The Competition
The competition in short haul aviation market is more intense than ever due to a fierce price-war. There are now more than 50 carries operating in the market (BBC 2004c). However, easyJet biggest competitors are RyanAir and traditional carriers such as British Airways (BA) or Luthansa offering low-fare in short-haul flights. The smaller carriers are likely to die out because they will not be able to fight in this price-war due to rising fuel prices. Even for leading carrier such as BA has to increase fuel surcharge from £2.50 to £4 per sector on short-haul flights (British Airways 2004). The smaller carriers are too small to handle the cost in such a competitive environment. To illustrate this, according to Wilson (2004), more than 20 budget airlines in Europe have already gone out of business. Examples are Skynet which has suspended flights and Planet Air which has gone into liquidation this year (BBC 2004a). As a result, only big carriers will be left in this price-war. This paper therefore will regards RyanAir and British Airways as easyJet main competitors and both airlines will be referred to throughout the paper.
Online Distribution Channel
easyJet is renowned for its aggressive promotion of Internet booking. Internet is the most cost-effective distribution channel which cost less than 75p to handle a consumer compare with £30 handling cost of telephone booking (Rigby 2004). One of easyJet achievement is to successfully implemented and promoted Internet booking to the 95% which is the highest percentage among its competitors. It is therefore an opportunity given to easyJet to exploit the Internet to increase sales and profits. The Internet is highly penetrated through the UK households with 36% increase between 1998-2003 (Mintel 2004). It also aids the airline by making e-ticketing possible. The opportunity is further manifested with the growing number of broadband users in the UK. Currently, there are 5.3 millions broadband users in the UK which is 7.5 connections per 100 people (BBC 2004b). Broadband Internet will enrich online purchasing experience by reducing search time and processing time which are favourable to pure-play such as easyJet.
Competitive Dis/Advantage
easyJet VS RyanAir
As opposed to RyanAir ‘no-service’ and cheapest airport taxes, easyJet has considerable advantages over RyanAir. easyJet, though a budget airline, uses both smaller and major airports. The smaller and quieter airports cost less than major airports and allow for faster turn around time. Moreoever, by using smaller airports the budget airlines, such as easyJet and RyanAir, open a new market which is neglected by traditional carriers. Place such as Bournemouth was not an attraction to British Airways but RyanAir has seized the opportunity to diverse from intense competition in busy airports. However, in contrast with RyanAir, easyJet uses some major airports such as Paris Charles de Gaulle, which is the major international airport in Paris, whilst RyanAir uses Beauvais Airport which takes approximately 1 hour to get to the centre of Paris thus adding more cost to the passengers. Besides, RyanAir on-board food is known to be expensive and luggage are not encouraged. On the other hand, easyJet allows as much luggage as long as the passenger can fit it to the overhead bins. Despite RyanAir offering more competitive price than easyJet, number of passengers of easyJet quickly surpasses RyanAir passengers in 2003 with more than 20 millions passengers (see graph). Therefore it can be concluded that easyJet’s simple no-frills policy has competitive advantage over RyanAir. However, RyanAir is now trying to digress from its price-led strategy by introducing in-flight films for all passengers (Flanagan 2004).
easyJet VS British Airways
British Airways (BA) is on a different spectrum from easyJet. BA provides seat reservation, free meal on board, and standard luggage allowance. In addition, the airline mainly uses major airports. The airline enters low-fare market and becomes easyJet main competitor to take account of competition from low-cost/no-frills airlines (Mintel 2003a). Traditional airlines, such as BA, have advantage such as strong brand, large base consumers, loyalty programme, and strategic alliances (BA is a member OneWorld alliance of airline). However, budget airlines such as easyJet or RyanAir benefit from their simple operations. A passenger can book in advance via the Internet or telephone, then get a reference number and after that he or she just needs to check-in and fly without any restrictions such as ‘Saturday night stopovers.’
In the next section, the consumer individual decision-making model will be discussed while any relevancies to easyJet will be pointed out.
Theoretical Background
Based on the Engel, Blackwell, and Miniard or EBM (1990) consumer individual decision-making model, there are five stages that consumers go through when making decision: problem recognition, information search, evaluation of alternatives, product choice, and purchase outcomes or post-purchase support (see Figure 1). By understanding how an individual consumer makes purchase decision easyJet could understand why or why not he/she adopt online buying and if he/she decides to adopt the online buying how would easyJet attract him/her to the site and thus making sales. The reason why the airline needs to understand consumers’ intention to adopt online purchasing because the airline uses the Internet as the main distribution channel and in order to make improvements easyJet needs to gain insight of consumers of what prevent or bring them to shop online. Hence the insight gained shall be used to attract consumers, makes sales, and increase profits.
