CIM Marketing Operations - Martran Assignments 1
& 2
·
The
Senior Railcard (SRC) exists to enable and encourage off-peak and leisure rail
travel by anyone aged 60 years or over. The SRC is retailed nationally by all
TOCs and accepted for travel on all services. The SRC is managed by ATOC’s
Railcard Marketing on behalf of the 25 TOCs.
·
The
primary objective for Railcard Marketing is to maintain and increase sales of
the SRC, together with promoting use of the SRC as a means to increase
generative revenue streams. Key secondary objectives during 2002-03 focus on
maintaining existing successful acquisition programmes, improving the
responsiveness of retention activities, and developing new channel-led
mechanisms that allow customers greater choice in the way that they purchase
and use the SRC.
·
As
the rail industry emerges from a period of inconsistent network performance,
and in light of external economic, political and legislative uncertainty,
Railcard Marketing is forecasting a *% increase in card sales for 2002, with an
associated revenue of £*. Headline travel revenue rises marginally to £*. Total
revenue contribution by the SRC is therefore £* for the year, supported by a
marketing budget of just over £*.
In managing the SRC, the Association of Train
Operating Companies (ATOC) has a clearly defined remit to generate revenue
for its members through the sale of Railcards and through the promotion of
their use in the purchase of off-peak and leisure fares. ATOC’s Railcard
Marketing function must therefore:
·
Maintain
and increase the number of SRCs sold per annum
·
Promote
the SRC as a driver of generative off-peak and leisure rail travel
These two primary corporate objectives are
concomitant; both generate revenue for the Train Operating Companies (TOCs).
They also fit within ATOC’s overall mission statement, with ATOC acting as ‘the
voice for the passenger rail industry’ in facilitating, supporting and
promoting the train operating companies in their provision of a passenger rail
network and services.
The Railways Act 1993 laid out the blue print for
the privatisation of BR. When the Act passed into law in 1995 it created 25
passenger rail franchises which were awarded to 25 train operating companies.
ATOC was established soon after privatisation to manage and deliver a range of centralised
services on behalf of the franchise holders, its members, the TOCs. Today,
ATOC’s roles include the settlement of national ticket revenues, running the
National Rail Enquiry Service, licensing travel agents, co-ordinating TOCs'
representation in and response to legislative and safety-orientated matters,
and managing the Railcard portfolio.
Retailing the SRC, and accepting it for the purchase
of discounted fares are conditions binding on every TOC under the terms of
their franchise agreements with the Secretary of State for Transport. The
processes involved in managing the SRC are laid out in a set of rules that
comprise ‘The Scheme’. The SRC is owned collectively by the participants of the
Scheme, namely the 25 TOCs. ATOC does not, therefore, own the SRC, acting
instead as an agent for and on behalf of the TOCs. The Scheme is wholly funded
by the TOCs. It receives no financial support from the Office of the Rail
Regulator, the Strategic Rail Authority or central Government.
A brief history, and the key features, of the SRC
are described below:
·
The
SRC was created in 1976 by the BR, at the behest of the Government, to promote
off-peak or leisure travel amongst older members of the population.
·
Upon
privatisation, ownership of the SRC transferred from BR to the privately-owned
TOCs.
·
The
SRC was originally available to any person aged 65 years or over. Presently,
the SRC is available to any person aged 60 years or over.
·
The
original SRC cost either £5 (local) or £10 (long distance) and gave a discount
of 50% on a small range of national ticket types. Today, the SRC costs £18 and
gives a discount of 34% on a broader range of nationally-available and
TOC-specific ticket types.
·
The
SRC is valid for 12 months and may be purchased from any staffed booking office
nationally. The SRC is accepted by ticket retailers nationally.
·
The
SRC remains, principally, a driver of local and national off-peak leisure
travel.
The Railways Act 1993 defines the SRC as a
‘regulated’ product and, as such, any material change to the product may not be
made without the prior approval of the Franchising Director (Chief Executive of
the Strategic Rail Authority). Further, the Scheme is included within a block
exemption awarded to ATOC Schemes under the terms of the Competition Act, and
any changes to the product would require a review of this exemption by the Rail
Regulator.
