponsors the “Manchester United” football team as the team seeks to raise its standards (Kiat, 2013). Malaysia Airlines also sponsors Sarawak music festivals (Mahmood, 2016). They also offer discounts of 5% for its customers for the Perfect 2016 World Team Table Tennis Championships (Malaysiaairlines.com, 2016). Also, both companies are being promoted by Queens Park Rangers as they shall carry the logos on their home shirts and jerseys (Mail Online, 2011). 

Services- The services are related to the production of products and services. AirAsia offers other services which include Cargo, Rental, Megastore and Travel protection.  Air Asia also provides Airport bus ticketing and TuneTalk sim card only for Malaysia (Airasia.com, 2016). The company offers customised travel offers such as membership benefits to pick a meal, seat, weight or insurance. They also provide Red Carpet and VIP treatment for priority baggage, check-in and other services (Airasia.com, 2016). Malaysia Airlines ensures first class travel experience to its customers by providing lounge services and charter services to worldwide destinations (Lysons and Farrington, 2015). The organization also provides services for hotel, check-in, checking flight status, complaint handling and  others (Malaysiaairlines.com, 2016).

Support Activities

The supportive activities help in keeping the business operational and smooth. 

Procurement- AirAsia has multiple units such as hotel, in-flight services, merchandise and various others. The different units can focus on their own business and obtain highest quality at low prices (Fearne, Garcia and Dent, 2012).

Technology Development- AirAsia uses Computer Reservation System (CRS), Enterprise Resource Planning (ERP), Airline reservation system (ARS) and Yield Management System (YMS) for supporting the company operations (Airasiainformationsystem, 2016). Malaysia Airlines collaborates with Amadeus for a sophisticated, convenient and speedy customer experience while booking through the web (Thestar.com.my, 2016). 

Human Resource Management- The human resource management of both the organizations, AirAsia and Malaysia Airlines provides recruiting, training, rewarding and motivating the workforce of the organization. As AirAsia only runs single aircrafts, Airbus, the re-training costs are saved. Both the organizations recruit multi-skilled people so that they can sustain organizational mission with their outstanding performance (Lysons and Farrington, 2015). 

Firm Infrastructure- AirAsia focus on their goal which provides the lowest price for customer. It also includes different planning and control systems such as finance, marketing, legal and various others (Lysons and Farrington, 2015).

Conclusively, it is justified that both the airlines have significant strengths and weaknesses. AirAsia is one of the best airlines in the world as it is improving its offerings and services daily thereby maximizing its value. There is proper coordination between the management, employees and customers that makes the organization successful. AirAsia is the leading low fare airline. However, having low cost is not sufficient (Lysons and Farrington, 2015). The following sections shall focus on developing a new value proposition for AirAsia. 

New Value Proposition

After analysis and findings, several recommendations can be made for AirAsia that would help in minimizing the gap in service and product quality. Simultaneously, it shall help in increasing value and margin thereby reaching the customers’ perception (Lysons and Farrington, 2015). The proposition and recommendations for AirAsia are developed based on the weaknesses described in the earlier sections. 

The new value proposition for AirAsia could be: “To become the global leading airline for safe, convenient, affordable and high quality experience to its customers” (Amiruddin, 2013).

AirAsia has always focused on maintaining lowest cost. However, the company may focus on providing lowest cost without compromising the convenience of customers (Amiruddin, 2013).

Increase resources and capabilities

AirAsia has a high gap between customer expectations and value delivered for the tangible resources and capabilities. The passengers do not seem to be satisfied with the condition of seats in the airplane. They find the seats small and uncomfortable. AirAsia also does not present itself as an appealing brand. There is a need for the organization to enhance its brand image or corporate image. The service quality needs to improve that would help in increasing customer loyalty. Not only the economical travellers, AirAsia must now focus upon high class travellers and enhance its corporate image (Amiruddin, 2013). 

Global integration and local responsiveness

As airlines travel across different nations, the localization strategy can help in increasing value. The preferences and tastes of customers vary based on different regions. The products and services must be expanded worldwide. AirAsia must focus on expanding its business so that the customers can travel across the world at a lower cost. The customers shall then develop a positive corporate image and build customer loyalty (Amiruddin, 2013).

Increase customer service

The findings suggest that the customers seek for empathy in the airline business. The customers prefer to do business with an airline company that shows or provides individual care and attention to them. The customer service of AirAsia is not very pleasing. There are problems encountered in flight delay, online booking services, baggage handling, reservation services, and various others. The business of AirAsia is dependent on these factors as they help in creating value for customers. The queries and issues of the customers must be handled immediately (Amiruddin, 2013). The customers must be encouraged to buy travel protection insurance plans so that they can avail benefits in case of personal accidents, flight delay or cancellation, damage or loss of baggage with other assistance services (Airasiainsure.com, 2016).

