case study: easyjet & ryanair - univie.ac.ata0025537/php/abwls.off/.../case_easyjet.pdf · case...
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28.11.06 EasyJet & Ryanair: flying high with low prices 1
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Case Study:easyJet & Ryanair
Flying high with low prices
Caglar CintugluDeniz YararUli Breunig
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28.11.06 EasyJet & Ryanair: flying high with low prices 2
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Introduction
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Source: Jobber, p410
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28.11.06 EasyJet & Ryanair: flying high with low prices 3
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
First Question
How do EasyJet and Ryanairachieve success using lowprice strategies?
Source: Jobber, p410
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28.11.06 EasyJet & Ryanair: flying high with low prices 4
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
EasyJet & Ryanair
The orange-liveried airline is one of the pioneers of low-cost travel in the UK
Established in 1991Europe’s largest
budget airline
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Short History: 1978Deregulation of American Skies
Southwest Airlines first „no-frills, low-fare“ business model
– No free meals or coffee, onlypeanuts
– Secondary Airports:– Faster turnaround times– Cabin crew does the cleaning– No waiting for incoming flights
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Only one type of aircraft
• i.e. Boeing 737– Keep costs down by
– Reducing pilot training costs– Reducing maintenance
costs
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28.11.06 EasyJet & Ryanair: flying high with low prices 7
Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Internet booking
• Cut paperwork and administrative costs
Source: www.easyjet.com; www.ryanair.com
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Product Strategy
EasyJet & Ryanair havesuccessfully attackedBritish Airways with theirrapid penetration strategy
(Price: low, Promotion: high)
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Target segment
• Independent customers(no need for bundledservices) with high grade of self organized marketoverview/comparison
• Rather young and flexible (Generation @)
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Customer Characteristics
• Independent, self organised• Desire of object: pure, cheap
transportation service• Familiar with new media and
interactive devices (internet)• Flexible• Easily maintained (low
expectations, shrunk space forcomplaints)
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Second Question
What are the advantages and risks associated with low-pricestrategies?
Source: Jobber, p410
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Advantages of low-price/rapid penetration
• Fast diffusion and adoption leading to –High market penetration
rates quickly–Competition by surprise, no
time to react
Source: www.answers.com
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Advantages of low-price/rapid penetration
• Goodwill among early adoptersegment
word of mouth• Cost control pressure
greater efficiency• Barrier to entry for new
competitors (Porter‘s 5 forces)
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Disadvantages for customers
• Fast turnaround times: – No waiting for connecting flights– No entry for customers checking
in too late
• Paying compensation:– Compensation for cancelled
flights is only the ticket price
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Risks of low-price/rapid penetration
• Low price conveys an image of low quality; Image!
• Competing suppliers also reduce prices, nullifying theadvantage
• Long term price expectations
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Third Question
To what extent do theconditions for charging lowprices discussed in thischapter hold for EasyJet and Ryanair?
Source: Jobber, p410
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Conditions for charging lowprices
- Only feasible- Market
- Make- Make
effect/low costsor domination
Alternative
- Experience curve
- Barrier to entry- Predation
Presence
Money laterMoney elsewhere
Conditions forCharging low prices
Source: Jobber, p385
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Only feasible AlternativeConditions for
Charging low prices
• Rather homogenicservice
• Cut down to core value(transportation)
• Low price as incentivefor consumers to switchfrom usual brandSource: Jobber, p385
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Market presence ordomination
Conditions forCharging low prices
• Aggressively pricing• Segment of price-
sensitive consumers(Price elasticity)
• Only way to overtakenational airlines on the low-cost laneSource: Jobber, p386
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Experience curve effect/lowcosts
Conditions forCharging low prices
• Cost decline of 20% ifproduction doubles
• Becoming the lowest-cost supplier
Source: Jobber, p386
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Make money laterConditions for
Charging low prices
• Price-sensitive consumers in the low-cost segment
• No way for airlinesto makemoney later
Source: Jobber, p410
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Make money elsewhereConditions for
Charging low prices
• Low-cost airlinesconcentrate on the corecompetence: Transportation
• Selling food on planes
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Barrier to entryConditions for
Charging low prices• Satisfied market in all
price segments• High costs of entry• High fixed costs• Only small margins• National airlines partially
subventioned by state
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
PredationConditions for
Charging low prices• National airlines backed
up by subsidies• Alliances• Special contracts with
airports• BA & TWA accused
predatory pricing
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Fourth Question
How successful do you believeEasyCinema is likely to be?
Source: Jobber, p410
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
What is EasyCinema?
Source: www.easycinema.com
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
EasyCinema
• Film bookings 2 weeks in advance
• Starting from 20pence (<30 cent)
• The earlier the cheaper(like with aircraft seats)
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Cutting EasyCinema costs and staff
• No popcorn etc.– „If ya want popcorn, go to a
popcorn vendor. For moviescome to easyCinema“
• Internet:–Print out membership card,
access via turnstile
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
EasyCinema‘s success
• Direct changes of priceaccording to demand
• Cheap for cineasts, whoplan watching films in advance
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Success throughlow prices
Advantages andRisks
Conditions forCharging low prices
easyCinema
Thank you foryour attention!