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Perceived customer value of vietnam airlines online ticketing master project in business administration

TRƯỜNG ĐẠI HỌC MỞ TP. HCM
HO CHI MINH CITY OPEN UNIVERSITY

UNIVERSITE LIBRE DE BRUXELLES
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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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-andmortar 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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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/

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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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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 Bto-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
DIRECT

INDIRECT

(1) Airline’s website (B-C)
(2) Web portal (B-B)
*Sales estimated5: ~ 3%
(Not yet participation in OTA
– Online Travel Agencies such
as Expedia.com, Opodo.com,
Orbit.com)

OFFLINE
(3) CTO (City Ticketing Office)
(4) ATO (Airport Ticketing
Office)
*Sales estimated: ~ 13%
(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
Internal source (unofficial)
5
Numbers are scaled
6
http://www.indexmundi.com/vietnam/gdp_real_growth_rate.html
4

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the expectation in 2010. It can be seen (Table below) that for 10 years (2000-2010), the
penetration of Internet users has been grown up to 27%.
Table 2. Internet Usage and Population Statistics (Internet World Stats)

Furthermore, some recent reports has identified that Vietnam’s air travel market is
one of the most potential markets in Asia with double-digits growth rate (Figure below).

Figure 2. Top Asian air travel market (Anna.aero, May 2010)
In 2009, Vietnam Airlines has officially launched the e-ticket selling via the
website of the company for one year (VOA news, 2009). With such new channel,
passengers can make their bookings, and buy e-tickets using credit cards or via ATM
services. Customers also save time by having easier access to all the information related to
their flights, bookings and ticket prices. To ensure the highest security for payments,
Vietnam Airlines has cooperated with chartered credit card organizations to take measures
to limit risks in conducting e-transaction.

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After one year of operation, sales via the website channel (B-C) has just been
estimated to obtain approximately nearly 1% of total sales. Furthermore, the sales brought
by all the online channels (B-C and B-B) has been targeted to attain growth at 2-3%
annually7, which is much lower that the average growth rate estimated for total sales of
VNA (~18% has been estimated for period 2010- 2015).
Literature review gives us some good “benchmark” cases study about the
development of channel portfolio of Airlines. KLM (Royal Dutch Airlines) has developed
a multichannel network comprising 4 channels: Airline’s website, OTA (Online Travel
Agency), Airline branch, and independent travel agencies (Harison and Boonstra, 2008).
The two first channels compose “online channels”, and the later ones define “offline
channels” of the Airline. The Airline has clearly defined the target for whole portfolio of
the channels. They have stated that, starting from 12% contribution to total sales in
2005/2006, the online channels (including website and OTA) would obtain the target set up
to 40% in 2008/2009. And as the result, the share contribution of the “offline channels” has
been set to be reduced from 88% down to 60% of total sales. In fact, the KML’ managerial
board has immediately taken actions in shifting “offline” channels to “online” channels in
order to reduce its costs by direct sales, and use the internet as a prominent marketing
channel. These measures have helped the company survive in the market with intense
competition, and maintained its major position in this rapidly changing business
environment. Furthermore, Shon et al. (2003) has shown that, in Taiwan, just after 18
month of website channel launching, this prominent online channel gains up to 15% of
sales by cannibalize haft of portion previously hold by traditional “offline” tour agents.
Under such favorable market potential, promoting sales development through
online channels in general, and via website in particular, becomes imperative for Vietnam
Airlines in a long run. This will help the corporation saves costs for traditional
intermediary agents (e.g. commission may be paid up to 10% of Airline costs), as well as
takes advantages of online channels in creating direct communication with existing and
potential customers.
As an alternative option, web shopping brings customers convenient and time
saving; consumers can easily compare prices, products and service features across

7

Unofficial Internal Source of VNA

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available suppliers in the market. It has been insisted in several previous studies that
Internet as an information and distribution channel can lead to significant changes in
consumers’ preferences and their buying behavior (Teichert et al., 2008). Therefore, better
understanding of what leads to customers’ online purchase intention has become a crucial
issue. Recently, “perceived customer value” has gained much attention from e-marketers
and researchers because of its key role in predicting purchase behavior; as a result, it helps
e-sellers achieve sustainable competitive advantages (Cronin et al., 2000).
The brief discussion mentioned-above provides an overall identification of business
opportunity for Vietnam Airlines in developing quickly but sustainably its prominent
online channel (e.g. the website). This gives the motivation for this research in
investigating appropriate models to better understand key factors influencing on perceived
customer value. The business implication, which can be resulted from the research, will
be a solid background for the Airline’s online-sales development strategy.

