UK Railway Structure - Research Paper Example

Industry Background Previously, the perception about the UK railway structure is negative that it greatly influenced the implementation of the EU open access. They perceived that the railway industry could not claim its wide share of passenger and freight traffic because apart from the high cost, service is also poor, unreliable and prone to serious accidents (The Success of the UK Railway Structure, 2006, p 2). In 1994, UK made a drastic move involved with privatization which entailed “dismantling the nationalised industry, the sale of individual businesses, the creation of a franchised passenger market, and a liberalised freight market as well as the building of a strong independent economic regulatory structure (The Success of the UK Railway Structure, 2006, p 5). After which, another era dawned on the railway industry as it struggled to turn around the negative assumptions and increase passenger confidence. PEST Analysis Political Factors The main contributor to the political aspect of the railway industry is the formation of Network Rail, a privatised company but has a government guarantee and where any profits are not for distribution (The Success of the UK Railway Structure, 2006, p 5). Around 60 per cent of its income is covered by a government grant while the rest comes from the train operators which pay for every kilometre that its carriage has travelled through the railway network (Intercity dreaming is more than just nostalgia). Economic Factors On the economic side, there are a few factors that affect the UK railway industry. One is the current market and economy which is influenced not just by the local economy but also the influx of tourist and foreign money. In 2007, travel trends (national statistics) reported an all time high in overseas visitors; however, the next year registered a decrease. Another significant factor is the propensity of shifting from air to rail in recent times (Virgin Trains Reach for the Skies as Fliers Switch to the Fast Track). One industry could gobble up another depending on the current economic condition and a host of many other reasons such as value for money, accessibility and customer satisfaction among others. Synergy and convergence had also been a byword in recent times but the application of the integration of services could prove the economic advantage. One economic factor that greatly impacts the UK railway industry is its fragmented structure. Some proponents put forward the idea of linking the different train routes starting off with the east and the west and later on “adding on the Cross-country, Great Western and East Midlands lines to re-create the integrated InterCity network that operated under British Rail (BR)” (Intercity dreaming is more than just nostalgia) before it was debunked in 1994. It will not just provide the economic benefit but will also provide the synergy demand by the public sector. Social Factors One of the social factors that impact the industry is the customer’s perception and demands about public transport. A study conducted in Ireland (final report) yielded that most prefer to travel in their private cars. However, there was a hint of a wider acceptability of public transport if they could provide the following demands of its potential passengers: Value for money in the form of promo fares and/or discounts Service design and quality which include the coverage, frequency and convenience Customer service Information provision Better facilities Integration bus and train for convenience and accessibility Another controversial topic that affects the industry is the issue with climate change and carbon emissions. As the public becomes more aware of the underlying issues in global warming, subsequent decisions will affect the industry. Technological Factors Technological advancement almost dictates many aspect of the present society and it includes the railway industry. Further development of Train Warning and Protection Systems, Rail Security implementation will directly affect the railway business. The future of Maglev or Magnetically levitated trains will also be a factor in the evolution of this industry. Other technological developments, not just in the arena of trains but also in communications and strategic marketing play an important role. Websites and virtual markets definitely influence the booking and selling schemes for this market. Company Profile Virgin Train is co-owned by the business tycoon of the Virgin group, Sir Richard Branson with 51% controlling share and Stagecoach plc, a local bus and train operator company holding the remaining percentage. It operates under a government-issued franchise in the West Coast along the main railway between London and Glasgow from London Euston station and passing through Birmingham, Liverpool, Manchester, North Wales and Preston (Virgin Trains, a rail company; Virgin Rail Group profile). Virgin trains started rolling off the tracks when it won the franchise bid for the West Coast line in 1997. It initially operated both the Cross country and West coast franchise until it lost the cross country line to Arriva in 2007. Since then, it had been transporting millions of passengers in about 400 kilometres of track through a usage fee to Network rail which operates the tracks. (Virgin Trains, a rail company case study; Virgin Rail Group profile). From the start, it was committed to modernizing and upgrading the facilities of the railways introducing the high speed pendolino tilting trains which run on electricity for its inter city run and the voyager and super voyager which are diesel powered train travelling the longer routes (Virgin Trains, a rail company case study). It offers special amenities which include Wi-Fi and powers sockets on board for the business travellers and a fair-trade shop for drinks on trains and stations for the leisure travellers market. (Virgin Train website; on our way to sustainability). In its goal for synergy and integration, it offers online