·
In
the year 2001 there were some 11.85 million people aged 60 years or over in
Great Britain, all of whom were entitled to purchase a SRC. With the population
ageing, the market size continues to grow: by 2006 the market will comprise
some 12.4 million people.
·
The
number of SRCs in circulation as at January 2001 was 645,000, giving an actual
market penetration of 5.4%.
·
SRC
sales peaked during the late 1980s, falling away in the run up to, and
subsequent to privatisation. Over the past three years, sales have risen at an
average rate of 6.2% per annum.
·
Sales
growth has broadly mirrored the rising number of journeys made across the rail
network, up from 845 million in 1999-97 to 969 million in 2001-02.
·
Similarly,
total industry revenue has climbed steadily since privatisation, from £2.8bn in
1996-97 to £3.4bn in 2001-02.
·
Total
revenue earnt through sales and use of the SRC over the past four years has
grown alongside the industry’s revenues: revenue for 2001-02 stood at £*.
The situation analysis comprises a review of the
external (macro) and internal (micro) environments, and concludes with a SWOT analysis in order to evaluate
the position of the SRC (and rail travel) within the market place for leisure
transport as a whole.
The external, macro environment is reviewed against
eight headings:
·
Social Although the total
population is ageing, rising standards of health and changing working patterns
permit greater levels of leisure activity amongst older people. The standard of
living amongst the older population is also rising, and more people are
retiring earlier. However, for those retiring now, low annuity rates will
depress future incomes. Government continues to strive for greater
self-provision amongst the population, a broader policy reflected specifically
in small actual increases in the value of the state pension, and recent legislation
that encourages personal pension planning.
·
Cultural Personal mobility is
increasing, a trend reflected in changing leisure travel patterns and in the
percentage of disposable income spent on discretionary travel, including rail
travel. Society increasingly demands 24-7 service provision: suppliers have
responded to this need, contributing to a breakdown in the ‘traditional’
time/space cultural relationships that defined the mid to late twentieth
century.
·
Technology With ever more
intensive technological innovation and the demand for competitive advantage,
product lifecycles are shortening, markets are becoming more dynamic and
innovation-led, and customers more product-literate. These changes are
reflected in customers’ now-constantly fluctuating expectations and
perceptions. New sales and servicing channels have emerged, notably tele- and
online channels, serviced themselves by ever more effective customer databases
and associated software-driven
management strategies that purport to focus on ‘relationships’. Within
the rail industry, however, heritage-systems’-derived inertia has hindered the
adoption of new, more relevant products, effective distribution strategies and
successful customer care strategies.
·
Economic & Market Comparative
stability has characterised the national and international economies over the
past four years, driving strong global growth. The bull markets have now given
way to bear markets, however, with a corresponding slow-down in economic growth
and output. Within Britain, both unemployment and inflation remain low,
however. Interest rates are also at their lowest levels for over 30 years.
Greater personal wealth, though, has not been matched by a rising savings
ratio, Neither has sustained consumer spending during 2001 been matched by
inward or domestic capital investment, a situation exacerbated by a sterling’s
strength in the foreign currency markets. Overall, however, the fundamental
economic building blocks remain in place for short term domestic stability and
a resumption of growth in the longer term.
·
Education, Training, Employment Whilst standards of education and training in society are
increasing, these are, nonetheless, ineffective as direct indicators of a
propensity to travel by rail.
·
Political The convergence of Labour
and Conservative ideology has brought policies emanating from ‘the middle
ground’ to the fore over the past four years. Nonetheless, Labour’s socialist
heritage is reflected in the on-going, burdensome influence that it asserts on the rail industry. Despite
independent regulation, the industry is beholden to Government either directly,
through new legislation, or indirectly through the SRA and other quangos.
Significantly, the industry’s present structure is derived from politically-led
processes rather than from the influence of a free, unregulated market. Whilst
the perception of rail as a public good remains, the political influence on the
rail industry will remain out of proportion to its need.
·
Legal The rail industry
operates within an encompassing legal framework which defines and protects the
provision of safe rail operations and the availability to all of a national
rail network. The non-regulated elements within the industry are those where
most customer-focused opportunity lies.
