Current Strategy
This industry relates to a focused differentiation strategy vital to differentiation aimed at securing a competitive advantage with a product or service offering carefully designed appeal to the unique preferences and needs of a narrow and well-defined group of buyers. However, Adrenaline Air Sports would be defined as a focused low cost provider because in this industry, where buyer’s compulsion and inclination are distinctively different, customers are extremely difficult to capture therefore Adrenaline Air Sports offers their customers reduced prices from their competitors. This is the strategy currently used by Billy Cockrell who is trying to get more customers with low cost differentiation where he charges only $16 a jump for veteran jumpers while his competitors charge $19 or
$20.The first jump cost $189 at Adrenaline Air Sports and somewhat more at other drop zones.
INTERNAL ANALYSIS
SWOT Analysis
Strengths:
- Competition is not very big for this particular area of recreation skydives. The closest drop zone is about three hours drive which is quite far.
- About an hour and half drive away is the college town of Blacksburg, which has a population of about 40,000 people plus an additional enrollment of 25,000 students. Students are the greatest percentage of first time customers The Greensboro area of North Carolina is 80 miles south. First time students and those that continue to get license are the biggest moneymakers for the company.
- Scenic, appealing jump site and business location. The scenery of his skydiving area is another plus. It is located about a half mile from the beautiful and large Smith Mountain Lake, which offers boating, sailing, water skiing, swimming, fishing , golfing, and parasailing. Up to 10,000 boats could be found on the lake on a busy weekend day.
- No payroll or benefit payments (employees work to pay jump fees).Good friends/support staff for business. Adrenaline Air Sports uses part-time employees exclusively. All employees are jack of all traits. Employees costs are thus deferred through the barter system of teach and jump. The people who worked with him are fellow skydivers who are as committed to the sport as Billy.
- Getting a pilot license helps Billy to save time and money. He doesn’t have to pay the pilots for their time and also makes sure by himself that his airplanes are safe for operation. He is able to fly the planes on time to the airport and get it maintained regularly which keeps in check the maintenance and safety.
- Billy is good at using technology for his advantages. He used EBay and other internet sources to get most of the equipment he needed to start up his operation. By searching on the web and using online retailers he saved some money. Also he has an efficient system where all the people who had reserved tandem-jump slots are listed on the computer.
- Adrenaline Air Sports costs for parachuting is on the whole a little lower then both its competitors. Billy charged only $16 a jump for veteran jumpers who owned their own gear while its competitors charged $19 or $20.The first jump cost $189 at Adrenaline Air sports and somewhat more at other drop zones.
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Focus on safety. Adrenaline Air Sports main slogan is “You safety is our First Priority”. Billy got his planes maintained on a regular basis. While maintaining the planes took time, Billy was committed at running a very safe skydiving operation, and this started with safe airplanes. The number one priority of his experienced instructors was safety. Customers needed to be at least 18 year old to make their first jump.
Weaknesses:
- Lacks business experience. Billy Cockrell never had any business experience before. He never took any business courses or went to college for a business degree. He lacks the marketing, financial or organizational skills needed to take his business to the next level.
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The price of the jumps discourages skydivers to jump again. Customers have to pay for $189 for first eight jumps, and then they get a free 9th jump which is ineffective considering that the customer would most probably pay for the 9th jump too.
- Marketing has been done without strategy and everything has been done unprofessionally. Professional marketing company should be hired to make pushing advertisements at Virginia Tech College and area around nice Smith Mountain Lake to target college students and those people who has come for active recreation to the lake area.
- Another issue is the equipment available to the company. Currently they have two Cessna 182 planes that can accommodate up to four parachuters each at one time. These planes take longer to reach higher altitudes so the company limits jumps to 10,000 feet maximum. Even at this lower altitude, the turn around times for these planes is longer then their competition. Another equipment logjam during the high season is the amount of parachutes. The company currently only has four tandem and two accelerated free-fall parachutes.