ticketing, discounted fare rates for group or family bookings as well as for early booked travels. It also connects with ferry services and similar companies for passenger’s convenience in its thrust to streamline the passengers’ long distance ease and convenience. It vowed to change and introduce a new experience in the way commuters and travellers see rail travel. It had been accorded some awards and distinction which include “Best Train Operator in a survey by the Institute of Customer; Best Rail Company by Travel Weekly magazine; Best UK Domestic Train Service by Business Traveller magazine and favourite train operator by readers of the London Evening Standard. (Virgin trains reach for the sky).” SWOT Analysis Strengths The Virgin Train, operating under the Virgin group brand enjoys a strong and positive umbrella brand name assurance. The diverse and wide expanse of industry where the Virgin brand operates provides Virgin Train the necessary leverage to assure the market that it carries the same philosophies that the brand offers. “According to Virgin the brand stands for ‘value for money, quality, innovation, fun and a sense of competitive challenge (Cuizon, n.d.). Because of the size of the organization, the company could enjoy high investment to assure delivery of quality product and services, an immediate edge as it penetrates the market. Weaknesses The diverse nature of the Virgin group is also its one major weakness. Because of its policy for strong brand association, it has used only one product name/brand for all its products and services in almost all the industry it operates in – Virgin record, Virgin air, virgin cola and virgin trains to name a few. The different products cater to varied demographics and different market groups. It creates confusion on its positioning especially that different markets often espouse different behaviour and perceptions. It could also adversely affect the entire organization should one branch fail as it could influence the public judgment on all the other brands with the same Virgin trademark. Opportunities The UK travel market is favourable to Virgin trains as it offers a strong substitute to the incumbent market leaders of travel and transport. At a time of worsening market conditions, stiffer competition among airlines and higher awareness of carbon emissions and its role in climate change, the company has the potential to capture a sizable portion of the market. As long as it offers value for money, customer satisfaction, higher percentage of reliability and wider coverage of train networks, it could emerge victorious because of its inherent strengths with regard to the issues hounding the airline industry as well as private transport consumption and expenses (Virgin Trains Reach for the Skies). Threats Government policies play a major role in the success of Virgin Trains run. As the public transport market demands for reliability and convenience, the inability of Network rail to provide the necessary platform for Virgin Train to meet the passenger’s expectation will be an important factor. The delays in train travel will be construed by the passengers as inefficiency of the train operators rather than on the Network rail which maintains the tracks. The passengers do business with Virgin Train and not Network rail which puts the train on a difficult situation. It could not do something about the delays in the upgrade of Network Rail except exert pressure on the rail network provider (Millward, 2009; Virgin Trains Welcomes, 2009). Marketing Mix Product The Virgin company, are not known for brand leadership in their specific categories, market and industries but rather as a contender and a challenger. The same framework had been the foundation of Virgin Trains. It entered the railway industry through the worst rail line in UK, the West Coast and the Cross Country. However, with the ability to churn out large investment from its mother company, it forced upgrades in areas that it could exercise its control such as upgrading the train coaches and incorporating better facilities and innovations for the ease and comfort of its passengers. All these improvements brought a different experience that has the ability to encourage repurchase and customer loyalty in the long run. It also offer additional amenities and services such as integration of ferry travel, one-stop booking office, etc that contribute to the over all satisfaction of the market it serves. Virgin trains declare that their goal is to make each trip “productive, enjoyable, sustainable and available to all (On our way to stability). Price It offers a market aggressive pricing system that challenges the industry it was set out to conquer – the airline industry. Because of the recent trends of no frills cost leadership approach of airlines such as Ryanair and easyJet which offer discounted rates for early booking and no check in baggage passengers (and charges a premium for check in lug gages to discourage such), Virgin trains challenges this set up with its own strategy – this time, challenging the pricing range with its own special offers. It also offer discounter early bird rates or family and group rates without putting premium on the additional luggage that the passenger hauls (Virgin Trains reach for the sky). Place of distribution Another area that has propelled the existence if Virgin Train in its twelve years of existence is its wide coverage of network as well as the more frequent availability of trips to different destinations. This addresses tone of the top requirements of potential passengers to switch to public transport – availability and wide network distribution of service (Ireland). More than this, it looks forward to better travel time and higher frequency trips to capitalize on the soaring demand for the railway transport as it starts to eat away in the airline industry customer base (Virgin trains reach for the sky) Promotions The main catch phrase of this company is “get where you want to be...for less (website). This