·
Environmental One
legacy of the Green movement is greater willingness to consider the
environmental impact of travel. CO2 emissions per passenger
kilometre remain competitively low for rail travel. With the existing
infrastructure capable of accommodating growth in passenger numbers, the
environmental benefits of rail travel are increasingly being focused on by
TOCs, Government and pressure groups alike. Rail infrastructure projects are
generally less invasive than other transport modes. Brown-field development of
former railway land has also been received favourably by the commercial and
domestic property markets.
Information on the internal, micro environment is
reviewed under seven headings:
·
Labour The Railcard Marketing team
is cohesive and performing well. Existing role holders have suitable skills,
though natural staff turnover in early 2001 means that both an experienced
project delivery manager and an assistant product manager are required in order
that future objectives can be achieved.
·
Money The draft Scheme budget
for 2002-03 has now been approved and is broadly in line with previous years.
There are no concerns over liquidity within ATOC, though some TOCs have
expressed a desire for ATOC to control costs and cap overheads over the coming
12 months. In the absence of equity shareholders, there is no conventional
requirement to deliver shareholder value. Nonetheless, TOCs will undoubtedly
continue to demand a level of performance from the budget, reflecting the
opportunity cost of their financial commitment to Railcards. Generally, this
performance is measured by the value of SRC sales and set as a return on budget
of 1:*. Conventionally, no target is
set for travel revenue, though Railcard Marketing will issue and revise
forecast through the year by way of a guide.
·
Materials Maintenance and security of
materials’ supply is not a concern for SRC – materials (i.e. SRC stock as
supplied by Henry Booth Group) is extremely unlikely to be a limiting factor in
day-to-day operations. Similarly, rail services (in the absence of which the
SRC cannot be used) are extremely unlikely to be unavailable during the year.
Note, however, that the imposition of temporary speed limits in November 2000
did have a significant impact on both card sales and travel revenue in the
following four months.
·
Machines Heritage ticket issuing systems
(TIS) provide adequate performance and are stable in everyday use. Many TIS are
not sufficiently flexible, however, to support SRC promotional derivatives or
similar. The internal rail retail communication systems are robust. Delivering
retail support nationally is thus easy and effective, though the relative lack
of control over these third party-managed systems is a possible concern. From a
retailing perspective there is no other significant plant to be purchased or
maintained, responsibility for office equipment and local IT hardware resting,
as it does, with ATOC’s facilities management function. Office location remains
unimportant. Finally, a significant amount of new rolling stock should be
delivered in 2002, improving the level of reliability, safety and comfort
available to rail users.
·
Marketing & Markets Historically,
Railcard marketing has been broad-reaching and unresponsive. Since 1997,
however, the focus has been on improved segmentation, targeting and
responsiveness. Concurrently, TOCs own marketing has lost its initial
introspection and begun to support both SRC and national activity. During 2000,
SRC marketing plans benefited from a tighter integration with TOCs’ marketing
plans, and a move towards non-station-led response mechanisms. To better
understand and control costs, there is a need for further measurability in all
activities. Internal marketing is increasingly important - retailers have
responded well to some early initiatives.
·
Management Upward feedback suggests
that the department is effectively managed, and that opportunities to improve
both management and internal processes are being realised. Senior management
remains supportive but detached from Railcard Marketing’s overall role within
ATOC. Scheme management is broadly successful, with the RSMG in particular
providing effective decision making.
·
Management Information The
availability and value of MI remains the biggest problem internally, and
reflects an over-dependence on heritage systems that cannot provide the
necessary functionality and flexibility now required. Decision making is often
constrained as a consequence. Unfortunately, responsibility for the provision
of improved MI systems remains with TOCs and, so, is beyond the remit of the
Railcard Scheme.
·
Intangibles The brand tracking programme has identified a
consistently high level of product awareness amongst the target market,
together with good loyalty/low churn amongst cardholders. Customer correspondence
continues to reveal a sense of belonging and ownership associated with SRC. A
key concern remains the difficult-to-control interface between SRC cardholders
and TOC staff, though internal marketing is starting to address this.
