Current Strategic Capabilities of Ryanair - Case Study Example

Case Analysis: Ryanair BY YOU YOUR SCHOOL INFO HERE HERE Case Analysis: Ryanair Evaluating current strategic capabilities Strengths S1-Low inventory costs S2- A web-based service model which eliminates the need for excess labour. S3- Standardisation of fleet which controls training costs for maintenance and pilot training. S4 – Effective employee productivity schemes. S5 – A strong and well-recognised brand identity in its operating markets. S6 – Strong stock price in the securities market making Ryanair a viable long-run shareholder incentive. On the NASDAQ, Ryanair’s stock price is USD $63.68 (Nasdaq 2015). S7 – Ancillary service revenues for food, car rentals and insurance. Weaknesses W1-Subject to recurring public and institutional criticisms. W2- A poor executive attitude related to customer service excellence. W3 – Little focus on business diversification. W4 – Outsourced training systems for important pilot training which raises quality management issues. Opportunities O1-Divestiture of under-performing holdings or those that impose higher tax-based and operations-based costs. O2-Develop a diversification strategy in markets other than the airline industry to improve revenue growth. O3 – Joint ventures and subsidiary development in other international markets serving airline passengers. O4 – Innovation of in-flight services. O5 – Increasing expenditures in marketing to gain more consumer interest. Threats T1 – Oil price fluctuations which are largely unpredictable. T2 – Exchange rate volatility in the Euro and other baskets of currencies. T3 – The threat that airports could raise fees and charges. T4 – New legislation imposing higher taxes on Ryanair and costs. The Eurozone is a highly regulatory system. T5 – Increase in costs related to the Emissions Trading Scheme as the fleet becomes older and less efficient. T6 – Economic downturns in key operating regions T7 – New market entrants Based on the evidence provided by the Ryanair case, the business maintains six distinct options to ensure sustainment of competitive advantage. 1. Development of a customer loyalty program. Offering consumers points for airline miles purchased, free in-flight food and beverages, or other incentives can be added to a loyalty program where points can be redeemed online. Loyalty programs increase customer retention levels (Lewis 2004), demonstrate to consumers that the firm is committed to their service needs (Liu 2007), and raises the switching costs to consumer holding a stake in these programs. This can also solve over-supply problems during periods of low demand and even serve as a barrier to new market entry. Loyalty program development can also bridge a weakness of the firm pertaining to a poor attitude related to customer service excellence. 2. Diversification – Diversification helps to insulate a business from threats. For example, if competition in the European airline market becomes overly-saturated with competitors, the business can still maintain a high revenue stream from other business divisions not related to airlines. The large supermarket chain, Tesco, launched financial services businesses to attract diverse consumer demographics and institutional investors, relying on its strong brand reputation to build trust in a non-grocery market. Ryanair, with strong brand recognition as a strength, could also pursue developing financial services business models. 3. Hedging – With fuel prices unpredictable and constantly fluctuating and new legislation imposing new taxes and other cost obligations on the firm, the business can seek a hedging strategy to offset this unpredictability. Hedging is the process of seeking alternative investments, such as those in the securities market. Short-trading on the London Stock Exchange or becoming involved in currency future contracts would represent a potential method of insulating the business from rising costs throughout the value chain. 4. Innovating in-flight services – British Airways is a successful business model that innovates services. Equipping planes with full-sized desks with Internet access have captured the attention of the business traveller. Ryanair can offer a variety of different services such as workspaces or even multi-media entertainment systems. 5. Joint ventures – The business can launch new low-cost carriers in developing nations in an agreement with another entity that shares resources and capital for a new business. This would give the firm experience operating in a new market environment and improve revenue growth. 6. Profit-sharing for employees – Incentivising productivity is critical to a firm to maintain competitive advantage and motivate high performance. The business has ample revenues to develop a profit-sharing scheme. This would ensure lower turnover rates and more dedication toward meeting the strategic goals of Ryanair. In a more autocratic business model where employees are not instrumental in sharing decision-making, reward schemes are most effective. Of all of the aforementioned strategic options, the most critical for Ryanair is to develop a competent loyalty program. There are many airline competitors in this high-competition market, each competing with unique value propositions. A loyalty program would improve the customer relationship dynamic between firm and consumer segments and would incentivise choosing Ryanair over competition, especially if the rewards are achievable and easy to redeem. The CEO has been publicly labelled as one that believes the customer is often wrong and criticizes those who challenge its service ideology. Through the loyalty program, it would improve retention and increase demand for Ryanair which translates to greater revenue growth. With Ryanair not being diversified, it puts all of its proverbial eggs in a single basket and counts on growth through customer revenues. Therefore, in lieu of a diversification model, a loyalty program would have the most significant impact on buyer behaviour that predicts revenue growth. Corporate culture as a contributor to competitive advantage? Ryanair appears to have a CEO that is market-focused rather than consumer-focused. The firm’s refusal to consider trade union bargaining and very stoic comments made by the CEO illustrate a rather top-down, vertical structure ideology. The culture appears to be one that is dedicated to productivity and performance excellence and rewards top-performing employees competently. The CEO illustrates this set of beliefs in corporate culture when dismissing the notion that customers should want anything more than competency for on-time services, minimal cancellations, low fares and limited lost baggage. This executive mindset would drive what seems to be a rather autocratic business model where compliance to performance mandates is expected. Whilst in many businesses, this type of culture could lead to job dissatisfaction, Ryanair achieves competitive advantage in terms of customer-perceived competency that is borne of a compliance-based culture dedicated to achieving efficiency and performance as regular working habits and strategies. The key drivers of change and strategic drift