- Needs additional staff to film and produce videos, the internal environment has several issues. All employees are part timers including the owner. The owner, Billy Cockrell, works Monday to Friday and cannot begin work at Adrenaline until after 7 pm on Friday at the earliest. One issue is that he only has one video camera operator so can only film one new person per flight. In addition, people do not get their videos until late Sunday and since most new student reservations are made on Monday most people do not get to see that video until the following weekend. Billy Cockrell does have a lot of serious skydivers who would be willing to come to work for him if he asked.
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Seasonal, due to location. Location is not suitable to year round operations as locations in California or Florida where mild winters made this possible. Still, some of the mid-Atlantic drop zones like Skydive Virginia were full time businesses for the owners, even if they were open just on weekends during cold months.
Opportunities:
- Needs to get more involved locally – chamber of commerce and local Business associations. Become a member of the local Chamber of Commerce. This is a great opportunity to Network. Instigating a new marketing plan through the local chamber of commerce and sponsorship in the Smith Mountain Lake Mariner events will increase the customer base and naturally attract the targeted sports enthusiasts.
- Needs to enroll in local college to take finance and management classes which would help him understand to create better strategies to win customers as well as balance his finances. Billy, being sole proprietor, has the ability to set his own corporate culture. Business courses will help Billy to understand and adhere to more formalized business practices and organized structure in his bookkeeping practices. Billy will find that accurate record keeping and accounting practices will prove to be its own incentive to change and will reward this sole proprietor with a greater degree of satisfaction and enjoyment. Training in organization and management/business skills while time consuming will prove profitable
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Needs to streamline filming and video production. Add two personnel to video. This would allow one person to have the tapes available once the jumper’s land, while the other is filming in the plane. Advertise on sports and extreme sports TV channels. This would likely attract sports-minded viewers to try out the company's service. This would be more effective than advertising on the yellow pages. Hire Marketing Consultant to assist with new products, coupons, fliers, and promotions. This is needed to meet new competition.
b. Develop a marketing strategy to promote business to tourism by way of businesses, hotels, local chamber of commerce, and neighborhood paper.
c. Target the extreme sport individual as it relates to all forms of sports as well as the 1st time extreme sport aficionado
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The company should consider on investing on a bigger plane that could take more people on the air at higher altitudes in less time. Higher turnover means higher profits. To be competitive, leasing larger planes during peak months. This would allow more jumpers to be taken at a time, and an increase in revenue. Leasing a larger plane during peak times to carry more jumpers, will allow an opportunity for decision as to which plane would be best, when it is time to purchase
- Needs to expand days of operation Expand days of operations from three days during the season to seven. During colder months, open three days.
- Devote self to full time at Adrenaline, quit other job. The company’s growth rate in its first few years shows that the demand is there. This would require going out and finding more first time jumpers and initiating programs to get them to return again
- Incorporate Incentive programs such as:
1. $20 dollars off second jump, with purchase of video on 1st jump.
2. $30 dollars off second jump, if you bring a friend
3. Fifth jump free.
Offering incentives to first time jumpers to return for the 2nd and 3rd time and to receive the 5th jump free should bring back many customers
Threats:
- Larger, more established competitors. Adrenaline is a new drop zone as compared to its competitors who have been in the business for a longer time and are well established like Sky Dive Orange which has seven major drop zones in the state of Virginia. These drop zones have bigger planes to accommodate more customers and take them to higher altitudes than Adrenalines planes in lesser time. Sky Dive is open for a longer period of time for young committed skydivers and even rents buses for them to live during their stay. While Adrenaline is located in a beautiful location it is far away from major metropolitan areas such as Richmond, northern Virginia while some of its competitors are based on these areas and draw a huge population.
- Lack of return business (3% is industry standard) .The major issue facing Billy and all other parachute drop zones was getting first time jumpers to come back. Only 3% of all first-time jumpers ever took a second jump. While the first jumps were expensive, Billy made money from these people, who often never jumped again.
- Sky Diving is still an expensive sport for new sky divers. They have to pay $189 for the first 8 jumps till they get a free one and only after completing 20 or so jumps, the cost drops. The high cost at the beginning scares people away who would rather go for a sport which is less expensive.
