Ryan Air - Product Positioning Strategy and Competitive Environment Analysis - Case Study Example

Ryan Air Table of Contents Introduction 5 Limitations of the study 5 Company Overview 6 A Strategic Overview of Ryan Air 7 Product Positioning Strategy 7 Factors Influencing Cost Efficiency 7 Economies of Scale 7 Experience 8 Product Design 8 Reducing Supply Cost 8 Benchmarking 8 Critical Factors to Success 8 Competitive Environment Analysis Using Porter’ Five Force Model 9 Threat of New Entrants 10 Existing Rivalry 10 Bargaining Power of Suppliers 11 Bargaining Power of Buyers 11 Threat of Substitute Products 11 Summary of Porter’s Five Force Analysis 12 Growth Diversification Strategy using Ansoff’s Matrix 12 Market Penetration 13 Market Development 13 Product Development 14 Diversification 14 Future Action Plan using 4 P’s of Marketing 15 Product 15 Price 15 Place 15 Promotion 15 Conclusion 16 References 17 Bibliography 18 Introduction The study has been done in lieu to analyze the external environmental factors of Ryan Air and to asses to the growth diversification strategy of the company. The study looks to analyze the long term vision of the company by analyzing the future possibilities and threats. It seeks explore the way the air line may have to perform in the order to gain competitive advantage in the low cost airline market. The study proposes future options that may be pursued by the company in the form of an action plan that contains an outlines of the probable future strategies. The strategy put forward in the study has been based on the environmental analysis of the low cost airline industry. The strategic tool used for the analysis is the Michael Porte’s Five Force Model. Also Ansoff’s matrix is used to analyze the growth diversification strategy of the company. Based on the analysis a future action plan for the company has been proposed using the concept of marketing mix. However, before the analysis a strategic overview of Ryan Air has been provided. Limitations of the study The data collected and analyzed is secondary in natures. The study has been conducted over a short period of time; hence the findings of the study should be treated as indicative only. Company Overview Ryan Air, an Irish Airline started its operation in the year 1985. Ryan Air was founded by Liam Lonegran, Tony Ryan and Christopher Ryan. It is mainly known as a low cost airline. The headquarters of the company is located in Dublin (on grounds of the Dublin Airport). The primary operational bases of the company are at London Stinted and Dublin airport. The company has over 250 Boeing aircrafts. In the year 1997, the company decided to go for flotation in order to take advantage of the airline deregulation. Airline deregulation is the process of erasing entries imposed by the government and restrictions related to prices. In the year 2006 the company was declared as the largest profitable airline in the world by the Air Transport magazine. It is still regarded as the largest low cost career of the European nations. The total revenue generated by the company as on 2012 is over 4250 €M. Average no. of employees as on 2012 is 8438 and scheduled passenger is 75.8 m. The low cost no frills model of the company is believed the key reason of success. A Strategic Overview of Ryan Air Product Positioning Strategy From the above representation it can be seen that Ryan Air has been positioned in the minds of the consumer as the most pure lost cost airline. However, it differentiates itself from other competitors like Easy-jet as the company has been using secondary (Mintzberg and Quinn, 1996, p.67). Factors Influencing Cost Efficiency Economies of Scale The company has been able to gain cost efficiency by amplifying the efficiency of the staff, even more than the pilots. Another factor leading to economies of scale is the purchase behaviour of the company. The company doesn’t go for frequent purchases. Rather bulk purchase technique adopted by the company helps Ryan Air to get discounts from the suppliers of Boeing aircrafts. Experience The Ryan Air professionals have industry experience of over 24 years. Such experience and expertise has helped the company to expand the business to more than 20 countries. Product Design Many have believed that low cost products can’t be innovative. However, Ryan air begs to differ. Innovation has been one of the key reasons for the success of the firm. The company acquired aircrafts of greater seat capacity, lesser noise emission and lesser fuel burn. Reducing Supply Cost Ryan Air has been able to reduce the supply cost by neglecting airport fares by saying no to the jam packed and choosing district and secondary destinations. Therefore, the company has been able to provide tickets to the customers at the cheapest possible rate. Benchmarking Ryan Air has very successfully followed the ‘South West Airline’ model. South West Airline mainly operates from Texas, US. The key to the success of the company has been the ability to decrease costs without compromising quality Critical Factors to Success Competitive Environment Analysis Using Porter’ Five Force Model Michael Porter’s five force analysis is mainly used to analyze the external environmental factors-i.e. the opportunities & threats. The five forces are: threat of entry, rivalry among competitors, bargaining power of suppliers, bargaining power of buyers, substitute products or services. The potential competitors are those who are currently not competing but wishes to do so in the future. Rivalry among the companies is a key factor which the companies must watch out for. High degree of competition usually increases the