Problem recognition is the first stage in the process since without recognizing a problem there is no need to make decision. According to Solomon et al, “problem recognition occurs whenever the consumer sees a significant difference between his or her current state of affairs and some desired or ideal state” (2002: 238). As stated by Gupta, Su, and Walter (2004) this factor should play a very minor role in driving consumer to purchase online since the consumption of products or services obtained from either online or offline store will give the same utility.
The next stage is information search. According to the model, consumers tend to find information about the product or service as much as possible as long as the process is not too onerous or time-consuming in order to make an informed decision (Solomon et al. 2002). Today with help of the Internet, the way consumers search for information has changed radically. A consumer who wants to purchase a product from offline store has to spend time going from one store to another while in online environment he or she can go into a website such as www.kelkoo.co.uk, www.froogle.co.uk, etc. These websites can practically search and identify lowest price for a particular product without consumers having to browse physical aisles. Consequently, consumers with strong price-search intentions may find online shopping more attractive (Gupta et al. 2004). Furthermore, according to Teo and Yeong (2003) there is a strong positive relationship between benefits and the amount of external search. In other words, the amount of search depends on consumers perceive benefits from performing a search, the benefits might be monetary or non monetary. Monetary benefits include cheaper price when non-monetary benefits include less time consuming.
It is here that one can argue that the Internet pose a considerable amount of threat to online stores because it makes comparative shopping easier therefore creating more competition. The author would agrees with the statement but would maintains that the Internet does not pose significant threat to company, such as easyJet, as much as opportunities the Internet allowed. The Internet allows easyJet to be easily accessible and available everywhere everyday at anytime across Europe (since the airline is currently operating only within Europe). Accessibility and distribution is certainly an important factor in doing a business. Despite the ease for comparative shopping, online shoppers reveal to be less price sensitive when provided with non-price information (Teo and Yeong 2003; Shankar, Smith, and Rangaswamy 2003). Also, as mentioned, airline tickets are not under low-involvement purchases therefore price is not the main driver to purchase decision.
Next consumers move on to the stage of alternatives evaluation. Consumers consider alternatives in their evoked set after they have performed enough information searches (Solomon et al. 2002). The set is defined as the set of preferred alternatives (Card, Chen, and Cole 2003). The decision is then made based on evaluation of these alternatives. For instance, a consumer might only consider flying with BA or easyJet but will never consider flying with RyanAir because he dislikes its ‘no-service’ policy. Hence, easyJet and BA are in his evoked set but not RyanAir. Another difference between easyJet and BA is number of distribution channels. When a consumer wants to book a flight from BA he could go to physical travel agent or go to the Internet. On the other hand, easyJet flights are book direct therefore he must purchase the ticket through the Internet only. If he/she is not an Internet shopper, easyJet might not be in his/her evoked set. It is during this stage that consumers will decide to accept or reject the Internet as a new shopping medium (Card et al. 2003) and subsequently accepting easyJet website as a reliable distributor.
According to Solomon et al. (2002), consumers’ perceived risks are associated with information search stage. It is said that the level of consumer’s perceived risks will determine the amount of search occur (Solomon et al. 2002). However, this paper shall associate perceived risks with alternative evaluation stage as Gupta et al. (2004) suggest. This association is based on researches which claim that amount of perceived risk affects consumers patronage of Internet purchase (Jasper and Lan 1992; Spence, Engel, and Blackwell 1970).
Perceived risk is ‘the belief that the product has potentially negative consequences’ (Solomon et al. 2002: 246). However, under the context of this paper perceived risks are channel risk perceptions which are negative outcomes or losses associated with the Internet (Liu and Wei 2003). There are five types of perceived risk identified in consumer behaviour and marketing literature: financial, product performance/functional, social, psychological, and physical (Solomon et al. 2004; Fill 1999). However, according to an empirical research by Forshyth and Shi (2003) there are five types of perceived risk suggested, with time/convenience loss instead of social risk, but only four types of risk are associated with online shopping which are financial, product performance, psychological, and time/convenience loss. However, shopping activities usually do not involve physical risk therefore physical risk is excluded from the discussion. Therefore the four types of perceived risk discuss here will be financial, product performance, psychological and time/convenience loss.