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Niche market. Sky diving is not for all people. It doesn’t have a mainstream appeal. It has limited number of customer groups that can be targeted. Adrenaline is heavily dependent on loyal customers to maintain a profitable volume of sales. It doesn’t also help that in this niche market the competition is strong.
- Most people new to the sport still view it as an unsafe and dangerous sport. Most
non jumpers felt parachuting was extremely dangerous. This perception of theirs prevents them from trying the sport themselves.
Financial Analysis
Adrenaline Air Sports is a fairly new business and has attempted to grow from a new start-up company a few years ago. The company has many different internal and external environment issues that they need to overcome if they wish to continue to grow. Sky Diving is a sport that is growing by about 2% per year. . First time students and those that continue to get license are the biggest moneymakers for the company. Only 3 percent of first time skydivers return and those that do tend to stay in the sport, so it is key to get more to return since they have the highest profit margin. The problems and challenges are varied. Capitalizing on the strengths and improving the weaknesses will be most beneficial to Billy. The company’s growth rate in its first few years shows that the demand is there. In order for the profit to continue to increase next year and over the next 5 years, however, Adrenaline Air Sports needs to continue to seek ways to market this sport and to improve the number of jumpers that return time and time again. How long before the company breaks even? The company is already profitable according to the financial data furnished in the case. Implementing some of the recommendations which we mentioned below will increase Adrenaline’s profitability and improve the organizational skills and business know-how of its owner.
EXTERNAL ANALYSIS
Degree of Rivalry
The degree of rivalry is assessed as strong.
Exit Barriers
Exiting the industry can prove to be very difficult due to high initial investment capital and extensive capital requirements to maintain the business. Indeed, the equipment and buildings purchased by these firms can be sold to similar firms or independent retailers, but it can pose many problems for the seller and can be very difficult to find buyers due to the specificity of the product.
Industry Concentration
This industry is highly concentrated because there are only five firms competing within the industry in the State of Virginia. The industry is also assessed as fragmented because these firms are all independent of each other and neither of them operates through a larger chain corporation, thereby making the industry more attractive for prospective firms.
Product Differences
Adrenaline Air Sports has similar qualities to their rivalries; however the firm does not possess any qualities that give the firm a competitive advantage through product differentiation, which in turn does not make them a stand out company. Their rivalries offer better equipment options for their customers, such that some aircraft can hold up to twenty skydivers, and that can reach a higher altitude in a matter of minutes. In this industry, all rivalries have access to a drop zone; Billy’s Adrenaline Air Sports offers a drop zone in a popular scenic location which gives the company a competitive advantage.
Switching Costs
Insignificant switching costs for customers mean that they are free to transfer their preferences among a variety of different skydiving services. Within the industry, switching costs are low because the prices of the services offered by each competitor differ only marginally.
Substitutes
In this industry, substitutes are assessed as moderate.
A substitute product is referred to as a product or service in the industry that can be easily substituted by another product or service being offered by another industry. Typically, the threat of substitutes impacts an industry through price competition, where a close substitute can hinder the ability of the firms in that industry from raising their prices. The skydiving industry in Virginia is fairly inelastic due to the fact that there are not many substitutes in terms of the extreme sports or outdoor sports industries that customers may choose to explore should they decide to.
Buyer’s Inclination to Substitute
Buyers are typically inclined to purchase a substitute product or service if the substitute offers a price that is comparable or lower than that of the firms in the skydiving industry advertise. In this case, buyers are more likely to substitute for another service such as boating, sailing, water skiing, or parasailing, to name only a few. These services do not require the customer to pay a large fee, and therefore are more attractive to the customers who do not have as much expendable income.
Power of Suppliers
Overall, the power of the suppliers is assessed as very strong.
Generally, suppliers are powerful if they exert a credible forward integration in the industry, if they are highly concentrated and therefore have power over the price of their products, and if there are significant switching costs for the buying firms. The customers also play a large role in determining supplier power, especially in this industry, because certain brands are preferred due to the safety standards incurred with the product.
