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ISSN : 1598-7248 (Print)
ISSN : 2234-6473 (Online)
Industrial Engineering & Management Systems Vol.21 No.2 pp.401-408
DOI : https://doi.org/10.7232/iems.2022.21.2.401

Determining Optimal Marketing based on Market Attraction and Market Based Strategies by Considering Customer Life Time Network Value

Suharto Abdul Majid*, Prasadja Ricardianto, Yosi Pahala, Euis Saribanon, Sonya Sidjabat, Mochamad Arif Hernawan, Abdullah Ade Suryobuwono, Ryan Firdiansyah Suryawan
Trisakti Institute of Transportation and Logistics, Jalan IPN Nomor 2 Cipinang Besar Selatan, Jakarta, Indonesia
Sekolah Tinggi Penerbangan AVIASI Indonesia, Wisma Aldiron Nusantara Jalan Gatot Subroto Nomor 72 Jakarta, Indonesia
*Corresponding Author, E-mail: samtrisakti1531@gmail.com
March 2, 2022 ; March 18, 2022 ; April 18, 2022

Abstract


Customers are now constantly linked and communicate extensively with each other utilizing technology-enabled media, such as online social networks. Therefore, when making buying decisions, customers are often subjected to social influence. The strategic orientation to face the crisis due to the pandemic is not enough to rely solely on market capabilities and dynamics driven by incentives from the government. The advantages that are built on values that become market attractiveness need to be explored so that they become the basis for developing concepts that serve as frameworks for solving problems. The purpose of this study is to calculate customer lifetime value (CLV) in a space such as Marketplace (with the presence of buyers and sellers) considering network relations and the communication that takes place between them. These communications are in the form of interactions between buyers and buyers (verbal advertising), buyers and sellers (each number affects the other) and sellers with sellers (verbal advertising). In addition to calculating CLV in this study, optimal marketing strategies (for buyers) and pricing (for suppliers) are determined. In fact, this research primarily aims to determine the optimal marketing and pricing strategies in order to maximize the profit and CLV of the customers over time. For modeling, an optimal control model is suggested and finally a numerical example and sensitive analysis are provided to demonstrate the proposed model. The research objective is to analyze the attractiveness and market-based strategies to increase competitiveness in the aviation industry. Descriptive research verification survey of 32 airlines with the observation unit leaders and employees and customers. Data analysis used variant-based structural equations (Structural Equation Modeling - SEM). The results show that market attractiveness remains a value for customers to be managed by the company. The implementation of company strategy with customer focus, competitor intelligence, crossfunctional intelligence, and performance implications encourages the excellence of the company's position in terms of both price and quality, including innovation in providing services to customers.



초록


    1. INTRODUCTION

    Customer Relationship Management (CRM) is a combination of people, processes, and technology that displays to know a firm's customers. Specializing in consumer retention and connection development is an integrated method for working relationships. CRM appeared from results in communication technology and enhancements in customer- centered methods in communities. Firms that adopt CRM would reap the benefits of consumer satisfaction and long-term profitability (Agha et al., 2012).

    The sources of market-based competitive advantage continue to be explored. Market-based and resourcebased views complement each other to support the achievement of excellence. In line with the efforts to build competitive advantage and the ease with which the company has resource-based or market-based advantages, competitive advantage is increasingly being focused on an integrated approach. In a corporate strategy, all of these elements are aligned with other elements and resources provide an important basis for the company’s excellence (Chen and Chang, 2013). Büyüközkan et al. (2020) put forward the company's vision, goals and targets that are clearly formulated and followed by resources, business and organization as a foundation for a strong corporate strategy that will produce corporate advantages that will strengthen the existence of a multibusiness entity. Sholpanbaeva et al. (2021) stated that the excellence of the company can be achieved by synergy. Competition is becoming increasingly complex and dynamic, accompanied by stronger buyers or customers with a wide selection of products and services.