1.3.

Research objectives and questions
2.1.3. Research Objectives

This research at hand aims to:
(1) empirically validate the model suggested by Chen and Dubinsky (2003) in
Airlines industry in Vietnam, in order to better understand and confirm the key antecedents
of perceived customer value in a B-to-C online context. A more simplistic model will be
tested with a specific Airlines’ clientele – the Vietnam Airlines’
(2) empirically confirm hypotheses regarding inter-relationships amongst factors;
(3) analyze possible implications in development of website channel for Vietnam
Airlines in the purpose of improving sales via this potential channel
2.1.4. Research questions
The inter-relationships amongst several factors are mentioned in the model of Chen
and Dubinsky (2003). Some research questions for the study at hand could be raised as
follows:
Question 1: Whether the factors “Ease of use of website”, “relevant information”, and
“Customer service” related to “perceived customer value”?

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Question 2:
(2.a) How well the factors “Ease of use of website”, “relevant information”, and
“Customer service” predict the “valence of experience”? and how much variance in
“valence of experience” can be explained by scores on these factors?;
(2.b) Which is the best predictor of “valence of experience?
Question 3: Whether the factors “valence of experience”, “perceived product quality”,
“perceived risks”, “product price” related to “perceived customer value”?
Question 4:
(4.a) How well the factors “valence of experience”, “perceived product quality”,
“perceived risks”, “product price” predict the “perceived customer value”? and How much
of variance in “perceived customer value” could be explained by these factors’ scores?
(4.b) Which is the best predictor of “perceived customer value”?

1.4.

Research model

The study of Chen and Dubinsky (2003), which suggested a preliminary
investigation on perceived customer value in B-to-C e-commerce, found 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.
The research at hand will validate the model proposed by the above authors (Chen
and Dubinsky, 2003). A more simplistic model, suggested as the figure below, will be
investigated. Definition of all the constructs involving in the research model will be
elaborated later in the Chapter 2. More detailed discussion of each concept is described in
that chapter

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Customer
services

Relevant
information

H1b

H1c

Valence of
Experience

Ease of Use of
Website

H1a

H2

Perceived
Risk

H3

Product Price

H4

Perceived
Customer
Value

H5
Perceived
Product
Quality

Figure 3. Suggested research model (simplified from Chen and Dubinsky, 2003)
Several hypotheses, which have been developed to investigate the relationships
amongst these factors mentioned-above, are listed in the below. Preliminary rationales for
the above hypotheses will be elaborated later in the Chapter 2.
Hypotheses H1:
(H1.a) “ease of use of website” is positively related to the online shopper’s
“valence of experience”
(H1.b) “relevant information” is positively related to the online shopper’s “valence
of experience”
(H1.c) “customer service” is positively related to the online shopper’s “valence of
experience”
Hypothesis H2: “valence of experience” of online customer is positively related to his/her
“perceived customer value”
Hypothesis H3: “perceived risks” is negatively related to “perceived customer value”
Hypothesis H4: “product price” is negatively related to “perceived customer value”
Hypothesis H5: “perceived product quality” is positively associated with “perceived
customer value”

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1.5.

Research methodology

The research at hand will be limited in a confirmatory research by using the
preliminary model suggested by Chen and Dubinsky (2003) with a more simplistic model
represented in the Figure 3. Vietnam Airlines’ e-clientele defines the population for this
research.
In this research, quantitative method is applied to examine the research questions
and hypotheses. A structured survey questionnaire was administered to collect primary
data from e-customers of an Airline in Vietnam. Vietnam Airlines was selected for the
research. The e-clientele of the Airline, who bought air-tickets from its website at least 1
time, was asked to answer the questionnaire. Data were collected using a combination of
online survey and “personally administered questionnaire” survey which was conducted by
the author and a team of students from Vietnam Aviation Academy (VAA). The team was
well trained before carrying out interviews. With same content, two versions of
questionnaire (online and paper versions) were designed to facilitate the efficiency of each
kind of interviews.
Finally, the administration of data, as well as the analysis related to statistic
validation of the investigated model, will be carried out by using SPSS software (version
16).

1.6.