Supplier Concentration
It is known that the fewer number of suppliers there are for a given product, the more power they will have over the company or industry. In this industry, suppliers are concentrated because there are very few options for the buyers in terms of purchasing the necessary aircraft for running the business, the hangar to house the aircraft, and the equipment needed for the divers. The buyers’ only choices in terms of aircraft and buildings are to purchase new or used from specialized retailers. However, the buyers may resort to other retailers such as wholesalers or online auctions to purchase the chutes and other necessary equipment for divers, provided that all safety standards are met.
Threat of Forward Integration
If suppliers such as those who sell wholesale or through internet auction services come forward and enter into the distribution channel of the industry, the power of the suppliers is weakened. The threat of forward integration in this industry is higher than normal because of the easy access to internet resources.
Power of Buyers
The power of buyers in this industry is assessed as strong.
When assessing buyer power it is easy to see that although there is little price negotiations at the point sale, the buyer still has a lot of power because of the marginal switching costs incurred by the buyer if they were to choose a competitor in the industry, and the extremely low switching costs by choosing a substitute service instead.
Price Sensitivity
Since the target market for this industry is mainly comprised of college and university students, the prices must adhere to what this market is able to pay, as many college and university students do not have a lot of expendable income. In order to combat this, Adrenaline Air Sports offers repeat customer incentives.
Bargaining Leverage
Because many see this sport as one that is dangerous, and possibly fatal to the inexperienced divers, the firms in the industry must develop marketing techniques to attract customers to dive for the first time, and then keep those customers coming back. Currently, incentives such as discounts for repeat divers and highly experienced divers give customers a reason to come for another dive in the future.
Barriers to Entry
The barriers to new entrants in this industry are assessed as moderate.
There are many barriers to any new entrants into this industry, mainly due to high start-up costs and large capital requirements. However, because there are very few competitors in the industry, the likelihood of new entrants is high because they are able to capitalize on a growing industry.
Sunk Costs
Sunk costs are costs that cannot be recovered once they have been incurred. Sunk costs vary, and when entering the industry, one must consider factors such as land, buildings, and necessary equipment costs. In this industry, sunk costs are very high because of the high capital requirements of new competitors.
Capital Requirements
Due to the nature of this industry, capital requirements pose one of the biggest threats to the entrant of a new competitor into the market. Both initial start-up costs and monthly expenses after start-up are high and can prove to be too expensive for prospective entrants. In addition, other investments are required for maintenance and upkeep of the facilities and aircraft, as well as training programs for new divers.
Government Policies
Regulations require all skydiving firms to obtain rights to take off and land on an unlimited basis from the airport. If such rights are not obtained, the business simply cannot operate, causing one of the biggest barriers for a new entrant.
DRIVING FORCES
Economies of scale
Change in the economy has drastic effects on this industry because of the high cost incurred by buyers when purchasing services. Effects such as the rise in the price of fuel needed to operate the aircraft, maintenance fees also have a direct effect on the industry.
Changes in cost & efficiencies
Widening differences in the costs among key competitors tends to dramatically alter the state of competition. Some companies in this industry have incurred airplanes that are efficient for them to create profit. For Example, some rivalry planes hold more than twenty or more customers; therefore, profits are more likely to be achieved with efficient equipment.
Change in lifestyles, societal concerns and attitudes
Emerging social issues and changing attitudes and lifestyles can be powerful instigators of industry change. For example, Billy Cockrell, owner of Adrenaline Air Sports, never thought that he would ever jump out of an airplane. It was after his first experienced that he became captivated with the sport, and he continued skydiving to the point where it became his life when he opened Adrenaline Air Sports in November 1999.
KEY SUCCESS FACTORS
Manufacturing
High utilization of fixed assets is important in a capital intensive industry, such as the skydiving industry. Many requirements are needed in order to begin starting up a business in this industry that relates to high fixed costs and a large amount of capital in order to be able to survive in the skydiving industry. Access to attractive supplies is an essential necessity to compete in this industry. To incur airplanes that have the ability to obtain high altitudes in and matter of minutes makes loyal customers fascinated about the service in this industry. The ability to secure storage and space for these supplies are essential, such as a hanger in order to store skydiving equipment and planes.