Regulatory forces in the Eurozone seem to be the primary drivers of change at Ryanair. The new legislation forcing airlines to compensate passengers with hotel rooms or other amenities in the event of cancellations or delays could represent substantial costs to the business. Hence, this would require more emphasis on productivity training and coordinating the operational model to ensure more on-time service and minimise cancellations. Additionally, supply chain costs, especially those related to fuel, force a need to change fleet procurement to become more fuel-efficient. Replacing planes in a very costly procurement activity, however it is necessary to comply with stringent Eurozone environmental legislation which drove the firm’s contract with COMAC toward fuel-efficient aircraft development. There is always the risk of strategic drift at Ryanair, not responding quickly enough to external market changes and continuing with the same strategy in the face of a need for change. For example, when the firm received criticism and backlash for publicizing an intention to charge passenger for toilet use, it pulled this policy. The case study seems to emphasise that Ryanair is constantly seeking ways to increase revenues, even by giving consumers a surcharge for restroom use. This same strategy that gave the business new growth is not as effective with increased competition and choice for consumers and the business needs to be more proactive to market demands before finding new ways to, proverbially, nickel and dime the consumer. Over the next five to 10 years, recognising the needs of price-sensitive consumer demographics and avoiding charges such as these will make the airline more viable as an option for consumers. Assessment of business level strategies Ryanair could have improved its competitive advantage by having the CEO refrain from making public commentaries that paint the portrait of a company less-concerned about superior customer service practice. The statements, the customer is usually wrong and if you want anything more – go away illustrate a firm mentality that is not customer-centric. Public relations efforts that herald customers and reinforce service commitment would be sufficient for improving its competitive advantage by giving customers a better service-related perception. Secondly, the business could have focused on having a presence at larger and more high profile airports rather than seeking the budget route. Some of the travellers going to specific destinations would have to travel an additional 60 miles (such as in the Lyon example) after departing the aircraft. Being closer to urban regions would be more beneficial for consumers in terms of having to rent a vehicle or burden others in their social environment to travel a great distance to pick up the traveller. Though Ryanair has maintained its competitive position by keeping costs low and seeking opportunities to maintain operational controls, diversifying destinations in larger and more accessible airports would likely attract more consumers. Macro and micro environment analysis of strategy At the micro level, competitive rivalry is a fundamental threat to the business. Major airlines such as British Airways expend more financial resources toward the marketing function which gives them greater market visibility and attractiveness. In an environment where it is becoming easier for competitors to replicate a business’ service concepts and offerings, the only real asset that a firm has is its brand identity and brand strength (Nandan 2005). Ryanair seems more focused on pricing in the marketing mix without consideration of the many advantages that a firm can achieve through intensive promotions. Ryanair has many opportunities to use price promotions on certain destinations or express its commitment to competency as a means of differentiating the firm from its main competitors. However, Ryanair’s CEO does not believe that this is necessary and instead desires to keep marketing costs low. Therefore, the company is missing out on opportunities to build a stronger brand and make the firm attractive to more than just the price-conscious consumer segments. At the macro level, the current economic conditions in the UK are still leaving consumers with less disposable income. Frugality and thrift are becoming trendy and chic as consumer ideals post-recession. Hence, having a low cost model and staying with this pricing structure by becoming a cost leader is highly beneficial for making Ryanair attractive to many consumer segments. Buyers are looking for ways to cut back on expenditures and are willing to sacrifice premium products and services in favour of a more frugal consumption lifestyle. As a result, buyers would theoretically be more attracted to Ryanair’s budget-conscious business model and defect from higher-priced airlines such as British Airways. A recommendation for change Changing service ideology from competency and efficiency to a consumer-centric model would be of significant advantage to Ryanair. Today, consumers demand high commitment levels from a company and Ryanair has not established such systems to facilitate more quality interaction with consumers. Buyers in many markets will only maintain loyalty toward a business that promotes superior quality of service and in a market environment saturated with competition, sometimes service is regarded in a higher degree than just efficiency for a service provider like Ryanair. Integrated marketing communications which emphasise strategies for boosting the quality of service interaction and reinforcing that the customer comes first would promote the business more effectively and give it a differentiated identity. Oliver (1999) refers to customer loyalty has being a psychological connection to the brand. Contemporary marketers, today, appeal to elements of consumer lifestyle, creating communications that appeal to consumer values to create a social type of relationship with the firm. Ryanair focuses mainly on price in the marketing mix and does not attempt to build a brand personality for the firm that personifies it according to target customer characteristics and beliefs. Hence, Ryanair should emphasise more expenditure on marketing and communications and build a brand identity that creates a potent psychological preference for this company. The consumer perception of competency and efficiency is not flexible for building long-term customer loyalty and differentiating in terms of personality and values. References Lewis, M. (2004). The influence of loyalty programs and short-term promotions on customer retention, Journal of Marketing Research, 41(August), pp.281-292. Liu, Y. (2007). The long-term impact of loyalty programs on consumer purchase behaviour and loyalty, Journal of Marketing, 71(October), pp.19-35. Nandan, S. (2005). An exploration of the brand identity-brand image linkage a communications perspective, Brand Management, 12(4), pp.264-278. NASDAQ. (2015). Ryanair Holdings Plc stock quote and summary data. [online] Available at: http://www.nasdaq.com/symbol/ryaay (accessed 7 March 2015). Oliver, R.L. (1999). Whence consumer loyalty?, Journal of Marketing, 63, pp.33-44. Read More