Comparing Bowman's clock to Porter's model, it is possible to notice that positions 1 and 2 are price-based strategies corresponding to Porter's cost leadership. Position 3 is an intermediary position between cost and differentiation; position 4 is a differentiation strategy that corresponds to Porter's differentiation; position 5 is a focus differentiation strategy more or less similar to market differentiation Porter's strategy. The last positions 6, 7 and 8 are failure strategies.
The low cost leadership is the strategy that Ryanair brought from the American company
Southwest Airlines to Europe. Using the low cost leadership a firm tries to achieve the low cost producer in the industry. The requirements for this strategy are basically cost reductions in all the area of the firm and in its value chain, efficient scale facility and moreover tight control over cost. As result, a firm that choose this strategy sells a no-frills product/service; thus, the “no frills” strategy is characterized basically by a low perceived product/service benefits and by a price-sensitive market segment.
Ryanair's cost reduction strategy focuses on fleet commonality (Ryanair fleet consists of the most commercial aircraft in the world and this limits costs of staff training), contracting out of services (Ryanair, contracting out ticketing, baggage handling and different other functions to third parties, obtained multi-years contracts at fixed prices limiting exposure to cost increases), Airport charges (the company avoided all the fees of the main expensive airports and the major airline competitors choosing secondary and regional destination), marketing costs (Ryanair cut its rate of commission to travel agents and focused more on its website saving money on staff costs). All these cost reductions allow Ryanair to have low fares and so, target customers that are price-sensitive. In the article “Ryanair” by Eleanor R.E. O'Higgins we can read that the term “Ryanair generation” was coined to describe the younger educated Irish emigrant population in the UK. Furthermore, in the article it is possible to notice, in the Exhibit 4a, that Ryanair's customers care more about the product price than the value of the services that the company has.
- Is Ryanair's strategy sustainable?
In order to have a sustainable competitive advantage, a company should develop a sustainable position in the long run, so it is possible achieve a performance above average in the industry. The framework I am going to use is the Barney and Hesterley’s VRIO framework: in order to lead to a sustainable competitive advantage a resource or capability should be Valuable, Rare, Inimitable and Organized.
Valuable: "Is the firm able to exploit an opportunity or neutralize an external threat with the resource/capability?"
The fact that Ryanair is a low cost fares airlines constitutes the introduction of a new business model (cost leadership) in a different context (airplane transport industry).
In the case study we can read that after Go, a Irish airline company, had lunched flights between Dublin and Glasgow and Edinburgh, Ryanair lunched a war in response to this incursion into its own home base. Ryanair increased flights frequency to Glasgow and instituted a new haul to Edinburgh at price that Go could not match. “You can't take on someone with lower costs because they dig deeper that you to lower their prices and still make money while you're bleeding” (Emmet Oliver, “Former Go boss offers lessons in high flying”, Irish Times, 28 November 2003).
Rare: "Is control of the resource/capability in the hands of a relative few?"
A resource is rare simply if it is not widely possessed by other competitors. One unique resource, that Ryanair has, is its management team head up by Michael O'Leary. In the 2004 he was named by the Financial Times as one of the 25 European business star, who are expected to make a difference. He has, inside the company, a great influence both with the Ryan family.
Inimitable:"Is it difficult to imitate, and will there be significant cost disadvantage to a firm trying to obtain, develop, or duplicate the resource/capability?"
In my opinion this criteria is probably the toughest to maintain because given enough time and money almost any resource can be imitated.
Ryanair has been able to produce high volume for airports and this fact has negotiated favorable access fees. The company reduced fees by avoiding congested main airports and choosing secondary airports that are anxious to increase passenger throughput.
Furthermore Ryanair contracting out ticketing, baggage handling and different other functions to third parties, obtained multi-years contracts at fixed prices limiting exposure to cost increases.
Organized: "Is the firm organized, ready, and able to exploit the resource/capability"?
In spite of the war in Iraq, the Severe Acute Respiratory Syndrome (SARS), The tragedy of 11 September 2001, Ryanair's market capitalisation had grown from euro 392m in the 1997 to euro 4.73bn by 2003. This profitability was seen to be unique among airlines worldwide because many other airline companies struggled with financial losses.
- Would you recommend any changes to Ryanair's approach?
In the case study it is possible read that Ryanair would introduce a number of cut-costing new features on its flights; for example the Ryanair fleet would be devoid of reclining seats, windows blinds, headrests, seat pockets and other non-essential. This kind of no-frills strategy might be supported by creating a favorable perception about the safety of their airplanes and the value of the Ryanair's brand. This could be developed starting with the improvement of the cleanliness of the toilets and the interior of the airplanes. Another changes might be to increment the catering and to introduce ancillary services such as television and internet services on flights implementing strategic alliance.
Ryanair should establish new hauls in the est-European countries because of the entrance in the EU of new nations and focus more in main airports.
Ryanair should allow other company to advertise its airplane cabins. This should offer to the other external company to advertise customers during all the flights long for a fee. The advertisement might be a sticker stick on the folding board in front of the passenger.
References
Emmet Oliver, “Former Go boss offers lessons in high flying”, Irish Times, 28 November 2003
Faulker, D., & Bowman, C. (1995) The Essence of Competitive Strategy, Prentice Hall, cited on Johnson, G., Scholes, K., Whittington, R. (2006) Exploring Corporate Strategy, 7th edition, Prentice Hall, p. 242
Johnson, G., Scholes, K., Whittington, R. (2005) Exploring Corporate Strategy, Prentice Hall
Porter, M. (1985) Competitive Advantage – Creating and Sustaining Superior Performance, ed. 1998, The Free
Press
E-reference
http://falcon.jmu.edu/~gallagsr/WDFPD-Internal.pdf
