Perceived customer value of Vietnam Airlines' online ticketing

TRƯỜNG ĐẠI HỌC MỞ TP. HCM UNIVERSITE LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL

MBAVB3

NGUYEN THE HOANG

PERCEIVED CUSTOMER VALUE

OF VIETNAM AIRLINES ONLINE TICKETING

MASTER PROJECT

MASTER IN BUSINESS ADMINISTRATION

(PART-TIME)

Tutor’s Name: Dr. NGUYEN Duc Tri

Ho Chi Minh City

(2010)

DECLARATION

This thesis is a presentation of my original research work. Wherever

contributions of others are involved, every effort is made to indicate

this clearly, with due reference to the literature, and acknowledgement

of collaborative research and discussions.

The work was done under the guidance of Dr. NGUYEN DUC TRI,

under the framework of the the Master program in Business

Management – The join Masters Program between Ho Chi Minh City

Open University (Vietnam) and Solvay Brussels School (Belgium).

The work was completed in December 2010, in Ho Chi Minh City -

Vietnam

(candidate’s name and signature)

NGUYEN THE HOANG

In my capacity as supervisor of the candidate’s thesis, I

certify that the above statements are true to the best of

my knowledge.

(guide’s name and signature)

Dr. NGUYEN DUC TRI

Date: ……

Acknowledgement

This thesis could not have been done without the contribution and encouragement from

many people…

First of all, I would like to express my profound gratitude and great appreciation to my

supervisor Dr. NGUYEN DUC TRI for his valuable guidance, advices and

recommendations throughout the research study.

I would like to express my great appreciation to the staff of the Passenger Sales &

Marketing Department, Southern Regional Office of Vietnam Airlines, who I had chance to

work with during my short internship at the early stage of this study. Deep appreciation

and thanks are reserved to Mr. HUNG – Supervisor at the Department – for his fruitful

discussions as well as providing me with the necessary information. Special thanks also to

be sent to Mr. KHANH – Head of Human Resource Department of Southern Regional

Office – for facilitating all the administrative arrangement for my internship, and Mr. SON –

Head of the Sales and Marketing Department – for accepting me as a trainee in his

Department.

I would like to express my sincere thanks to my classmates MBAVB3 who have shared

with me their impressive knowledge and skills during the challenging courses of the MBA

program. I do specially want to express my loving thanks to all the members in my dear

group (4A+4B) who were always besides me whenever the “team work” assignments

have been carried out.

My greatest debt of gratitude is to my wife, Thao, who was sharing with me all the difficulty

occurred during this MBA study. My MBA study could not be completed without her moral

encouragement and support.

Finally, I would like to thank the members of the Examination Committee for taking time

and giving valuable comments to improve this study.

HCM City, December 2010

NGUYEN THE HOANG

ABSTRACT

Facing with high costs, Airlines are attempting to shift customers from traditional

ticketing channels to their direct channels such as website which is considered as a

prominent marketing channel and the most cost effective for Airlines. The biggest Airline

in Vietnam – Vietnam Airlines – has also followed this strategy by recently launching

ticket selling via its website.

However, the emergence of online booking can lead to significant changes in

consumers’ references and behavior. Therefore better understanding key factors

influencing on “perceived customer value”, which has been found to be a powerful

predictor of purchase intention, becomes a crucial issue for e-marketers.

In such context, this research follows the study of Chen and Dubinsky (2003). A

more simplistic model was suggested to indentify key antecedents of perceived customer

value in B-to-C online ticketing. The model was empirically tested with Vietnam Airlines’

e-clientele. This choice has double purposes. Firstly, worthy implications deducted from

the results expected can help better implement tactics for further development of Vietnam

Airlines’ e-commerce. Secondly, the investigation can give further empirical support to

better ascertain the validation of the original model suggested by Chen and Dubinsky.