    The success of competing is indicated by the ability to encourage synergy between the two approaches, including in the air transportation service industry. The air transport industry remains promising amid the pandemic. There is a growing trend in the use of aviation services for both business and leisure purposes with a number of restrictions. It is projected that demand for air transport will continue to grow (Libai, 2020;Ishenin et al., 2021). The growth of airplane passengers in Indonesia is also greatly influenced by the shape of the Indonesian state, namely an archipelago. Indonesia consists of six large islands and thousands of small islands with a population of more than 260 million people. This condition really requires air transportation compared to other modes of transportation (land and sea). The growth in the number of passengers transported by air has continued to increase sharply from 2004 to 2015 to reach 90.6 million in 2015 consisting of passengers using budget traveler (LCC), premium (full service airlines), and Garuda Indonesia (Ministry of Transportation, PT Angkasa Pura I & II, and Garuda forecast). The peak was in 2018 when the number of passengers carried reached 118 million consisting of 101 million domestic passengers and 17 million international passengers (Ziari et al., 2022). On the other hand, this growth encourages the increasing complexity of competition among providers. Old airlines such as Garuda, Merpati, and Mandala (at that time) faced new airlines such as Lion Air and Sriwijaya Air. The market share of domestic air transport passengers that increased in 2010- 2014 was from a number of domestic scheduled airlines, which were dominated by Lion Air, Garuda Indonesia, and Sriwijaya Air. Büyüközkan et al. (2020) suggested changes in the aviation industry. Sharmelly and Klarin (2021) added that the Asian region's aviation sector is not reaching its full potential, in most international markets it remains low.

    The company continues to make efforts to build excellence. Rajendran and Srinivas (2020) suggests a strategy that is supported by attractiveness and resources as the determining factors for excellence. Hauer et al. (2020) adding to more intense competition can result in higher prices and lower aggregate supply. This condition is not favorable from the customer side. Competition affects the allocation of airline seat capacity. The transformation in the aviation industry which has affected economic efficiency and a high level of competition. The fact is that competition has not contributed much value and is not attractive to customers. Khan et al. (2018) asserted that product prices should be lower in a market with a large number of competing firms. Han et al. (2012) explaining globalization, giving rise to competition outside one's own borders.

    In the new normal era, these conditions are increasingly complex. The restrictions caused by Covid-19 caused the industry to sink. A competitive strategy is needed that places value for customers as a company orientation. Value-based framework to realize sustainable excellence. Desai et al. (2019), Panfilov et al. (2021) added a value-based design framework created to illustrate how economic theory can be used to assess business strategies and engineering solutions in the commercial aviation industry.

    The results of this study can be used as a reference to improve theoretical and empirical understanding of the competitive structure of the aviation industry and the value function for designing a competition strategy that has a sustainable orientation. Khan et al. (2018) pointed out the need for strategic planning for the aviation industry not only for domestic low-cost airlines (LCC) or full service operators. The research objective is to analyze the attractiveness and market-based strategies to increase competitiveness in the aviation industry.

    2. BACKGROUND

    According to Rasti-Barzoki and Moon (2020) that market attractiveness consists of market power, intensity of competition, and market access. Competitive advantage consists of differentiation, cost leadership, and focus. Meanwhile, business performance includes a financial perspective and a market perspective. Chaudhary et al. (2022) states that Attractiveness is a group of companies that produce similar products or services, and Zhang et al. (2022) revealed that the basic determinant of profitability is market attractiveness. Market attractiveness is a measure of the possible profit that lies in the structure of a particular industry or market. Market attractiveness is a term that describes the possible profits available in a particular market or industry. Its attractiveness as a multidimensional concept allows a wide range of definitions and measurements. Zhang et al. (2022) argued that market attractiveness can be measured through market forces, competitive intensity, and market access. Market / industry attractiveness can be measured through market size, market growth, intensity of competition, price levels, and profitability, technology, sophistication, and government regulations. The attractiveness of a market can be measured from several aspects, namely aspects of market growth which include market size, growth rate and market potential; aspects of competition intensity include the number of companies, ease of entry and substitute products; as well as aspects of market access including customer familiarity, access channels and company fit. As for (Nursalim, 2021) identify five competitive forces in a market: including the entry of new competitors, the threat of substituted products, the bargaining power of buyers, the bargaining power of suppliers and competition among companies operating in the industry. The five industrial competitive forces are analytical tools that companies can use in measuring the attractiveness of an industry. The potential profitability of an industry is a function of the interaction between the five forces. The main purpose of calculating CLV is to estimate customer weighting and, based on this, assign them the relevant level of resources. Chaudhary et al. (2022) have defined CLV as follow:

    C L V = t = 0 T ( p t c t ) r t ( 1 + i ) t A C
    (1)

    where:

    • pt : price paid by a consumer at time t

    • ct : direct cost of servicing the customer at time t

    • i : discount rate or cost of capital for the firm

    • rt : probability of customer repeat buying or being “alive” at time t

    • AC : acquisition cost, and

    • T : Time horizon for estimating CLV.

    3. MODEL FORMULATION

    The logic underlying a market-based strategy is that the market and the consumers that make up the market must be the starting point for a business strategy. A market strategy driven by a company-wide perspective, which mandates a more effective integration of activities and processes that affect customer value. Competitive advantage is created based on the market. In business, SWOT analysis is widely used to analyze a company's competitive advantage. A number of new theories have emerged to explain sustainable competitive advantage in business. Porter was the first to introduce a theory to provide a deeper understanding of SWOT analysis. He introduced the concept of strategic positioning (strategic positioning) to explain a company's competitive advantage by focusing on opportunities and threats in the environment. Market orientation is a very important resource in gaining competitive advantage. Market orientation includes a commitment to creating superior value for customers. Companies that have a source of value in a competitive situation characterizing the external product market have a superior positioning compared to competitors. The characteristics of a market-driven strategy that are market- oriented consist of customer focus, competitor intelligence, cross-functional coordination, and performance implications that can promote superior positioning that shows competitive advantage. Companies that implement information about customers, observers and markets; and decide how to provide superior customer value; taking action to provide value to customers through products and services has a greater chance of gaining a superior position in the minds of customers. The assumptions in value theory provide a measure of the potential market based on the value offered by the provider in accordance with market demands. The company has various buyers and various sellers and offers its services to its buyers for free and consequently get a membership fee from its sellers. The company maximises its long term discounted profit. The objective function of company is as follows (Equation 2):

    m a x v = t = 0 p t c t ( N t s A t ) e r t d t
    (2)

    where r , pt , ct and At denote discount rate, revenue, cost and marketing cost over time respectively.

    Consider two parallel populations of buyers and sellers. Equations 2 and 3 shows the change in the number of sellers and buyers respectively, over time.

    d N t S d t =   α ( p t ) + b 1 ( N t S M s ) + c 1 ( N t B M B )
    (3)

    d N t B d t =   α ( A t ) + b 2 ( N t B M s ) + c 2 ( N t S M B )
    (4)

    The term α(At) recognizes that a company can accelerate the growth of its buyers through advertising.

    Similarly, the term α(pt) highlights the fact that the growth of sellers depends on the price the company charges them. The direct network or word-of-mouth effect for sellers and buyers is captured by the third in equations 3 and equation 4.

    As a company acquires more buyers it becomes more attractive for sellers to join the company as well. The reverse is also true — the more sellers a company has, the more buyers it is likely to attract. This indirect network effect is captured by the Forth terms in equations 2 and 3.

