Pasific Blue and House of Fraser - Essay Example

? Answers to Case Studies: Pacific Blue and House of Fraser of the of the Answers to Case Studies: Pacific Blue and House of Fraser Introduction A business cannot exist in a vacuum. Right from the time it is formed, there are forces in both the external and the internal environment that are acting upon it and which can boost or deter its chances of success and survival. Thus, every business has to formulate a plan or strategy that takes into account the present and impending changes that will affect its future. External forces are called Threats if they are going to have a negative impact or Opportunities if they are going to have a positive impact on all the firms in that industry. Internal forces are called Strengths if they add to the prowess and ability of a firm, and Weaknesses if they dilute its power and capacity. In this paper, we will be analyzing the cases of Pacific Blue in New Zealand’s airline industry and the House of Fraser in the context of the UK’s department store industry, looking at their problems and recommending solutions. Porter’s Five Forces Model Michael Porter in his book ‘Competitive Strategy: Techniques for Analyzing Competitors (1980) points out that there are five forces acting upon all firms in an industry that determine its chances of entry, exit and survival. Industrialists and producers set up barriers to entry or exit that can prevent or delay the entry of competition- so that they in the meantime reap the profits and revenues available from the interested consumers. These forces are the (1) likelihood of new entrants; (2) power of buyers; (3) power of suppliers; (4) degree of rivalry and (5) threat of substitutes. Thus any one and all of these forces can impact a firm’s chances of success or failure in a particular industry at any given time. Porter maintains that an industry is a group of firms that market products which are close substitutes for each other. Thus we have the airline industry, the retail industry, the automobile industry etc. which deal in products and services that are close substitutes for each other. Porter also uses the concept of industrial groups according to whether the degree of segmentation of products or services is wide or narrow i.e. they are loosely or tightly segmented (Porter, 1980). The Pacific Blue Case Study Coming to the case of Pacific Blue, it seems that it is stuck between a rock and a hard place. At the one end it has Air New Zealand, the dominant competitor and national airline of New Zealand, for which locals have affinities mainly due to the reason that most industries are foreign operated and dominated. However since the entry of Qantas and Pacific Blue, the degree of competition has intensified. Both Qantas and Pacific Blue are foreign owned, one being Australia’s national carrier and the other a joint ownership between UK’s Virgin Group and Toll Holdings of Australia. With Air New Zealand having the major market share and most of the routes, the newer entrants are struggling to compete. Air New Zealand’s response to Qantas’s entry was to cut down on its costs and offer no frills basic flights that enabled passengers to travel very easily and inexpensively. Qantas has been constrained to operate with just four airplanes on New Zealand routes. It had also to build its own terminals since Air New Zealand got the best preferences here as well. Pacific Blue entered the arena in 2007 and chose to operate on a small scale only, choosing two or three main routes on which it can serve the most passengers i.e. Wellington, Christchurch and Auckland. It focuses on low cost but high service. Meanwhile the entry of Pacific Blue has also forced Air New Zealand and Qantas to reconsider their strategies. While there has been an increase in the number of flights on the most travelled routes- a price war has also been triggered, with seats priced as low as $1 and $9 if booked well in advance. Air New Zealand has planned to attack at both ends, looking at the low price segment on no frills flights and also concentrating on the higher end luxury seeking segment who can afford to pay (Group Presentation 3). However industry analysts opine that the airline sector is saturated and there is over capacity. They think that Air New Zealand stands to lose out to its competitors in the long run. As of 2007, Air New Zealand managed revenues of NZ$1.6 billion overall. At present it’s a waiting game. However the fact that Pacific Blue plans to introduce a third aircraft in 2008 shows that it has not given up the fight. This will make it nearly equivalent to Qantas’s fleet of four aircraft. It has even considered the routes for this aircraft and should stick to them. The presence of all three of these carriers has intensified the level of competition and also brought down the cost of air travel to unbelievable levels. People are now more cost driven and prefer a low cost but efficient airline if there is a bearable level of difficulty to be put up with. Pacific Blue can target the middle class segment if they introduce regular flights that are conveniently priced. One would prefer to make a weekly, fortnightly or monthly trip by air rather than train, bus or other means because flights are fast and convenient. Pacific Blue may even consider a cargo handling service just to supplement its business efforts in New Zealand and open an additional avenue for earning income. It may also think of diverting planes from its Polynesia and Australian routes but cost and profitability are key factors here. The airline industry still appears unregulated or loosely regulated but the problem is the number of passengers. Tickets would have to be made affordable most of the year round and safety and quality