Marketing
This industry is very concentrated, and customers are difficult to find due to the fact that the sport is very extreme. However, many loyal customers that were first-time jumpers always had a positive comment to others that haven’t experienced this sport. Strong word of mouth is by far the best advertising for any company because it requires no advertising costs and gets the company free exposure.
Another great form of marketing is to create posters and distribute them where likely first-time parachuters are accessible to view. For example, colleges are a great place to distribute advertisements because students are interested in new and exciting experiences that will thrill them. Another places where posters were put up were around local grocery stores, bulletin boards, strip shopping centers.
Skills and Capabilities
Talented Workforce is required for this industry because it is very difficult to find out going employees that are willing to skydive as a part time or full time job. Most employees need to be experienced in this industry and have a well educated knowledge on safety and techniques that involve extreme sporting. Product Innovation Capabilities are important in this industry because rivals compete to be the first in the market to have new product attributes and performance features.
Attractiveness of the Industry
Based on the information provided within the case, the skydiving industry seems to have an attractive view. Factors that prove this industry to be true is because this industry has growth potential, meaning that depends on customers lifestyles, attitudes, and social concerns on the sport it can be either beneficial towards the industry. Company’s potential to capitalize on weaker rivals is important to this industry because the transformation of a weak and unattractive company can turn into a potentially rewarding opportunity.
P.E.S.T. Analysis
Political Factors
Politics play an important role in the skydiving industry such as a company must have the right in order to have a airplane take off and land on an unlimited space in within the airport that the company has a contract. Adrenaline Air Sports signed a five year lease with Smith Mountain Lake airport, which was the company’s drop zone for parachuters. Billy, the owner of Adrenaline Air Sports, had to have confirmation and acceptance to the right to take off and land on airport ground as do all other rivalries in this industry.
Economical Factors
Approximately three hundred thousand people in the United States alone have skydived in their life at least once during the year 2000. Some parachutists have made multiply jumps in just a single weekend. Though the population of male skydivers is high, there are some females that are interested with the sport and are member of the U.S. Parachute Association.
Social Factor
A social factor of skydiving is society’s perception of the extremity and safety of the sport. The sport is out of necessity, very safe conscious, but with exceeding speeds and no safety device, people’s perspective were that if an accident were to arise, it would be fatal. Unfortunately, expert’s opinions say that skydiving is safe because the trainers are experienced and know what to do in situations in the air.
Technological Factors
To stay profitable, it is important that the skydiving industry keeps up with any technological changes with regards to the aircraft and safety of the passengers. In addition, the companies must be able to keep up with consumer demands, by expanding their fleet which including purchasing a larger aircraft if the demand is there.
3 PROBLEMS
Marketing
Billy Cockrell first started off advertising on 81/2 by 11 posters, which had tear offs at the bottom of the page. This is not a good way of advertising because sometimes people might pull them off or for the people who are interested in it might lose the paper because it is too small and can be easily misplaced. Posters like these can be easily ripped off; in the article the posters were placed on “bulletin boards, walls and doors off college, grocery stores, and strip shopping centers.” Then ads were put in the telephone directories, another place where not a lot of people would look; Billy would spend $18,000 per year for the ads. At the same time Billy had bigger competitors advertising in the telephone book too, the competitors that were there were Skydive Orange and Skydive Virginia. He even tried radio, which failed too.
Maintenance
By this time Billy Cockrell had bought his second plane, both planes consume about $400 in aviation fuel on a busy weekend. The maintenance for these planes is very important and Cockrell could only do the simple repairs like oil change, which need to be done every 25 hours. These planes needed to be taken to airports where they can both be maintained, Billy lacks the skills to maintain the planes.