Fortunately, the majority of correspondents are able to identify poor train
performance (punctuality, cleanliness, for example) as a failing of the TOC
rather than of the SRC product.
Information from the external and internal reviews
may be summarised and evaluated through use of a SWOT analysis:
·
Strengths
-
Product
remains strongly profitable
-
Product
(‘discounting’) remains popular: not perceived as out of date
-
Product
is well established: awareness is good
-
Extensive
and cheap distribution network
-
Focus
on internal marketing has improved customer service
-
TOC
budgetary support is consistent and positive
·
Weaknesses
-
Poor
management and marketing information available
-
Over-dependence
on existing heritage distribution network
-
Inflexible
EPOS hinders responsive tactical and promotional delivery
-
Product
offering has not changed for nine years: risk of divergence between product
offering and customer needs, and in relevance of discounting for TOCs.
-
Statutory
protection and Scheme Rules make NPD complicated and time consuming
-
Insufficient
budget available to tackle modal shift per se
·
Opportunities
-
Improve
retailing flexibility and develop customer choice via new channels
-
Improved
MI permits better segmentation, targeting and more cost-effective acquisition
-
Use
of retention database will continue to diminish churn and lower costs of
acquisition
-
Government
commitment to public transport will drive more leisure travel onto rail,
reducing the need for TOCs to drive modal shift
-
Refranchising
will create greater coherency within the national network, encouraging
frequency of use amongst existing and new users.
·
Threats
-
Administration
of Railtrack plc creates uncertainty for TOCs, which could be reflected in
reduced budget and retail support
-
Railtrack’s
administration could undermine customer confidence in rail travel
-
Newco.
unable to deliver capital investment, so compromising TOC business plans
-
Rising
unemployment and economic uncertainty could depress consumer spending
-
Competition
Act exemption could be revoked, leading to fundamental reformulation
-
Further
accidents or failures of infrastructure could severely knock confidence in rail
and prompt strong outward migration from the SRC and rail travel
Michael Porter identifies ‘Five Forces’ that affect
the profitability of an industry generally, those being: i) the bargaining
power of suppliers, ii), the bargaining power of consumers, iii) the threat of
entry of new competitors, iv) the competition from substitutes, and v) the
competition between firms already in the industry. The regulated nature of both
the SRC specifically and the rail industry generally dictates the potential
profitability of both, nonetheless:
·
The
SRC is ‘supplied’ by the TOCs themselves: improving retail support could
therefore increase profitability
·
Consumers
are free to choose between an SRC and other TOC products. More significantly,
modal choice will affect profitability of the industry overall
·
There
is no threat of direct competition (i.e. other national discount cards), however,
use of the car and coach amongst the target market is established: local and
central government transport policies will influence the prevalence of one mode
over any other
·
Again,
car and coach remain modal substitutes. However, leisure activities focused on
the home within the local environment also represent a substitute, or
alternative focus for income
·
Within
the industry, some TOC promotional fares represent such good value that
Railcard sales can be foregone. Better communication with TOCs should help to
diminish or eliminate this effect
Ansoff identifies four possible strategic directions
for any company. In light of the influence of Porter’s five forces, and in the
context of the product’s regulated status, it seems appropriate to identify opportunities
as being two fold:
·
Market
Penetration, i.e. to increase the number of SRCs sold within existing segments,
and:
·
Market
Development, to take the SRC into new or poorly penetrated segments with the
overall market place and to increase sales accordingly
Earlier, as a consequence of the need to generate
revenue streams for TOCs, Railcard Marketing’s primary function was identified
as being:
·
To
maintain and increase the number of SRCs sold per annum
·
To
promote the SRC as a driver of generative off-peak and leisure rail travel
Since the strategic
direction has now been identified as both penetration and development, the
marketing strategy may therefore be seen as comprising several elements:
·
Increase
awareness amongst target market, so supporting the acquisition programme
through awareness of product benefits and age eligibility (from 60 not 65 years
of age)
·
Drive
down the average age of first-time acquisition, in order to extend the possible
customer lifespan, and to tap into a more active segment within the overall
market
·
Reduce
churn, i.e. first-year retention rates, in order to increase the number of
Railcards in circulation, so driving up travel revenue. Lower churn will also
reduce the existing dependency, within the mix, on more expensive new business
acquisition
·
Promote
travel revenue through support for TOC-led promotions
·
Conduct
distribution review to identify new channel opportunities: tele- and online
sales channels are available if required: a distribution review will identify the most suitable (i.e.
efficient) mix of channels for delivering the product to market.
