RyanAir Profile and Market Segmentation - Research Proposal Example

Market research proposal Executive Summary: This proposal undertakes a brief examination into the airline industry, specifically RyanAir in order toexamine some proposals for market segmentation and marketing focus. The budget segment of the airline industry has been strong in recent years, however there are indications that mainstream airlines may be catching up. Increased competition also mandates a forceful strategy for RyanAir to withstand the competition and maintain its position as leader of the budget segment. This proposal recommends that RyanAir concentrate on the corporate segment of its customers, strengthening this segment across borders on an international basis, since they offer the most stable consumer base of all the travelers. The airline industry: Air travel is on the rise in Europe, however trends indicate that economies of scale is playing a vital role and long haul airlines with better networks and cost leadership are growing, as opposed to the budget domestic sector.(Industry Report). High oil prices are jacking up ticket rates, making it difficult for airlines such as Ryan Air to compete effectively, since the focus of their marketing effort is their low prices. Ancillary revenues from subsidiary services such as hotel reservations and car rentals are proving more profitable for RyanAir as compared to actual passenger traffic (Industry report). However, consistently low prices has managed to keep RyanAir’s passenger base and revenues for the last quarter of 2005 were 8.6 million dollars. Moreover, arch rivals such as Easyjet and aer lingus are tightening up their operations to provide stiff competition to RyanAir’s domestic passenger base within Europe, thereby highlighting the need to identify and target appropriate market segments in order to focus the marketing efforts where they are likely to be most effective. Although RyanAir has enjoyed a position of predominance in the budget airline segment in Europe, the factors cited above must be taken into consideration in devising an optimum strategy. The major section of RyanAir’s passenger base is comprised of corporate travelers and vacation, therefore this research proposal will focus upon these segments. RyanAir: profile: RyanAir is the leading budget, “no frills” airline in the U.K. As of March 31, 2005, RyanAir offered 600 short distance flights per day to 107 different locations throughout Europe, comprising a fleet of 92 aircraft flying about 266 routes. (www.Hovers.com). The Company was established in 1985 by Tony Ryan, a former employee of Aer Lingus, who began operating with a single 15-seater plane flying between Waterford and Gatwick. In 1986, the Company began to offer return tickets on the Dublin Luton route at half the price of its competitors, thereby tapping into a huge section of the budget consumer market and effectively undercutting its competitors.(www.mengentonline.com). However, the Company really moved into its element in 1990, after modeling itself along the lines of the budget carrier Southwest Airlines, reducing the number of routes, introducing pay cuts for its pilots and providing only basic amenities to its passengers. RyanAir has also branched out into other operations, including an investment holding Company and while initially operating within the UK and Ireland, has not expanded its operations within Europe, emerging as the foremost low cost airline within Europe. (IHR Report, 2006). Major competition is from easyJet Airlines, Virgin Holdings and Aer Lingus. Ryan Air stock is down 19 percent this year, as compared to easyjet which has dropped only 13% and looks poised to emerge as a stiff competitor for RyanAir’s position. Although RyanAir also offers web sales of tickets and hotel reservations, easyJet has been picking up in this area as well (IHR report 2006) . 15 percent of RyanAir revenues come from ancillary holdings such as car hire and hotel bookings.(FT report 2006). Moreover, further challenges are posed in the form of rental charges for check in desks at Dublin airport , which is likely to impact adversely on profitability, especially since its competitor Easyjet operates out of Luton where airport charges are lower. Market segmentation Toh and Raven state that the airline industry is primed for market segmentation because it is characterized by high fixed costs, constant costs, variability and the problem of how to maximize passenger revenues in a scenario where product (seat) perishability is high and the traveling public is heterogenous. (Toh and Raven, 2003). In view of the need to manage yield and overbooking under a perishable asset revenue management strategy, the authors have proposed an integrated internet marketing approach in order to cost-effectively examine market segmentation, so that they can determine the categories of customers who are likely to pursue a particular strategy. It may be noted that the importance of the internet integrated approach also highlights the fact that in a globalized environment, businesses may often have to