Competitors
The Adrenaline Air Sports have many competitors for example, Skydive Orange, Skydive Virginia, Skydive the Point and Skydive Suffolk. Most of its competitors are larger than Adrenaline Air Sports. For example, Skydive Orange has seven major drop zones and is opened longer from April to mid fall and even their planes can hold more skydivers than Adrenaline Air Sports. As for Skydive the Point is opened through Saturday and Sunday and 12 months a year, also they can take on more skydivers on the planes and go even higher. Also, Skydive the Point even has a club membership. All of Adrenaline Air Sports’ competitors are within driving distant.
The major issue for Adrenaline Air Sports and this industry is having customers come back. There are only a small number of people who do come back for the second jump. The price for the second jump would be the same as for the first jump which is $189. There are additional costs for ground school before the third jump and then the cost goes down to $179. Otherwise, skydivers would be paying $189 per jump.
STRATEGIC ALTERNATIVES
Billy can use color posters of larger length with better features to attract customers. He can use the services of professional designers to create the posters so that they are more attractive and professionally done. He can use flyers to hand out to the customers. Billy can try advertising through local newspapers where he can attract a local customer base who would be more likely more loyal than others. He can hire a professional marketing company which provides superior advertising services and conducts a better marketing strategy to target college students and those people who come for active recreation to the lake area. He can hire professional website designers who would make a better website for him. Updating his website with the ability to view available time slots and make reservations online which will help increase customer traffic. Billy can use TV commercial and have it run during prime time, when most people will be watching and be able to view his ad.
Pros:
- More customers would be inclined to look and respond to posters which have a better appeal and are well written, colored and easier to look at.
- A good website would be a great marketing tool for Billy; customers could easily register for jumps through the website and pay for adrenaline Air sports services through different forms of payment services.
- Billy can advertise on extreme sports channels, where people are already interested in those kinds of activities.
Cons:
- The cost of TV commercial is high, even if it’s running for a short time.
- He needs to continuously update the website and spend good amount of time and money to have the website working to its full potential.
- The local newspaper only covers a small geographic area and could be costly.
Another alternative, Adrenaline needs to purchase larger planes which can carry customers to higher altitudes in order to compete with competitors like Sky Dive Orange which has seven major drop zones in the state of Virginia. Adrenaline Air sports can be open for a longer period of time for young committed skydivers. He can rent school buses for them to live during their stay. He needs more equipment, parachutes for first time customers who don’t have their own equipment. Billy can give some discounts to students as well as people in large groups. He can acquire contracts with companies or corporations who would like its employees to try these kind of sports to enhance team spirit and group work and give them a chance to refresh their minds and body.He can include BASE jumps in his drop zone which will give him a competitive edge over others.
Pros:
- To buyers preference they always like some discounts on their services, and they also like quality services when they pay for the products.
- Better equipments and services will bring in more customers.
- Including BASE jump in its services will attract more customers who don’t have those services in their drop zone
Cons:
- The company’s expenses will increase when Billy employs more employees and purchases better equipments.
- Although the discount price will be low, customers may not be interested in the skydiving, because of the price is high for a first timer
- Adrenalines location is not suitable to year round operations as locations in California or Florida where mild winters made this possible.
RECOMMENDATION
We have agreed on the following recommendation. In order for Billy to compete with his competitors, Billy can give some discounts to the jumpers and add some activities that may attract more customers for example including BASE jumps in his drop zone. He can attract different segments of customers with different strategies. For example, for students and people in large groups he can give them some discounts while for companies and corporations the price could be higher, since some of them would like to use sky diving as a strategy to improve teamwork. He can work with some agents, and they can provide school buses for rent to Billy’s drop zone which would be cheaper and also help him meet to the needs of young college students who want to stay for the weekend or a longer period of time. He needs to expand his location in order to meet the needs to a larger customer base. Although his location is not as suitable to year-round, he can rent this place to other people if somebody wants. He can purchase larger planes which will carry more customers to higher altitudes. He can get more equipment for customers who don’t have their own equipments. By marketing and providing better service he will increase the number of customers and also market his business. The company’s growth rate in its first few years shows that the demand is there. This would require going out and finding more first time jumpers and initiating programs to get them to return again Implementing some of the recommendations which we mentioned will increase Adrenalines profitability and company’s growth.