The marketing strategy is expressed as mix of
tactical activities, comprising:
·
Press
advertising, to build product awareness amongst prospects, aged 58-63 years of
age. Choice of titles will reflect the brand takeout ‘live a little more, a
little more often’.
·
Year-long
PR campaign, working primarily with regional press and third parties to
highlight and incentivise opportunities for leisure travel with the SRC, so
driving, in turn, awareness, acquisition and travel revenue.
·
60th
birthday direct mail campaign. Building on the success of the existing
campaign, this DM activity capitalises on the SRC’s product awareness amongst
prospects. Careful list selection permits a focus on prospects who fit the
preferred customer profile, namely ABC1, with an annual income in excess of
£15k.
·
Trial
Card campaign, enabling prospects to experience the benefits of Railcard
ownership without having to purchase the product. Use of the trial card will
also focus on prospects aged 60 to 65 years, so helping to lower the average
age of first-time cardholders.
·
Retention
programme. The database-driven DM retention programme will target first year
cardholders with a reminder that their SRC will soon expire. Second and
subsequent year cardholders will only receive a reminder if they do not make an
unprompted renewal.
·
Internal
marketing and retail support. Driving travel revenue is best achieved in two
ways: firstly, improving product awareness amongst retail staff, in addition to
improving retail support (website, merchandising). Secondly, working more
closely with TOC marketing teams to develop promotions and ticket types.
·
Preparation
of a distribution strategy, to encompass and review all existing and planned
TIS, Smartcards, tele- and online sales channels, and self-service machines,
together with the booking office environment and the on-train environment. The
strategy should conclude with recommendations that Railcard Marketing will put
to TOCs.
Sales
and revenue forecasts for the coming year can now be made, based on the
marketing strategy and activity mix. Full sales forecasting is undertaken in
January/February each year: this Plan will only review some key considerations
and outline a provisional set of forecasts.
1.
Actual
sales and revenue performance for 2001-02 year-to-date has now been reviewed
against forecast and versus last year (vly.). Against both measures,
performance was improved. Consequently, and allowing for the impact of Hatfield
on performance vly., the forecast for total revenue has been increased by some *%,
and by a further *% vly.
2.
The
15 For 12 promotion will run until early June 2002. This will eliminate
retention business for the period late May to late August ’02, with sales
comprising new business alone during this period. At the same time, travel
revenue will be boosted by the additional three months validity on existing
cards, so offsetting retention business lost during this period.
3.
The
acquisition activities planned for 2002-03 are broadly similar in their nature
to those implemented during 2001-02. With the mix remaining the same then, ceter
paribus, the value of direct acquisitions would remain the same. However,
it has already been acknowledged that underlying economic uncertainty
represents a risk to both sales and travel revenues. Further, the provisional
budget for 2002-03 is some *% lower vly. This saving has been made in part through
reduced discretionary spending on the volume of revenue-generating activity
(not the type of activity), so a lower total contribution to revenues must
therefore be expected from these activities.
4.
Nonetheless,
improved segmentation and targeting, coupled with revisions and improvements to
existing DM programmes should enable the same profile of acquisition and
retention-led activities to deliver similar levels of new business coupled with
lower churn. It is anticipated that these responses combined will ameliorate
the impact of a lower budget.
Thus,
provisional forecasts for SRC are as follows:
·
Number
of cards sold *
·
Card
Sales Revenue *
·
Travel
Revenue *
·
Total
Scheme Revenue *
Sales performance will be monitored against a series
of benchmarked measures, listed below. Control methodologies are outlined at
the end of this section.