move beyond the traditional geographic market segmentation. Hassan and Craft have also pointed out that behavioral and lifestyle variable are likely to be more effective in determining market segmentation since these are becoming homogenized across national boundaries. (Hassan and Craft, 2005). They have also pointed out the difficulties in assuming strategic positioning in view of increasing competition and suggested that both macro and micro segmentation bases must be combined and used in order to achieve it. Since RyanAir has already expanded successfully into the European market, it is likely that it must emerge as the first global player among the budget airlines in order to gain a foothold on a hitherto untapped market of corporate travelers, since domestic and European competition is increasing, with competitors such as easyjet and virgin holdings. Therefore, identifying a specific segment such as the corporate sector will help the Company to target its marketing efforts towards this segment of the international population. The challenges that are presented in case of developing a marketing strategy for an airline Company, is the difficulty in identifying a definite market segment, however this research study proposes that the corporate segment is likely to be the most frequent user of RyanAir services and any advertising strategy may be targeted at that market. Burgoon and Miller have proposed the expectancy theory wherein the use of language is projected to be a powerful tool in advertising. They have suggested that the introduction of variations in the general norms of language use are likely to grab the attention of the target market and create a positive or negative impact upon the recipients, which could in turn function as a persuasive tool.(Burgoon and Miller, 1985, p 199-200). Ash and Wee have advocated a Cognitive approach to marketing and suggest that the response behavior to an advertisement is conditioned by (a) a cognitive aspect (b) affective aspect and (c) motivational aspect (Ash and Wee, 1982, p 372). The believability of an advertisement will determine cognitive response while the affective aspect will involve the subjective reaction of the target market. These are the initial factors that will serve to provide the motivation for the use of a particular product or service, depending upon the benefits they perceive they will receive. Objective of this Market research proposal: This proposal aims to identify whether the corporate sector is among the strongest market segments where RyanAir sales are concentrated, as compared to the vacation travel segment. The research will also attempt to identify emerging markets, if any, in order to strengthen marketing and promotional strategies to keep those customers and access other markets. This research effort will focus upon two market segments – the corporate sector and the vacation traveler. This research effort will attempt to identify which is the stronger segment, so that the relevant market can be expanded. RyanAir has successfully launched its operations in Europe and emerged as the leader, and in view of the increasing intensity of competition from easyJet, it may be a wise strategy to focus on the stronger segment within the international framework as well. Research design: A combination of quantitative and qualitative research methods is likely to be useful in this study. Therefore, the method selected was that of questionnaires, with simple questions for which “yes’ or ‘No’ answers are to be ticked in boxes. This provides the quantitative data, however the facility of further questioning of respondents who provide interesting answers also leaves room for the qualitative exploration of the data. The respondents selected were the passengers at Luton airport, since this is the stronghold of easyJet airlines. These passengers were approached and on the assurance of anonymity, they were requested to complete a questionnaire which contained questions to examine their preferences in air travel, such as for example: (a) How important is the price offered in selecting your airline? (b) How important is the availability of online booking? (c ) How important is the availability of subsidiary services such as hotel booking, car rentals, insurance, etc? (d) How important is the availability of diverse routes in your selection of an airline? (e) How important is the facility to switch flights? (f) How important is quality customer service in your travel? (g) Would you use budget airlines that offered international routes or would you prefer to fly with the established carriers? (h) Which airline do you prefer and why do you prefer that airline? Is it due to (i) cost (ii) convenience (iii) subsidiary services (iv) customer service (v) multiple routes? (i) Do you generally travel on business or for pleasure? The responses to the questions were ranged on a scale of 1 to 5, wherein the respondent was able to indicate his or her degree of importance accorded to a particular attribute mentioned in a question. For example, 1 represented that which was “not at all important” while 5 on the scale is the “most important”. The sample and results: At the outset, the limited size of the sample must be taken into account while examining the results and it may be necessary to carry out the same study with a wider sample to derive conclusive results. For the initial study however, the total number of respondents was 90 and comprised a motley mix of those who used RyanAir and easyjet. The passengers were mostly corporate travelers, although some were also on holiday, traveling to various destinations in Europe. The sample showed a larger percentage of male respondents in the age group of 23 to 35, (59 out of 90) followed by female corporate travelers. 