Financial risk and psychological are security risk. Forsythe and Shi (2003) suggest that consumers’ sense of insecurity due to credit card theft should be regarded as a financial risk. Moreover, the Internet users experience psychological due to the fact they have no control over their own personal information (Forsythe and Shi 2003). Security is often cited as highest perceived risk by Internet non-shoppers (see Appendix 1). However, the author believes that the amount of perceived risk of both online non/shoppers is decreasing. A survey shows that 72% of Internet users shop or bank online and 1 in ten of all UK credit card transactions is now carried online (BBC 2004c). Another risk perceived by Internet shoppers or non-shoppers is product performance risk. It is defined as the loss incurred when a brand or product does not perform as expected (Horton 1976 cited in Forsyth and Shi 2003). However, since airline tickets considered to be search goods or goods that the quality can be assessed prior to purchase (Gupta et al. 2004) therefore this risk is less likely to be perceived by consumers of this product category. The final risk is time/convenience risk. The findings of Forshyth and Shi (2003) suggest that some Internet shoppers may hesitate to shop online due to concerns about inconvenience or delays in receiving merchandise. It is therefore very difficult for consumers to perceive goods to be consistent in quality since goods ordered online may be damaged during delivery. However, easyJet is least likely to be effect by this this risk since with e-ticketing allows for convenience and immediate possession of the tickets.
Furthermore, according to Engel et al. (1990), there are two evaluative criteria used during this stage: environmental influences and individual differences. However, since this paper concerns only with individual decision making process environmental influences are beyond the scope of this paper. It is important to acknowledge the differences in consumer characteristics; because to purchase an airline ticket or any products or services through online stores consumers are not only adopting the online technology, but also the new shopping concept: making purchases over the Internet (Liu and Wei 2003). In this section, antecedents of consumers’ E-commerce adoption intention will be mentioned, then follow by discussion on individual characteristics of online shoppers.
Liu and Wei (2003) findings, which are based on Technology Acceptance Model (TAM), suggest that there are three antecedents to consumers’ E-commerce adoption behaviour: perceived usefulness, perceived ease of use, and perceived risk (discussed earlier). Perceived usefulness is defined as ‘the extent to which a person believes that making a purchase over the Internet (E-commerce) will create value for him or her’ (Liu and Wei 2003: 231). For example, as with any self-service purchase, time-saving is seen as a biggest advantage. According to Howard and Worboys (2003), out of 1,008 respondents, 50% of the population see time-saving as a biggest advantage of self-service. Another example is how easy a consumer can do comparative shopping discussed earlier. The next antecedent is perceived ease of use. It is defined as ‘the extent to which a person believes that making purchases over the Internet (E-commerce) will be free from effort’ (Liu and Wei 2003: 231). In other words, it is consumer beliefs of how easy it is to make purchase over the Internet. Such beliefs include easy site navigation and ease of placing an order. A research has shown that 39 percent of online shoppers failed to make a purchase because the sites were too difficult to navigate (Gupta et al. 2004).
According to Card et al. (2003) Internet shoppers are risk takers and are more willing to try new things. They usually are opinion leaders, shopping innovators, and early adopters (Card et al. 2003). According to Rogers (1995), innovators and early adoptors have higher income and are highly educated. Therefore they are less price sensitive when they are provided with non-price information (Teo and Yeong 2003; Shankar, Smith, and Rangaswamy 2003).
The next stage is the actual decision making process. There are two decision rules cited in the literature: non-compensatory and compensatory (Solomon et al. 2002). Non-compensatory rules are simple decision rules. Consumers will have their basic requirements and if any alternatives do not meet these requirements they will be simply eliminated. On the other hand, compensatory rules allow information about attributes of competing products to be averaged. For example, if a consumer uses non-compensatory rules he will purchase from RyanAir despite the fact that he might have to land in a small town because, usually, RyanAir prices are more competitive. In this case, a consumer intention is to get from one country to another. However, if a he uses compensatory rules he will purchase from easyJet because even though the price might be more expensive but better location of airport will be more influential to him.
After a decision has been made online, the product must be delivered. Customers often experience low satisfaction due to poor order fulfillment policy of the online stores. Time/convenience risk, discussed earlier, is usually presented in this stage.
Critique
The EBM consumer decision-making process model has been updated since it was first introduced in 1968 to comprehend with various research objectives. This is due to the fact that the flow of the model is quite flexible and it provides many variable influencing consumers (Loudon and Bitta 1993). However, the model has some limitations and has been under critiques.