·
Number
of cards sold per period
·
Card
sales’ revenue per period
·
Travel
revenue per period
·
Revenue
earnt per card, per period
·
Volume
of journeys made per period
·
Acquisition
rates by list / activity / period
·
Cost
of acquisition per customer / activity / period
·
Retention
/ Lapse rates
·
Number
of cards in circulation
·
Percentage
of leisure travel made using a SRC
·
Percentage
of sales by channel, by period
·
Spend
per activity, per period
The primary financial objectives are monitored
directly; sales can be analysed at a regional level, by operator type, by TOC
or by individual outlets. Secondary (non-financial) objectives can be measured
using derived data, and will give a broader picture of how and when the SRC is
being bought, by whom and at what cost.
Continual evaluation of these measures will enable
elements of the mix to be refined through the year and permit the timely
response to unforeseen external influences. It will also be possible to quickly
and accurately reallocate resources to better support TOC activities or to
improve integration with TOC-led national promotions.
Monitoring is possible through existing MI and MkIS
infrastructure, notably CAPRI, ARDS and Great Plains. Concurrently, National
Rail figures permit an overview of the industry’s performance by sector,
operator and period, enabling the SRC’s performance to be benchmarked against
the wider measures employed within the industry. Figures are reviewed
externally by the RSMG every six weeks, and by the management accountant
function every period. Outturn is reported to TOCs on a quarterly basis.
A number of key considerations with regards budget
setting are outlined below:
·
The
Scheme’s fixed costs (data capture, database management, station literature
print and production in particularly) have risen by between *% and *% vly.
·
In
line with their own budgets, TOCs have indicated that a *% reduction in Scheme
budget would be appropriate. The provisional budget represents an *% saving
·
The
Scheme’s contributions to ATOC overhead (Staff & Salary, Finance &
Legal, Office Overheads) have fallen marginally since last year
·
Projected
increases in the efficiency of acquisition has permitted a reduction in the
amount of budget allocated to revenue-generating activities.
·
Some
costs are allocated across different Railcard Schemes, notably those associated
with Marketing and PR agencies, data capture and database management. These are
allocated by ABC, using agency hours, number of forms processed and number of
mailings generated respectively as cost drivers.
·
Further
saving are achieved where possible through the leverage of purchasing power
across all Railcard Schemes, e.g. in print and distribution and retail
communications
Provisional budget for 2002-03 is therefore £*, a
saving of £*. Budgets will be approved by Scheme Council on 12 December 2001. A
more detailed budget breakdown and commentary is provided in Appendix A.
·
Workload & Labour Once
existing vacancies are filled, head count is expected to remain level
throughout 2002-03, enabling activities to be delivered as planned.
Nonetheless, provision is being made to fully document mission-critical
processes to avoid disruption in the event of unforeseen staff turnover.
Despite a lower overall budget, the number of individual activities remains
similar to 2001-02, so personnel resources are broadly used-up. However, a
reallocation of responsibilities within the team will allow some additional
time to be spent in supporting TOC-led Railcard promotions and national
activities as necessary.
·
ARDS A higher management fee
reflects the increasing use that will be made of the database through 2002-03
in servicing our acquisition and retention-led direct mail activity. Staff will
also be working more closely with the Marketing agency to develop the
segmentation and targeting strategies necessary to achieve the cost savings
identified earlier. IT upgrades already undertaken will underpin this
development work.
·
Data Protection Act Obligations
under the Act, which passed into law this October, will require a number of
revisions to existing workflow and process routines, including ‘upgrades’ to i)
data processing contracts, ii) data security procedures, iii)
supplier-compliance checks, and iv) opt-in/out clauses. Following initial legal
advice, it is not anticipated that these changes will impinge on the ability of
Railcard Marketing to deliver the SRC Marketing Plan.
·
Print & Distribution
Planned print and distribution timetables remain unaltered by any of the
proposed activity in this plan. Improved allocation and distribution procedures
are being implemented to ensure that Railcard Marketing remains capable of
servicing the internal and external retail network.
·
Management No middle or senior
management changes, or company-wide organisational changes are planned or
anticipated during 2002-03.
Ends.