“A Dynamic Model of Consumer Choice to Brand Development”
by John Roberts (Australian National University and London Business School), Peter Danaher (Melbourne Business School), Alan Simpson (Forethought Research) and Ken Roberts (Forethought Research).
This work describes the use of a marketing science model by Jetstar, a subsidiary of Australia’s leading airline, QANTAS, to effectively and profitably compete in the low cost carrier marketplace. They trace the evolution of the Jetstar strategy, from a baseline calibration of its initial position, through to its efforts to understand and grow price competitiveness and service parity, followed by a highly focused, cost-effective service delivery strategy. The associated a model incorporates dynamics and also allows for unobserved heterogeneity of both perceptions and importance weights of process attributes. The model permitted Jetstar management not only to see how service design and pricing initiatives shift the perceived performance of Jetstar relative to its competitors, but also how the airline is could shift market preferences in a way that emphasizes the areas in which it has competitive advantage. Jetstar market share went from 14.0% to 18.1% during the first five quarterly waves of the research program. Significant price perception and service level disadvantages were ameliorated. Profit for Jetstar went from $A 87 mm in 2006/07, before the study was commissioned, to $A 115 mm in 2007/08 and $A 137 mm in 2008/09 during a period of major industry losses.