A quantitative research was carried out. Structured questionnaire was administered

to collect data from Vietnam Airlines’ e-customers by both methods: “online

questionnaire” and “personally administered questionnaire” surveys. The analysis

techniques which include Reliability, Factor and Multiple Regression analyses were used

to valid the construct measurement and test the hypotheses suggested. Revision of research

questions, hypotheses, and research model in the case of investigation was carried out.

The results obtained by the research shows that “valence of experience” and

“perceived product quality” are predictors of “perceived customer value”. They are

positively and significantly related to the “perceived customer value”. Furthermore, it is

also shown that the factors, which are related to the website’s performance, including

“relevant information”, “ease of use”, and “customer service” are the predictors of

customers’ “valence of experience”.

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Nguyen The Hoang – MBA VB3

1. CHAPTER 1: INTRODUCTION

1.1. Research background

Facing with high fixed costs, airlines strive to find an efficient and effective

distribution strategy of tickets (Toh and Raven, 2003). Distribution through brick-and￾mortar travel agencies is expensive because it requires airlines to pay not only

commissions to travel agencies but also transaction fees for the computerized reservation

systems (Bilotkach and Pejcinovska, 2008). Working with online travel agencies (OTAs),

such as Expedia and Travelocity, offers airlines a broader consumer base than if they

distributed solely through their brand.com websites which can help to save airlines

distribution costs. Furthermore, previous studies showed that there was a contention of

shares amongst the channels of airlines. For example, during 2000-2001 in Taiwan, the

market share data showed that, traditional tour agents have lost at least half of their

customers to the ticketing websites (Shon et al., 2003). These show many challenges for

sales channel management that directly affect the profits of airlines.

Airlines’ websites provide a distribution channel linking the Airlines more closely

and directly to their potential customers. Distribution through own website is generally

regarded as the most cost effective for Airlines (Lubbe, 2007).

To consumers, the benefits of the Internet are tremendous. As an alternative

channel, web shopping is convenient and time saving. Consumers can compare prices and

products or services’ features across suppliers by using rich and free information available.

Though, previous works on web-shopping, has raised the e-suppliers’ concerns about the

low purchasing rate and moderate satisfaction of online shoppers (Moon and Frei, 2000).

Customers now have much more bargaining power, lower switching costs, and high

number of choices. Thus understanding what leads to online customers’ purchase

intentions has become an important research topic (Barsh et al., 2000).

“Perceived customer value” has gained much attention from maketers and

researchers because of its important role in predicting purchase behaviour (Cronin et al.,

2000). From the standpoint of marketing strategy, creating “customer value” means

meeting customers’ needs and increasing customer satisfaction (Porter, 1985). Customer

value management has been used widely by firms to differentiate themselves from

competitors.

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Nguyen The Hoang – MBA VB3

Previous studies have shown that perceived customer value can change with

consumption context. Thus, buying on the Internet, may lead to a change in perceived

customer value relative to other traditional channels. Despite of its importance, a few

systematic researches could be found to understanding how an online shopping context

could affect perceived customer value, especially in typical service industry such as

Airlines. The study of Chen and Dubinsky (2003), which suggested a preliminary

investigation on perceived customer value in e-commerce, got some interesting findings. A

conceptual model of perceived customer value, involving several influencing factors, was

suggested. However, as suggested by the authors that further empirical supports need to be

done for future works to ascertain whether the model is posited.

In such a context, investigating appropriate models, to better understand which key

factor affecting on perceived customer value, and correctly applying them in dynamic

service industries, such as Airlines, in emerging markets, such as the one of Vietnam, will

help to bring tremendous benefits for both firms and customers. Several implications could

be withdrawn to help the firm, such as Vietnam Airlines, to well implement for further

development of its online channels, and hence increase its competitiveness over

competitors.

1.2. Research problem

2.1.1. Brief introduction about Vietnam Airlines

Vietnam Airlines is owned by the government of Vietnam. The airline is headed

and overseen by a management team, members of which are selected by the Prime

Minister of Vietnam. The airline branches include: Southern, Central and North branches.

Currently the airline is headquartered in Hanoi.