Implementation of Value Proposition

The three legs of the value proposition tool are: Resonate, Differentiate and Substantiate. 

Resonance- Unless there is a need, people would not buy products and services from the company. 

Differentiate- If the companies have options to differentiate, there shall be a pressure on price and the customers may switch brands.

Substantiate- The customers must believe in the organization as trust is necessary. 

As stated in the earlier section, the value proposition statement could be “To become the global leading airline for safe, convenient, affordable and high quality experience to its customers” (Amiruddin, 2013). The statement explains what needs to be done and the benefits provided to the customers. Four steps must be considered for implementing the value proposition: Define Evaluate, Measure and Build (Skok, 2016). 

Define- The value proposition process shall also involve 4Us for being on the right path towards a compelling value proposition (Skok, 2016). If there are discrepancies, the values must be evaluated and revised. The 4Us are: Unworkable, Unavoidable, Urgent and Undeserved (Skok, 2016). It must be considered if the solution offered shall fix the current problems at AirAsia. Moreover,  it must be evaluated that the existing problems are driven by a mandate or regulatory control. The addressed problems urgency status must be noted if things will fall below the line (Skok, 2016). 

Evaluate- The problems addressed in earlier sections must be evaluated using breakthrough. The unique combination of discontinuous innovation, disruptive business model and defensible technology can open up potential for breakout (Skok, 2016). 

Measure- The managers can focus on the benefit and cost ratio so that the customers can adopt. Non-disruptive is critical to start-ups since the gain you deliver will also be discounted by the risk associated with betting on you as a young company. A successful venture delivers an order of magnitude improvement over the status quo. If you can’t deliver a 10 x gain/pain promise, customers will typically default to “do nothing” rather than bearing the risk of working with you (Skok, 2016).  

Build- The target customers can be selected as the high class consumers, as AirAsia currently focuses on economical consumers (Skok, 2016). AirAsia must make efforts to differentiate its products in context with its distribution patterns, price, design and quality. The value proposition margin shall be less if the products and services already exist in the market. Their value proposition is such that the customers travel more often in their airlines. The customers must obtain a high perceived value and differently as the program or proposition would not work effectively otherwise (Skok, 2016). AirAsia must recruit multi-skilled people so that they sustain organizational mission with their outstanding performance. AirAsia needs to improve on the baggage handling systems that shall reduce time and effort of its customers.

Conclusion

The above report focuses on the value proposition. Value proposition plays a key role in setting an organization apart from the competition. The organization selected to prepare this paper is AirAsia Berhad. AirAsia Berhad is a low cost Malaysian airline headquartered in Kuala Lumpur. AirAsia Berhad is a part of the AirAsia Group and has both domestic and international airlines. The organization does not see itself as an airline operator, but considers the stakeholders as family. The airline industry is highly competitive as the customers have high expectations. Every airline company aims to attain high customer satisfaction to retain existing customers and attract new customers.  The customers receive benefits that may be tangible or intangible in nature. The perceived sacrifices of the buyers of AirAsia are the transportation cost, buying cost, delay in services, unsafe travelling and various others. The organization has managed to maintain lower prices and gain market share. It sold tickets to the passengers directly and a common ticketing system. It sacrificed the fringe services that helped them in reducing overheads and investment. It is important for the organizations to create customer value and equity. Not only the customers expect efficient service before or during availing the products and services, but also after-sales service such as changing travel class, changing itineraries and re-validating tickets.

The in-flight and ground services are expected to be fulfilled efficiently. Food and beverage quality is critical for the customers and they expect high quality. The passengers further expect in-flight phone, internet and fax services for communication. If the booking facility is available online, it shall save time and effort of the potential travellers for printing their boarding pass. The customer satisfaction depends on the above constraints in the airline industry. They also ensure highest quality of products and services with the application of advanced technologies. The passengers look forward to a safe flight. The organization also offers online check-in that helps in saving time, effort and congestion at the airport. Malaysia Airlines is too expensive to run and the new operations are run for ground handling, IT, maintenance and office equipment. The organization is also restructuring its plans on other cost-saving measures by installing a new management team. The difference between value created and the cost of creating the value is known as margin. AirAsia is planning new routes and adding destinations. AirAsia adds self bag drop feature that shall securely deposit the bag into the baggage handling. Same goes for the Malaysian Airlines that has flights operating from both the Kuala Lumpur international Airport and other secondary airports.

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