Due to flexibility the model provides, the role of some variables, such as environmental variables, are not clearly defined, though mentioned, in the model. Hawkins et al. (2001) state that the model is too linear and structured. They argue that consumer behaviour is not a simple process. It is usually complex and disorganized. East (1990) also says that the model is too logical and stages are clear cut while actually information gathering and evaluation can continue throughout the process. In addition, Dubois (2000) argues that in simple situation, consumers’ decision making might and need not to follow the logical sequence. The author would agree with the fact that information gathering and evaluation may continue throughout the process but would disagree with the argument that the model is too logical. As supported by Bales and Strodtbeck (1951 cited in East 1990), there are some evidences to support this sequence. Also, as Engel et al. (1990) suggest that even though in simple situation, to some extent, this process occurs in sequence. The question is to what extent each stage is examined.
Some critics point out that many purchase decisions are habitual (Dubois 2000). Once again, as Engel et al. (1990) realize that many purchases are habitual and are made on impulse, but however these purchases are often under low-involvement purchase. Under the context of this paper, the critique is not valid since, as discussed earlier, airline ticket purchase is under mid-range problem solving continuum. As Engel et al. (1990) points out that products under EPS or mid-range problem solving continuum, to some extent, consumers are likely to go through the process. In other words, since airline ticket purchase is not low involvement this critique cannot be applied to this product category.
The last critique raises in this essay is the critique of Hawkins and his colleagues (2001) that the process or the model is too conceptual therefore it does not contain sufficient detail to predict particular behaviours. Likewise, Ehrenberg (1988) criticizes that the EBM model is descriptive and is indicative of activity occur in consumers decision making. I would agree with both arguments that the model is mainly describing consumers’ decision making process; however I would argue that prediction is not always the key. Many times it is the understanding of consumers behaviour that matters. Along with Solomon and his colleagues (2002), the model helps us to understand how information is obtained, how beliefs are formed, and how consumers evaluate the products of choice. In addition, as Fill states “an understanding of the contextual elements that impact upon individual purchase decision-making and the overall process through which individuals behave and ultimately make decisions is an important first stage in the development of any marketing communications plan” (1999:96). In other words, it is necessary to have clear understanding of this decision making process model in order to make any predictions on consumers behaviour.
Recommendations
From the discussion and analysis, the following recommendations can be made:
- Reduce level of consumer perceived risk to increase sales
There are more potential customers for easyJet since more people are starting to purchase flight online (Mintel 2004). The company can also benefit from higher Internet penetration in the UK. Since easyJet uses the Internet as its main distribution channel, the author would suggest the company to attract these potential customers by reducing the level of perceived risk. Despite rising number of online shopper in the UK, security is sill often cited by Internet non/shoppers, thus the company should emphasize on confidentiality and security of customers’ credits cards and personal information. The company could also educate potential customers or current customers of their web security by providing a dedicate page about their web security technology.
- Improve consumer usage knowledge to increase sales
In addition, easyJet should focus on consumers’ usage knowledge since the online purchase and e-ticketing is still relatively new. Consumers will not buy if they do not know how to buy. Therefore, easyJet should educate consumers on how e-tickets are issued and what will happen if something goes wrong. For instance, what will happen if during the payment process the computer crashes or the Internet got cut-off. By providing non-price information easyJet could also reduce risks perceived by consumers.
- Use affiliation programme to increase sales
Because easyJet does not operate a frequent flyer programme as traditional airlines, the airline could initiate an affiliation programme to attract consumers. For example, if a customer recommends two other customers then the he or she gets 10% discount. Such as friend-recommend-friends affiliation programme is to generate word-of-mouth. The author believes that this programme would be beneficial for easyJet despite the cost that might incur. Online shoppers are usually innovators and early adopters and it is in their character to be opinion leaders. Therefore, if the company initiates such programme, it will act as an incentive for innovators or early adopters to generate word-of-mouth.
- Be less aggressive in price war and highlight the simple, no frills process to increase profits
The problem with price-led strategy is that it can be copied quite easily. Besides, consumers who are price sensitive are least loyal because they tend to go wherever that is cheapest. More to that, traditional airlines have lowered their fares to compete with low-cost airlines such as easyJet and their prices are sometimes cheaper. These traditional airlines are educating customers that low-cost airlines might not always be lowest price. Therefore, easyJet should not underline their low price but rather to emphasize on their simple but effective, no frills policy in order to increase sale. However increase of sales volume does not mean increase in profits. The ongoing price-war in the market encourages consumers to fly more often but due to the rising fuel prices the profit is not increasing. Therefore the author would recommend easyJet to improve the on-board service, instead of lowering fares, to move the airline closer to traditional airlines and keeping the reasonable prices. Improving service does not mean free meal on-board, but a cup of coffee would make a different.
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