promotional scheme was partnered with its online ticketing system which streamlined its operations while at the same time, providing internet based marketing and advertising for the company. In line with customer’s demand for value for money, Virgin air offers a multitude of selling propositions such as seasonal premiums or gift vouchers, partnership with related services to offer synergy and convenience, bulk purchases, etc. Service Characteristics Intangibility Rail way industry is involved with transporting passengers from one point to another and thus therefore is concerned with a tangible or a physical activity. Passengers pay for the services of the trains to bring them from the departure point to the arrival location. The passenger is the direct recipient of the service. Inseparability The production, delivery and consumption in terms of travelling or transport almost happen simultaneously which in effect could be said to be synchronous. As the passenger requires the services of the train company, the train produces the service and delivers the requirement to the client as he/she consumes the service which in essence is the trip from point A to point B. Heterogeneity Public transportation is also streamlined to accomplish the same purpose to all customers – to deliver the passenger to the point he/she wants to go. Thus, the variability of this industry is low. Transferring one person is the same with transferring another person. However, as the market evolves and the suppliers develop and innovate themselves to capture the evolution process, some industries could be offering difference in service to customers. In the case of Virgin train, offering an additional Wi-Fi service to the business traveller allowed the service offered to wander off towards customization. Still, the level of modification could not stray much as it was confined to a narrow degree of specialization or customization. Perishability The transport industry is one area wherein it offers a constant supply no matter what is the demand. However, in the strictest sense of the word, it could allow for some allowances in terms of supply and demand such as employing more public transport vehicles during peak season or the additional of train coaches just to meet the demand. Nature of Service Evaluating Virgin trains in terms of the nature of service require an integrated approach within the context of the service delivery. The holistic approach would provide an open-system view on the nature of service for this particular industry. At the core is the priority goal of the service provider-to transport the passenger from one point to the next. However, in the delivery of this service, peripheral goods and services could be added into the service concept for either additional revenue, better customer satisfaction, competitive advantage or any combination. The service package also deals with tangible and intangible goods that make up the entire process. In the case of trains, the supporting facility is the train, a tangible good which is the main tool of the business. It also require the facilitating goods such as the add on items or gadgets such as the newspapers in the train, the Wi-Fi connection, etc. Further, the service wraps up with an explicit and implicit services. Examples of which for Virgin train is the on-time departure for the former and trust in reliability for the latter. As was previously discussed, the degree of customization is low and interaction between the provider and the recipient is also low. The strategic service classification is also low which means there is no formal relationship between the customer and the supplier. Recommendations For the company’s sustainability, there are a few recommendations with regards to the marketing aspect. Almost all of these are strategies at harnessing the opportunities presented by the current environment through the proper utilization of the company’s strengths. One important factor is the attitude and behaviour of the potential passengers towards public transport and the ways to break through this segment to turn them to captured market. The switch would already provide the percentage of additional market to fill in the train’s coaches as they rumble towards their destination (Corpuz, n.d.). However, it was initially established that there are requirements that must be met to be able to capture the attention and the loyalty of this sector. First, the company must incessantly offer value for money to encourage the switchers. A vast network and frequent scheduled trips to more destinations would also ensure convenience and accessibility for the passengers. This last would probably entail sizable investment and additional operating cost but would pay off in the long term run. Another area that must not be neglected also is the demand of the passengers for integration and synergy. Linking with similar service providers would greatly reward the passenger’s need for ease and convenience. This is one of the main issues in UK-the separate and fragmented train operators which makes long distance travel by land a difficult predicament. Interconnecting services might be a risky approach especially to possible competitor in the same industry but in the long run would benefit, not just an individual company but also the entire industry. Last point for recommendation is a strong strategic direction that will provide the utmost competitive advantage to the company. This might entail a long term comprehensive yet swift series of actions to pounce on the switching market from the airline to the railway industry. If it was easy for these market to shift to another industry, switching cost is low. Thus, it gives no guarantee for repeat users and loyal customers as they could easily switch from one to another. The main ingredient is to offer either a unique selling proposition or innovative practices which will delight the switchers and discouraged them from going astray. 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