Delimitations

This section identifies the limits beyond which this research does not have
significance.
Firstly, the model is limited in an e-commerce context which involves some factors
with unique characteristics in such business environment. Secondly, the model primarily
focuses on perceived customer value in the pre-purchase stage of online shopping. Thirdly,
the model will be empirically validated with a typical full-service carrier (e.g. Vietnam
Airlines) in an emerging country (e.g. Vietnam); however, it is noted that the
generalization of such model is not limited to the case. Finally, due to the limited time
available for this research, only the relationships between the antecedents of perceived
customer value and itself will be studied; the inter-relationship among these antecedents
will not be considered as deserved for a future work.

1.7.

Structure of the study

This thesis contains 6 chapters. Table 1 shows the title of each chapter. The content
of each chapter is briefed in the following paragraphs.

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Table 3. Structure by chapters of the thesis
CHAPTERS

TITLES

Chapter 1
Chapter 2
Chapter 3
Chapter 4

Introduction
Literature Review
Research methodology
Data analysis and findings
Discussion and implication
Conclusion

Chapter 5
Chapter 6

Chapter 1: “Introduction” - A preliminary chapter provides an overview on research
background for this study. The business opportunity of Vietnam Airlines’ online channel
development is discussed. The research model, together with research questions and hypotheses
developed, are proposed. Brief introduction about the research methodology used for this study at
hand is presented. Finally, delimitations of this study are discussed.
Chapter 2: “Literature Review” provides detail of review on previous works. Firstly, an
overview on business environment in Airline industry is given. This helps to better understand key
characteristics of competitive landscape of the industry. Secondly, multichannel as a business
development strategy and related issues in channel management is discussed. Thirdly, the complex
change of consumer buying behavior in e-commerce context, and the importance of “perceived
customer value” are raised. Next, conceptual definition of key factors affecting on “perceived
customer value” are discussed. Finally, a brief on theoretical framework for this study is given.
Chapter 3: “Research methodology” details the research process; research activities
included in each stage are described. The Chapter also gives details of the questionnaire items with
sources of reference, and the survey development. Justification of sampling design is also given.
Finally, the statistical procedures with SPSS programs used in the research are provided.
Chapter 4: “Data analysis and findings” presents the key statistical analysis results
obtained by this research. The demographic profile of the respondents is given. The results of
reliability and factor analyses are presented. The steps to perform the analyses on two multiple
regression models are detailed; the results of assumption checking (multicollinearity, outliers,
normality, etc.) and evaluation of equation as well as of independent variables are presented.
Revision on research questions and hypotheses posed at the beginning of the study (chapter 1) is
carried out; and as a result, a confirmed research model applying for the case under investigation
was suggested at the end of the chapter.
Chapter 5: “Discussion and implication” focuses on discussion of the results obtained in
the previous chapter. The underlying implications are analyzed to better understand the underlying
issues of statistical results. Some preliminary insights and rationales for the expected findings as
well as the unanticipated ones are suggested.
Chapter 6: “Conclusion” provides a general conclusion about the result obtained and the
contribution of the research. Limitation and future works are analyzed and recommended.

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2. CHAPTER 2: LITERATURE REVIEW
2.2.

Business environment in the airline industry

The airline industry comprises passenger air transportation, both scheduled and
chartered, but excludes air freight transport (Datamonitor, 2009). In the past, the airline
industry was characterized both by high growth rates and governmentally regulated
protectionism. The liberalization of the airline industry in most countries globally has lead
to the development of highly competitive market due to the low entry barriers for new
entrants (Teichert et al, 2008). Market entrance of low cost carriers with significantly high
growth rates is the most obvious evidence for increasing completion in the industry. In
Vietnam in just over two years, four foreign low - cost airlines have conquered Vietnam’s
airline market8; this fact leads local airlines face to fiercer competition with foreign airlines
especially on international routes.
The global financial crisis and recent recession has impacted heavily on the airline
industry. Mergers and acquisitions are becoming more prominent in order to save
struggling companies. The threat of bankruptcy is strong in this industry (e.g. Zoom,
Silverjet, XL, Frontier, ATA, Oasis Hong Kong Airlines and SkyEurope) (Datamonitor,
2009)
The Figure below represents the value chain of Airline industry. The airline
industry possesses some specific characteristics. The key suppliers of an Airline include
fuel suppliers, aircraft manufacturers, and skilled employees. The key buyers will be taken
as leisure and business travellers, the latter considered as B2B. Rivalry between airlines is
strong, as customer loyalty in this industry is moderately low. Some previous studies show
that this industry is price sensitive (Datamonitor, 2009). Many consumers seek out cheap
deals, leading to intense price competition between industry players. Alternative modes of
transport, such as trains, can be expensive and slow substitutes for air travel, but it is
possible that technologies such as videoconferencing may pose a threat to business air
travel. Players can regain some power by differentiating their services, for example
offering the transportation of freight which means that airlines are less reliant on passenger
fares, while passenger loyalty schemes have the effect of generating switching costs for