    By substituting the values (At) , α(Pt) , MB and MB in equations (2) and (3), the equations become (5) and (6), respectively.

    d N t S d t =   Ø w l n p t + b 1 ( N t S M 0 s e k t ) + c 1 ( N t B M 0 B e t )
    (5)

    d N t B d t = x + h l n A t + b 2 ( N t B M 0 s e k t ) + c 2 ( N t S M 0 B e t )
    (6)

    4. ANALYSIS AND RESULTS

    This research was designed using descriptive and verification characteristics of the survey with the unit of analysis as many as 32 airlines. The observation unit in this study was the leaders of the airline companies as many as 52 main directors or directors and 98 employees representing each airline company. The survey was conducted via online method for measurement of market attractiveness which is developed based on (Nova, 2014), namely market potential, competition intensity, market access. Market based strategy indicators are developed based on (Majid et al., 2017) that is 1) customer focus 2) competitor intelligence, 3) cross-functional intelligence, 4) performance implications. The measurement of competitive advantage is developed based on (Chen and Chang, 2013), among others, with indicators price, product quality, innovation, business growth, and corporate image (Data analysis using SEM PLS (Figure 2)).

    Each indicator in the study is in various categories. Market attractiveness is in the category of less. The availability of resources has decreased and the strategies proposed are in the medium category. Excellence for several airlines is supported by the resources they have. In the midst of a pandemic, the advantage is more to survive.

    All indicators on each variable have a loading factor greater than 0.5, therefore all indicators are valid for measuring latent variables. The results of the convergent validity test by looking at the AVE value show that the Company Excellence variable is 0.591. The attractiveness variable is 0.587 and the market driven strategy is 0.578. The test results of the Composite Reliability (CR) value show more than 0.6, namely 0.96 for attractiveness, 0.937 for market driven strategy and 0.963 for competitive advantage. The test results are presented in Table 1:

    The Indonesian national aviation market is described by 3 dimensions consisting of 17 indicators. The assessment of leaders and employees of the attractiveness indicator was considered insufficient in the midst of the pandemic due to Covid-19. The average is in the less category. The company continues to conduct market research through online news and social media developments, has a fairly good customer database, preferences. The company is ready to welcome the new market in the new normal era. Transportation ordering growth trend is increasing. However, companies are experiencing great difficulty to enter new markets while still applying high economies of scale. The focus of the company's strategy remains on customers, is sensitive to competition, and maintains performance by means of efficiency. The average indicator for the driven market strategy variable is in the better category. As for company excellence, the variable indicators are in the medium category. The company maintains its superiority amidst the pandemic restrictions and pandemic. The new era of competition began with the increasing trend of ordering air transportation services with a number of restrictions.

    Companies have difficulty building their excellence without understanding the conditions and dynamics of competition and the values required by consumers. The test results show that the variability of the Market-Based Strategy construct can be explained by the variability of the Market Attractiveness construct and 27.2%, the remaining 72.8% is influenced by other variables not examined. Strategy mediates the influence of market attractiveness and competitive advantage, although not fully.

    The condition of the attractiveness of the aviation market in Indonesia is generally attractive, but after experiencing a crisis period due to the pandemic, the market share is waiting for the situation and conditions for the virus to subside to return to excitement. The market as one of the external environmental factors also colours the dynamics of the development of the aviation business in the country, in addition to general economic factors, competition, regulation, technology and infrastructure. The national aviation industry also cannot be separated from the environmental effects of the pandemic. Attractiveness is the basis for strategizing in the new normal era. Market attractiveness plays a part in building business performance by being the initial input for companies to develop strategies in a market. With the presence of high market attractiveness, it also goes hand in hand with achieving business performance. Exploration of the values needed to improve the quality of life of customers is necessary. Value exploration is directed to identify values that become customer preferences for choosing airlines from several aspects.

    5. CONCLUSION

    In this paper an optimal control model has been suggested to measure consumer lifetime value through the consideration of network effects. In order to optimize the benefit and CLV of consumers over time, the goal of the model is to evaluate the optimal marketing and pricing strategies. Market conditions with dynamics in them affect the determination of company strategy and ultimately encourage competitive advantage. Market driven strategy mediates the relationship between attractiveness and excellence. A long-term orientation to competition requires a firm’s understanding of market attractiveness. Further research focuses on the study of sustainable competitive advantage.

    Figures

    IEMS-21-2-401_F1.gif

    Changes v with respect to NS and N B

    IEMS-21-2-401_F2.gif

    PLS-based SEM model.

    Tables

    Validity Test Results

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