chance of new entrants. The rivalry among the firms mainly depends upon demand pattern and industry competition. Buyers can become a threat when they force the companies to lower the price or ask for better quality. On the other hand a weak buyer gives the company to increase its prices & its profitability. Suppliers tend to be a threat when they are able to raise prices, reduce the quality of the goods supplied or even tamper with the delivery schedule. A product that is similar in nature & serves the needs of the consumers in the same way is treated as the substitute products. Threat of New Entrants A regulation was passed in the European countries that significantly removed the barriers of new entrants in the European Airlines industry, increasing the threat of new entrants. However, high degree of brand awareness and economies of scale enjoyed by established brand like Ryan Air would be significant barriers to entry for new entrants. Moreover, significant amount of capital is needed to enter the competitive European airline industry. The capital required could be associated various physical facilities, inventories, imitating marketing activities, recruiting qualified work force, etc. Hence capital requirement is likely to play a lead role in barriers to entry (Roosa, 2010, p.53). Ryan Air’s Perspective: Moderate threat of new entrants. Existing Rivalry Due to deregulation in the airlines industry the competition among the existing players have increases. Airlines are trying to counter the increase in competition by using strategic alliances, merger, and acquisitions. For example: Air France- KLM. Airlines companies are also trying to target customers flying in a specific route using frequently flying customer database. Companies are also trying to increase customer loyalty using perks, discounts, etc. Also the economic downturn in the US has forced many of the airlines operating in North America to concentrate on the European market increasing the degree of competition. Ryan Air’s Perspective: Intensely increasing competition. Bargaining Power of Suppliers Boeing has been the main supplier for the company. However there are certain reports from the company sources that say that the company is interested in buying the comac’s c919 aircraft. However keeping the business model in mind, the company has to incur high amount of supplier switching cost. Also the bargaining power of the pilot’s are believed to be quite high as there is not abundance of skilled and experienced pilots in the industry (Modern, 1999, p.78). Ryan Air’s Perspective: Low to moderate threat of bargaining power of suppliers. Bargaining Power of Buyers According to a recent survey huge numbers of customers of the European nations have shown keen interest in flying from one place to another at low price. Price sensitivity can also be another factor increasing the degree of threat among the buyers. Many experts believe that Ryan Air is very much vulnerable to any kind price reduction due to the lack of brand loyalty related to the airline industry (Cliff and Yang, 2011, p.105). Ryan Air’s Perspective: High degree of bargaining power among the buyers. Threat of Substitute Products Substitute products for Ryan Air and Airline industry in general includes, sea transports, coach transport, railway transport, car rental firms, etc. But many surprised to know that judging by the distances covered by the airplanes of Ryan Air; other modes of transport would be expensive due to the cost focused business model of the company. Ryan Air’s Perspective: Low threat of substitute products. Summary of Porter’s Five Force Analysis Forces Level of Threat Threat of New Entrants Moderate Existing Rivalry Intense and Increasing Bargaining Power of Suppliers Low to Moderate Bargaining Power of Buyers High Threat of Substitute Products Low Growth Diversification Strategy using Ansoff’s Matrix Ansoff model is also well known as product matrix grid. It mainly gas two parameters- product & market. By following the Ansoff model the firms look to develop growth and diversification strategy. The key actors to be considered for Ansoff matrix are market penetration, market development, product development and diversification. Market penetration strategy is followed by the firms when an existing product is launched in an existing market. The risk in this case is very much low. The company looks to focus on intensive distribution, competitive pricing & aggressive promotion. In case of market development an existing product is launched in a new market. The risk in this case is moderate. The company mainly looks to target the new customers by using new distribution network & repositioning strategy. In case of product development the company launches a new product in an existing market. Again the risk is moderate. Here the company looks to position themselves as a product which is reliable & have better quality as compared to the others. They mainly target the loyal customers to increase the sales. Here a new product is launched in a new market. The risk is the highest. Huge amount of investment in R&D & marketing research is required. Distribution & promotion is completely different. Usually the firms do test marketing before the final launch (Ball and Minor, 2000, p.45). Market Penetration Ryan air can try out different ways to make impact on the current market. The strategy to create an impact on the current market may include a minimalist strategy to attract customers from the competitors. This can be achieved through product augmentation while maintaining the cost focused model of the company. The company can also use packaged deals or other