8

http://www.baokhanhhoa.com.vn/english/econo_tour/2006/11/168709/

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buyers. As a customer who uses the services of a competitor loses the benefits of the
loyalty scheme, the equivalent of a switching cost has been incurred.

Figure 4. airline industry value chain (Buhalis, 2004)
Due to a fiercer competition environment and the success of LCC (Low Cost
Carriers), it was showed that some network carriers (namely full service airlines) were
obliged to revise their business model by adapting to the LCCs’ strategy with significant
cost advantage (Teichert et al, 2008). However, the cost reducing measures of the network
carriers are shown ineffective; business customers buy products that do not satisfy their
quality expectations, and leisure travelers receive offerings that surpass their quality
expectation, but not fulfill their price expectation.
In addition, facing with high costs, Airlines are attempting to shift consumers from
traditional ticketing channels to their direct channels such as website which is considered
as the most cost effective for Airlines (Lubbe, 2007). However, the emergence of online
booking means that consumers can compare and contrast the services available on the
market. Customers are becoming more and more conscious of their needs. Websites, and

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Internet in general, as information and distribution channels can lead to significant changes
in consumers’ preferences and their behavior (Teichert et al, 2008).
In summary, Airlines are faced with both major changes in their business
environment and changes in customer behavior.

2.3.

Airline e-commerce and multichannel development

The Airline industry had applied e-commerce technologies since the early 1970s,
nearly 30 years before the web driven e-commerce activities turned into so popular in the
mid-1990s. Airlines have been applying online technologies for both ticketing and
booking. Starting from the early-1980s, the computer reservation system (CRS) has played
a very important role in airline services. With some other added functions, car rental and
hotel booking systems were introduced. The entire system has thus turned into a global
distribution system (GDS), which is the main background behind current travel websites
on the Internet. These systems have not only reduced airline operating costs, but also
represented the computerization and globalization of the air transportation industry.
Related to airline e-commerce is the development of frequent flyer programs
(FFPs). Since the mid-1980s, FFPs have been very popular among large carriers, and a
number of databases with customers’ information have been created since that time. With
more information added, these databases were soon to become critical factors for airline
relational marketing and CRM activity success. These factors are also very important
elements of today’s e-commerce (May, 2000). The e-marketplace for the airline ticketing
business became very popular in a short time. And it is expected to soon replace traditional
travel agents as the major ticketing channel of airlines.
Different Airlines use different design of channel strategy development. The Figure
below represents a sales network schema was suggested by Dembrower et al. (2003).
Unlike Airline “A”, Airline “B” can use website operated by itself to sell tickets in addition
to the CRS channel9. Some chose to only sell tickets via their own website, like Airline
“C”. The internet also gave the chance to create new form of collaboration between
Airlines, where they created a “joint venture” website – “collaborative Web”. Today,
traditional Airlines use several sales channels simultaneously and buyers alternate their
choice among the channels.
9

Four major CRS companies: Amadeus, Galileo, Sabre and Worldspan (Dembrower et al., 2003)

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Figure 5. Sales channels with alternatives that Airlines can use (Dembrower et al., 2003)
In response to radical changes in the air transport market, some Airlines introduced
a fully integrated e-business option into its ticketing process; an example was the case of
Royal Dutch Airlines (KML) in 1995 (Harison and Boonstra, 2008). Royal Dutch Airlines
(KLM) was founded in 1919 and in 2004 merged with Air France becoming a division
within the Air France/KLM group. In 2004–2005 the KLM group carried more than 20
million passengers and more than 600,000 tons of cargo. Reducing its costs by direct sales
and using the Internet as a prominent marketing channel were immediate actions taken by
KLM’s management, and these measures helped the company survive the intense
competition in the market and maintain its major position in this rapidly changing business
environment. KLM bases its marketing and sales activities on four main distribution
channels that include its own website, online travel agencies (e.g. Expedia.com and
Kayak.com), KLM branches and ‘‘physical’’ travel agencies (Table below).
Table 4. Four-distribution channels of KLM (Royal Dutch Airlines)