Vietnam Airlines has an extensive network throughout East Asia, Southeast Asia,

Europe and Oceania. With more than 290 daily flights, the airline flies to 20 destinations

domestically, and to another 28 internationally. Operating the young fleet of 70 modern

aircrafts (Airbus and Boeing mainly), the airline expects to further expand its fleet to 115

and 165 aircrafts by 2015 and 2020, respectively1

Vietnam Airlines is currently a member of SkyTeam and codeshares with most

SkyTeam members. Vietnam Airlines also has codeshares with four current Oneworld

1

http://www.vietnamairlines.com.vn/

3

Nguyen The Hoang – MBA VB3

members – American Airlines, Cathay Pacific, Japan Airlines, and Qantas – and is part of

Cathay Pacific's Asia Miles program. Joining SkyTeam marks a favorable step toward

Vietnam Airlines’ future growth. It will bring passengers convenient and seamless service

of international standards to a global network covering more than 850 destinations in 169

countries.

Vietnam Airlines holds about 40 per cent of the market share of international

tourists flying to and from Vietnam. This is significant because Vietnam Airlines receives

two-thirds of its profits from international passengers. In domestic market, Vietnam

Airlines and VASCO (its subsidiary) has an 80% share of the aviation market, with the rest

covered by Jetstar Pacific and the others (Vietjet Air, Mekong Air – a new carrier)

In 2009, the airline's revenue was $US1.3 billion, compared to $US1.56 billion it

earned the previous year. Vietnam Airlines carried 9.3 million passengers during this

period. It is reported that Vietnam Airlines’ passenger capacity for 2010 has risen up to

30% over the same period of the previous year (Figure below). Total sales are estimated to

obtain a high rate of ~18% per year from 2010 to 2015 2

.

Figure 1. Top 30 airlines in Asia (Anna.aero, May 2010)

2

Internal financial source of VNA (unofficial source)

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Nguyen The Hoang – MBA VB3

The sales resulted from the Southern branch of Vietnam Airlines, located in

HoChiMinh City, hold approximately ~50% of the total of the company. The remains hold

by the North and Central branches. The organizational charts of the corporation and of the

Sales Department (passenger) are given in the Appendix 12.

Vietnam Airlines has developed a multichannel sales network including both

offline and online ones (Table below). Offline channels are traditional channels which still

hold a large portion of total sales (~ 97% total sales, YTD 20103

). The online channels,

which include both B-to-C and B-to-B customers, bring only the remains of ~3%. The B￾to-C e-ticket selling is done via the Airline’s website. The later (B-to-B) is performed with

a particular web-based site developed for corporation clients, called “web portal”. Some

internal sources show that the company is now developing an ambitious plan to foster sales

via online channels, especially on web-portal4

.

Table 1. Classification of key sales channels of VietNam Airline

ONLINE OFFLINE

DIRECT

(1) Airline’s website (B-C)

(2) Web portal (B-B)

*Sales estimated5

: ~ 3%

(3) CTO (City Ticketing Office)

(4) ATO (Airport Ticketing

Office)

*Sales estimated: ~ 13%

INDIRECT

(Not yet participation in OTA

– Online Travel Agencies such

as Expedia.com, Opodo.com,

Orbit.com)

(5) Tour Agents

(6) Independent sales Agents

*Sales estimated: ~ 85%

2.1.2. Identification of research opportunity

Vietnam achieved around 8% annual GDP growth from 1990 to 1997 and

continued at around 7% from 2000 to 2005, making it one of the world's fastest growing

economies. The country’s GDP growths by 8, 9, 6 and 5 percent for the year of 2007,

2008, 2009 and 2010 respectively despite of the difficult period during the financial crisis6

.

The penetration of Internet user in Vietnam has been estimated to be 35%.

Approximately $US 6.3 billion has been estimated to inject into the internet market to meet

3

Numbers are scaled

4

Internal source (unofficial)

5

Numbers are scaled

6

http://www.indexmundi.com/vietnam/gdp_real_growth_rate.html