Market Segmentation & Product Brand strategy - Essay Example

Activity In accordance with the Porter’s Five Forces Model, firms that operate in the modern market have to face five different powers: a) the power of supplier, b) the power of customers, c) industry’s competition, d) substitute products and e) new entrants. Using the particular model, the US airline industry could be analyzed as follows: a) in airline industry the competition among suppliers is limited; since two are the major firms operating in this sector, Boeing and Airbus, their power to keep their prices high is increased; at the same time, delays in the delivery of orders (planes) and financing problems have reduced the profits for both the above suppliers (Tuggle 2009); however, the intervention of IATA in the reduction of supply chain costs in the US airline industry helped the industry to save about $17 billion in supply chain costs – helping the industry to face the effects of the global crisis (Clark 2011); b) power of customers; customers in the airline industry can choose among the industry’s firms, even if the availability of choices has been reduced due to the increase of M&A (see Graph 1 below); c) industry’s competition; competition in the US airline industry has been limited because of the expansion of mergers and acquisitions; the specific problem is clear in Graph 1 below; in 2010, the number of firms in the US airline industry has been reduced, allowing the existing firms to set easier their rules regarding the industry’s prices and priorities.

Graph 1 – Revenue market share in US airline industry(Source: Parker 2011)On the other hand, from 2007 onwards, the industry’s profits have been negatively influenced because of the global crisis; in 2009, the specific industry reported a loss of $4 billion (Bozzo 2010); in 2010, the industry’s profits helped the airlines to cover the relevant loss – even partially; d) substitute products; substitute products are a common phenomenon in the airline industry. Customers who cannot afford to pay the high prices of well known airlines, can choose among low-fare airlines – even with lower quality of services (Zacks Equity Research 2011), e) new entrants; the operational costs of firms in the airline industry can be high; new entrants are difficult to threaten the industry’s existing firms.

However, the increase of the power of existing competitors – through mergers – could be considered as a major threat for the industry’s firms.Activity 2 The view that supplier power is somewhat weak reflects the current status of competition in the airline industry. Indeed, Airbus and Boeing are the key suppliers in the particular industry. Firms operating in this industry have to choose between these two firms, so, in practice, the competition is narrowed, an issue which should be taken into consideration by legislators in USA.

At the next level, indeed, the fact that buyers in the industry are few can increase their power to influence the prices of the industry’s products. Regarding the view that rivalry is increased in the airline industry, the following comment could be made: rivalry in this industry is high mostly because customers can choose among many firms. So, indeed, those firms that offer the best deal to their customers have an advantage towards their rivals. It is true that the level and the quality of the offers of the industry’s firms are the key criteria for customers to choose an airline.

Furthermore, indeed, the threat for new entrants in the industry is limited. Actually, because of the global financial crisis the number of the industry’s customers has been reduced – a global phenomenon. So, it is true that new entrants do not threaten firms that currently operate in the airline industry. As for the substitute products, their power can be characterized as increased. Because of the high number of low fares airlines, customers who are not satisfied with their airline can use instead another firm – at lower cost.

Activity 3 The negative impact of rivalry on the performance of firms operating in the airline industry – as highlighted in the statement under evaluation – is a key aspect of competition in the airline industry. Indeed, by lowering, continuously, the prices of their services, airlines harm their profitability; in fact, their profits may reach the zero, if the reduction of prices is significant. Keeping the balance between expenses and profits should be a priority for strategic planners in airlines.

Moreover, substitute products in the airline industry can actually lead to the reduction of the industry’s prices – if such practice is used by a high majority of the industry’s firms. The above view is verified by the fact that buyers’ power in the airline industry is strong – especially because of the limitation of the industry’s profitability and the increase of offers. The view that mergers and acquisitions threaten the industry’s firms more than new entrants is right; indeed, because of the expansion of M&A in the airline industry, inequality among the industry’s firms – in terms of their market share – has been increased, a fact that harms the industry’s competition.

ReferencesBozzo, A. (2010) Things Looking Up For U.S. Airline Industry. CNBC. Online, available from Clark, L. (2011) Airline industry reps net supplier savings. Supply Management. Online, available from< http://www.supplymanagement.com/news/2011/airline-industry-reps-net-supplier-savings/> Parker, D. (2010) How consolidation has changed the US airline industry. Centre for Asia Pacific Aviation. Online, available from< http://www.centreforaviation.com/news/2011/04/12/how-consolidation-has-changed-the-us-airline-industry-more-to-come---us-airways-doug-parker/page1> Tuggle, K. (2009) Airline Manufacturers Struggle to Keep Up With Demand. Fox News. Online, available from< http://www.

foxbusiness.com/story/markets/industries/industrials/boeing-airbus-china-oh/> Zacks Equity Research (2010) U.S. Airline Industry Outlook - June 2010. ZACKS. Online, available from< http://www.zacks.com/stock/news/35295/U.S.+Airline+Industry+Outlook>