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Great benefits from online channels are clear. However, it was pointed out in the
literature that a conflict among channels, including offline versus online channels, could be
problematic (Shon et al., 2003). The Figure below shows the market-share data of different
ticketing channels for 2000–2001 in Taiwan. The proportion of tickets sold through direct
sales channel is consistently the highest. Around 70–75% of passengers pay the fares at the
airline counters in the airport and/or in the city office, thus contributing a great deal to the
airlines’ operating revenues. The remaining 30% of the passengers had been tour agency
customers at the beginning of 2000 before ticketing websites were created. After 18
months’ operation, direct sales passengers were still contributing 70% of the market share;
while Websites shared half of the remaining ticket sales. That is to say, traditional tour
agents have lost at least half of their customers to the ticketing websites. This would have
certainly led to some issues of contention between the new and existing channels.

Figure 6. Market share of ticketing channels in Taiwan after 18 months of ticketing
website launching ( Shon et al., 2003)

2.4.

Consumer behavior towards online shopping

Traditional channels, such as travel agents, rely heavily on the commissions they
received from ticket sales to stay in business. The commission rate for distributing air
tickets accounted for 8-10% of Airline costs (Alamdari, 2002). The Internet has changed
the paradigm of air ticket distribution and offers new alternatives. New channels through
the Internet affect purchasing behavior for air tickets and change the role of existing
distribution channels.

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Previous work shows that consumers have increasingly favorable attitudes toward online shopping (Lohse et al, 2000 cited in Chen and Dubinsky 2003). Buying on-line is thus
becoming more and more acceptable to many people.
The benefits of the Internet to consumers are tremendous. As an alternative channel,
Web shopping is convenient and time saving; with rich, free information available,
consumers can easily compare prices and product features from several suppliers. The
Internet has also raised consumers' expectations of retailers.
A low barrier to entry has brought more players into the retail business, so competition
in B-to-C commerce has intensified (Porter, 2001). Because consumers now have more
bargaining power, lower switching costs, and an increased number of choices available,
understanding of on-line shopping behavior processes, as well as understanding what leads
to on-line shoppers' purchase intentions have become an important topic meriting research
attention (Korgaonkar and Wolin, 1999; Webster, 1998 cited in Chen and Dubinsky 2003).
Amongst the past works, the study of Chen and Dubinsky (2003) seeked to partially
address this important issue and did so vis-a-vis perceived customer value.
Perceived customer value has recently gained much attention from marketers and
researchers because of the important role it plays in predicting purchase behavior and
achieving sustainable competitive advantage (Cronin et al, 2000; Dodds et al., 1991). From
the standpoint of marketing strategy, creating customer value in consumer marketing
means meeting target customers' needs and increasing customer satisfaction (Porter, 1985).
Customer value management has been used widely by firms to differentiate themselves
from competitors (Hoffman, 2000 cited in Chen and Dubinsky 2003).
Previous research has showed the multidimensional and context-dependent nature of
perceived customer value (Bolton & Drew, 1991; Holbrook, 1994 cited in Chen and
Dubinsky 2003). That is, perceived customer value can change with the circumstances of
the person and consumption situation. Thus, buying on the Internet – a new consumption
context - when comparing with traditional ones - may well lead to a change in perceived
customer value, as well as the factors influencing perceived customer value. Despite its
importance, a few systematic body of literature suggests how e-commerce shopping
environment does affect perceived customer value.
In such context, Chen and Dubinsky (2003) developed a model elaborating the
relationships among key antecedents and mediators of perceived customer value in B-to-C

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e-commerce. An exploratory investigation was conducted to validate model. As suggested
by the authors that further empirical supports need to be done for future works to ascertain
whether the model is posited.
The research at hand will be limited in a more simplistic version of the full model
(Figure below) suggested by Chen and Dubinsky (2003). Then, in the subsequent
paragraphs, the literature review will focus on the concepts of the constructs which involve
in the model.

Figure 7. Conceptual framework of perceived customer value in an e-commerce context
(Chen and Dubinsky, 2003)

2.5.