25% of the sample comprised families vacationing in Europe. Asians and Europeans were liberally represented in the sample (41 out of 90). The responses revealed that almost 75% of the sample ranked price as a very important factor. While most of the vacation travelers deemed customer service to be a very important criterion, corporate travelers rated online booking and subsidiary services more highly, citing the time savings as a vital factor that governed their choices. The availability of multiple routes and service to international locations was cited as a very important factor, especially by corporate travelers who are looking for low fares to international destinations. Both corporate and vacation travelers expressed interest in this aspect, by stating that they would prefer to fly a budget airline as opposed to the regular carriers, if such options were available from RyanAir. This is an interesting trend that is revealed by this study and is a reflection of the growing needs of globalization, where business is being transacted across national boundaries on an everyday basis. Geographic segmentation appears irrelevant in this context. Demographically however, it appears that the best segment to concentrate on is the young corporate segment comprising executives in the 25 to 45 range, who are eager to find low cost fares and a packaged set of services to answer their business travel needs. Moreover, another factor that must be borne in mind is the possibility of repeat travel that the corporate traveler offers. As opposed to the vacation traveler who flies once in a while, the corporate traveler is on the move and is likely to respond well to advertisements that are targeted to cater to his/her comforts and needs in travel. If the experience with RyanAir is a pleasant one, then the traveler’s response is likely to be positive and fetch repeat business for the airline. Conclusion: On the basis of the above, it may be noted that there is a definite trend that indicates that the budget airline segment may be under an onslaught from a rapidly developing long haul airline sector, where strategic alliances and mergers have produced economies of scale that are likely to benefit those companies, especially since oil prices are rising. Therefore, it would be in RyanAir’s interest to undertake market segmentation and focus its marketing efforts into the corporate segment, while also seeking markets outside the UK and Europe in order to boost its revenues and offset the effect of increased domestic competition within Europe. This research study is only a preliminary study, however it may be carried out on a wide ranging basis by preparing similar questionnaires to examine consumer preferences and profiles at all the major airports that are services Ryan Air. This will also help RyanAir to determine if there is an effective market available in the international sector so that it could even consider an alliance with another carrier in order to develop the economies of scale that appear to be vital to survive in the globally competitive environment that is emerging, where the long haul carrier appears to be place din a more advantageous position. References: * Ash, Stephen B and Wee, Chow-Hou. (1982). “Comparative advertising: A review with implication for future research” Advances in Consumer research, 10. 372. * Burgoon, Michael and Miller, Michael D. (1985). “An expectancy interpretation of language and persuasion.” In “Recent advances in language, communication and social psychology” eds. H.Giles and R.N. Clair. London” Laurence Erlbaum Associates; pp199-299 * Hassan, Salah S and Craft, Stephen H, 2005. Linking global market segmentation decisions with strategic positioning options The Journal of Consumer Marketing Santa Barbara: 22 (2/3), pp 81-90 * Mergent Industry report, 2006. The Europe aviation sectors: A company and industry analysis dated April 2006. [online] available at: http://www.mergentonline.com/PDF/Data/IR/EU_01010_042006.pdf * News Report, Financial Times, 2006. Air Berlin (London 1st Ediiton) London: May 3, 2006, pp 18 * News Report: International herald Tribune, 2006. Internet sales lift outlook for Easyjet Movers Marketplace by Bloomberg Paris: May 4,2006, pp 19 * Toh, Rex S and Raven, Peter, 2003. Perishable asset revenue management: Intergrated Internet marketing strategies for the airlines Transportation Journal Lock haven: 42(4), pp 30 Read More