offerings to retain customers as well to attract new ones. Adoption such strategy may require subtle changes in the strategy. However it may not be a bad bet as the risk would not be very high. Market Development The company may look to start new flight services to American countries. As of now the company is totally focused on the European market. There are few airlines that fly to US. But none of them are low cost budget airlines. However, as discussed earlier in the study, there has been a large amount of demand among the customers to fly at low cost. Many may suggest the company to start a low budget airline service in US, as there are plenty of such airlines in US. However, there are none in Europe. This may help the company to enter into a new market. America is looking to fight back from the economic down turns. Hence US may prove to be a very lucrative market. Product Development Ryan Air can target new customers by coming with products or services. The company can reach out to tourism industry. This can be done by offering charter the jets of the company. Similar kind of strategy has been used by Thomson Airways. The tour operators may book flights in advance. In this way the company can charge something extra for the service (Palepu and Bernad, 2007, p.65). Diversification Ryan Air may rebrand itself by creating new airlines. The airlines may not follow the low budget model. It may prove to be a probable way to reach out to new customer segments that do not travel via budget Airlines. This may be treated by some as a partial concentric diversification strategy. Ryan Air already has good relationship with Boeing. Boeing is the main supplier of the company. Hence, that may come in real handy. Also, the company may provide some offers for their existing customers to encourage the customers to travel in the non-low budget airlines (Hoskisson, 2010, p.89). However, the risk factor in this strategy is going to be lot higher than the other strategies as the company would be going for a new market by launching a new product. Future Action Plan using 4 P’s of Marketing Marketing mix is a set of elements which the company can control or manage to its advantage for marketing purpose. Neil Borden termed these elements as the ‘Marketing Mix’. In the early 1960’s he suggested 12 elements which the company should keep in mind while formulating marketing programs. Then E. Jerome McCarthy delineated the marketing mix as the 4Ps of the marketing mix. Product Although it has been suggested that Ryan Air may go for new product development to target new customers; but in near future it seems that the company is likely to stick to the low budget fights. However there may be increase in the frequency of flights. Price It is likely that Ryan Air will continue to carry on with the low fare. However it may increase the number of seats in the planes. Many low budget airlines have used this strategy successfully. Place In order to discourage the customers from booking through call centres the company may look to place additional charges on the call canter bookings. Promotion There is still a perception among some customers that Ryan air is a low cost –low quality airline. It is likely that in order to change such perception the company may opt for an intense integrated marketing and communication strategy. Also there may be special perks or certain sales promotional offers to retain customers. Social media can also be used by the company to create direct engagement with the customers. Conclusion Ryan Air can be tagged as a market leader the European low budget airline market. However things may change. As discussed during, after deregulation the airline industry of Europe has become extremely competitive. It has also increased the threat of new entrants. Therefore the company nay has to make subtle changes in the marketing strategy to retain and attract new customers. As discussed, during the Ansoff model, the company may have to opt for diversification by starting a new air line that is not going to be low budget. However, mainly due to the economic downturn in near future the company may continue to operate through the cost focused business model. The company should keep an eye on the development of the US economy. AS discussed ding the study, US are supposed to be lucrative market. Another course of concern for the company is the perception among some customers; as the cisterns view the airlines as a low cost low quality company. This for sure needs to be changed. The company may have to come up with new promotional strategy focusing on the facilities provided by the company. The company should subtly mention that. All these are provided at a relatively low cost. References Ball, A. and Minor, S., 2000. International Business. McGraw & Hill: UK. Cliff, R. and Yang, D., 2011. Ready to Takeoff: China’s Advancing Aerospace Industry. Rand: UK. Hoskisson, E., 2010. Strategic Management: Competitiveness & Globalization, Concepts. Cengage Learning: US. Mintzberg, H. and Quinn, B., 1996. The Strategy Process. Sage: UK. Modern, T., 1999. An Introduction to Business Strategy. McGraw & Hill: US. Palepu, K.G. and Bernard, V.L., 2007. Business Analysis and Valuation: Texts and Cases. Cengage Learning: US. Roosa, A., 2010. Sustainable development handbook. The Fairmont Press: US. Bibliography Sabrautzki, S., 2010. Strategies, Mission, Vision, Goals. GRIN Verlag: US. Szymanski, A., 2011. The Competitive Analysis of Commercial Aircraft Industry. GRIN Verlag: US. Walsh, C.R., 2011. Airline Industry: Strategies, Operations and Safety. Nova Science Publishers: US. 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