standards highly regulated for more customer traffic to materialize. The operating cost and number of aircraft available to be used are other factors that will contribute to success or failure of the firms in this industry. The House of Fraser Case Study We will now comment upon the House of Fraser and its position in the UK department store industry. One can see that there is a lot of competition in this sector of the industry, with a number of competitors ranging from Marks and Spencer, Harrods, Debenhams, John Lewis and House of Fraser. While the bulk of the market share is taken by Marks and Spencer (55%) John Lewis (15%) and Debenhams (12%), there is still a profit to be made because of the sheer size of the market and the number of consumers. The decisions as to clothing, perfumes, toiletries and other such items are made quite frequently, in fact almost on a monthly basis and while customers usually have their favorite brands and shopping outlets, good advertising and display of bargain deals can serve to dislodge some customer loyalties. Sometimes the same product can be sold by two different competitors at very different prices. One might be overstocked or trying to push products to reduce valuable shelf space to accommodate another brand. Consumers have started watching out for deals as well especially after the 2007-2008 financial crises that impacted many of us in the UK, if not all over the world. At the moment as of 2009, House of Fraser has about 4 percent market share of the UK department store industry. It is also clear that each of these stores have their own strategies to attract buyers. For example, Debenhams has been concentrating on designer created outfits by the likes of John Rocha, Jasper Conran, Matthew Williamson and others being mass produced and sold at affordable prices so that fashion and quality conscious customers remain loyal visitors and buyers. It has 144 stores in the UK and experienced a slight growth of 0.2% in the first half of 2009. House of Fraser also has a similar strategy in that it seeks to sell a wide range of products from well known brands at competitive prices. Some of its brands are not widely available elsewhere in the UK for instance Vero Moda (Denmark) and Kenneth Cole (US). It has 62 stores all over the UK and its product offerings include clothing, electricals, cosmetics, perfumes and homeware. House of Fraser is one of UK’s oldest names and wants to position itself as the House of Brands. Meanwhile its branded products are also sold at discounts in-store which is a peculiar offering of House of Fraser. Another thing is that the price ranges for its goods are considerably wide, allowing all income groups a chance to buy its merchandise. For example, the price of jeans can vary from ?30 to ?170 and women’s knitted sweaters from ?20 to ?250. House of Fraser has managed to increase its sales by 16 percent in the first six months of 2009 compared to the same period in 2008. John Lewis has dominated in homeware offerings. Its positive points are joint employee ownership and good sales training which ties the employees to the company. 36 percent of sales are from own label brands in clothing and homeware. Harrods Department Store is one of the largest in the UK and has 300 different departments. It not only serves the well heeled and elite personages but is a popular tourist attraction as well. It is a premier retail outlet that serves the best known brands and also allows room for all its goods to be personalized in the name of the buyers. Jewelry, luggage, bed linen and even bicycles lend themselves to customization. By refurbishing its look and adding much more variety to its goods, Harrods hopes to attract more customers. The store has reported an increase of 9 percent in sales in the first half of 2009. It is also never likely to experience customer returns of its merchandise, since all of its customers are well off. They did not curb their purchases even during the recession. Harrods has pinned its strategy on following the fashions and money of the elite and fashion conscious celebrities (Group Presentation 2). Marks and Spencer dominates the UK department store sector with 685 outlets all across the UK. It is relying on getting customers to try its meals to step in the stores, and make some purchases in the process. Evidently this strategy is working. It has developed its own meals and also some of its own clothing brands. The analysis of the department store industry in the UK as of 2009 clearly shows that it is more tightly segmented and competitive and is even experiencing competition from specialist stores dealing in just one type of product. Developing your own brands like Marks and Spencer has done in meals and clothing, and selling reputable brands at affordable prices like Debenhams and House of Fraser is the way to make a profit and become a household name as well. This should be the next step for House of Fraser. It has attracted consumers from all age and income groups due to its wide price range and should be able to capitalize on this with some of its own offerings. References Group Presentation 3: Pacific Blue and New Zealand’s Domestic Airline Industry. Accessed on 30 Nov 2011. Group Presentation 2: House of Fraser and the UK’s Department Store Industry. Accessed on 30 Nov 2011. Porter, M.E.(1980). Competitive Strategy. The Free Press. Strategic Group Map for Pacific Blue in the New Zealand Airline Industry A1 A2 A3 Low Priced Flights Moderately Priced High Priced Flights The Vertical Dimension is Quality of Service and Volume of Business. Strategic Group Map for House of Fraser in the UK Dept Store Industry A1 A2 A3 Low Priced Goods Moderately Priced High Priced Goods The Vertical Dimension is Quality of Service. Read More