Antecedents of Perceived Customer Value
2.5.1. Concept of Perceived Customer Value

Perceived customer value has been recognized as an important concept in marketing
research. It has often been viewed as essentially a trade-off between relative quality and
relative price (Cravens, Holland, Lamb, & Moncrief, 1988 cited in Chen and Dubinsky,
2003). However, it has been criticized that this simplification ignores some important
constructs (such as: shopping experience, risk), and may be misleading in measuring
perceived customer value (Sinha and DeSarbo, 1998 cited in Chen and Dubinsky, 2003).
Based on a synthesis of previous definitions, “perceived customer value is defined as a
consumer's perception of the net benefits gained in exchange for the costs incurred in
obtaining the desired benefits” (Chen and Dubinsky, 2003)

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As suggested in some previous studies that evaluating evaluating perceived customer
value from the perspective of the consumption experience is important (Anderson &
Narus, 1998 cited in Chen and Dubinsky, 2003). Chen and Dubinsky (2003) suggest that
there are four major elements involved in the prepurchase stage which have significant
influence on a consumer's value perception and purchase intention in a B-to-C e-commerce
setting. These factors include valence of experience, perceived product quality, perceived
risk, and price. Each of these can either positively or negatively influence perceived
customer value in an online setting.
2.5.2. Valence of Experience
“Valence of experience is defined in the research model as a consumer's emotional or
attitudinal state aroused by the prepurchase on-line shopping experience.” (Chen and
Dubinsky, 2003)
Consumer perception is considered a process of sensing, selecting, and interpreting
stimuli from the “external”, physical world into the “internal” world (Wilkie, 1994). As a
result, one can infer that external signals, such as what consumers experience when they
are shopping online, can influence consumers’ internal perceptions of customer value.
Prior works support this argument (Donovan et al. 1994). In the model proposed in this
study, a similar positive influence of valence of experience on perceived customer value is
expected.
Electronic technology makes the on-line shopping experience different from what
happens in the bricks and mortar (traditional) business format. With online purchasing, the
physical store environment no longer exists, as the shopping experience is converted into a
human-Web-site interaction. However, consumers need much more efforts, and easily get
frustrated and annoyed. Therefore, how an e-retailer's website could foster a favorable
purchase experience is crucial. Three key factors are identified in the study of Chen and
Dubinsky (2003): relevant information, ease of use of the Web site, and customer service.
The following paragraphs will respectively give the definition of these factors, as well as
discussion surrounding the concepts found in the literature. In fact, this will serve as the
definition of the constructs involving in the research model suggested for this study.

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2.5.3. Relevant Information
“Relevant information is defined as the degree to which the hands-on user perceives
the website information content to meet the needs” (Muylle et al. 2004)
Consumers only positively perceive relevant information to be useful and valuable.
Consumers will suffer from information overload if too much irrelevant (or even relevant)
information or too many options are provided; if this is the case, information search will
lead to time and energy cost, and hence “negative effect” will be perceived by consumers.
2.5.4. Ease of use of the website
“Ease of use of the website is defined as the degree to which the user expects the use of
the website to be free of effort” (Chiou et al., 2010)
Because information processing requires cognitive effort, especially when the
information displayed is not readily comprehensible (Coupey, 1994 cited in Chen and
Dubinsky 2003), a Web-site design that does not facilitate information processing may
cause negative effect. Analogous to a physical store with a poor layout and store
environment, an unfriendly on-line user interface may lead consumers to feel confused,
feel a loss of control in the interaction, and ultimately develop negative feelings about tbe
on-line shopping experience. This could result in their abandoning the purchase process or
moving to an alternate Web site. On the other hand, an ideal human-Web interaction will
lead to positive consequences, longer staying time, and more exploratory behavior (Novak
et al., 2000 cited in Chen and Dubinsky 2003).
2.5.5. Customer Service
“The degree of customer services is received through the means of access afforded by
the website” (Griffth and Krampf, 1998 cited in Chen and Dubinsky, 2003)
Customer service is significantly different in an e-commerce marketplace relative to its
traditional store counterpart. The technology enables consumers to fulfill the purchase
process generally without any direct interaction with sellers. Customer service is received
mainly through the means of access afforded by the Website (Griffitb and Krampf, 1998).
For instance, whether there are e-mail addresses, from the site, whether the hotline or
telephone number of a customer service agent is available, whether this service is offered
24 hours a day, and whether the company is responsive can all comprise customer service.

Nguyen The Hoang – MBA VB3


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