Report on easyJet and the no frills airline market.

(Cornerstones of relationship marketing, Hooley et al. 1993,98)

easyJet provides ‘sound reasons’ for a customer relationship: a cost effective and good quality service. As such, easyJet is able to obtain customer feedback about the service they provide, and go on improving it. The marketing communication techniques that easyJet uses, appear to operate in a very personable and candid manner. Much of this probably stems from the Stelios “tell it like it is” mentality. For example:

“When someone is on a bus, he doesn’t expect a free lunch. I couldn’t see why we cannot educate our customers to expect no frills on board.”

On the basis of the success of the company, one could assume that the service offering is a good one. Of those factors included within it, cost leadership is thought to be the most important. Cost leadership is often a very effective form of competitive strategy. It is certainly very effective in the European market, where the cost of flights, are still on average twice as much as in the US. (Competitive advantage M. E. Porter 1985). For example, easyJet is aware that customers would dearly like to be able to fly the Geneva to Barcelona route, with someone other than SwissAir, i.e. a cheaper alternative. However since Switzerland is not a full member of the EU, this route is technically an international route meaning that Switzerland has the right not to allow anyone but national carriers to operate (i.e. SwissAir and Iberia).

Section 3

Industry Analysis with Porters five forces model

Michael Porter’s seminal article, ‘How competitive forces shape strategy’ (1979) introduced the five forces model for analysing an industry. It is as follows:

(M. E. Porter, 1979)

Threat of new entrants

• High capital investment investment, negates threat to some extent
• Lack of take-off and landing slots makes it difficult for new carriers to find suitable airports
• Over crowed market and very strong competition deters potential new entrants
• Loss leader is required in order to join the low cost market – BA came a bit late with GO and it cost them £20m, and they have yet to make a profit.

Bargaining Power of Customers

• Although the customer does not effect ticket prices much, they are still fickle and vote with their feet in order to find value for money.
• In times of economic depression (slump) then customers have a tendency to opt for cheaper ticket flights – this can go some way to explaining the success of easyJet in the current economic climate.
• Customers have the Civil Aviation Authority (CAA) on their side. From the CAA:  

• provides protection against the consequence of travel organiser failure for people who buy package holidays, charter flights and discounted scheduled air tickets; and 

• licenses airlines and ensures compliance with requirements of European and UK legislation relating to financial resources, liability and insurance of airlines.

Bargaining Power of Suppliers

• The price of aviation fuel is directly related to the cost of oil, as an individual company easyJet does not have the power to alter this.
• “The impact of the supplier depends on the availability of alternative suppliers and product substitutes” (Dibb and Simpkin, 2001).
• The more easyJet expands the more power it will possess over its suppliers

The threat of Substitute Products or Services

• Other modes of transport – no tenable threats, distances too great except from London to Paris, which can be reached by Euro Star.

The industry jockeying for position among current competitors

As was suggested earlier easyJet operates cost leadership and differentiation strategies. The other strategy that it does not or is not able to implement is that of ‘Focus’ (Porter, 1980). It does not maintain close links to its market, after all 50% of its customers are business customers who are not even in easyJet’s target market.

easyJet sustains a cost leadership advantage over all other operators, as it doesn’t use travel agents. Airlines normally pay commission to travel agents for flights booked with them. easyJet bookings are taken directly either through the Internet site or through their call centre. As stated earlier easyJet takes 90.1% of its bookings online, it follows that it is also ticketless and therefore incurs none of the typical administration costs. Another cost advantage is that it only flies out of ‘uncontested, inexpensive airports’, which have by comparison much lower airport charges. At some airports such as Heathrow these charges can double the price of a ticket.

Section 4

Customer Analysis - Consumer buyer behaviour

When making a purchase, customers can be seen to follow particular patterns of behaviour. This has allowed marketers to break down the decision process that a customer undertakes, and to understand their behaviour more intimately at each of the stages. The main stages given are typically the following:

Marketers can then look at these stages in turn to see how the customer is motivated. It follows from these that there are also important implications for targeting and segmentation. The decision making process is impacted upon by a range of person specific, psychological and social differences. People also have different levels of involvement in a purchase. For example although the buyer actually purchases a flight, this may be due to the influence of their spouse.

Motivations to buy

Motivation can be either in a positive or a negative form. Negative motivation is where a person is trying to solve a problem that they face. Whereas positive motivation is concerned with making things better and adding value to something. People are motivated either by push or pull factors. Push factors such as basic instincts drive people toward their goals, i.e. you have to eat if you are hungry. Pull factors are concerned with the attraction of goods, persons, situations and behaviours. In the case of easyJet is seems likely that customers are pushed to meet there wants and needs. They are attracted to a country (situational factor) and in order to meet this want they are pushed in finding some means of travel, air travel. (Antonides and Raaij).

It seems reasonable to assume, that for the most part people are not attracted to the idea of air travel (in the sense of commercial air travel), it merely fulfils a need to get from A to B. Therefore, two of the major factors affecting the choice of a flight, are the destinations that carrier goes to and the price they charge for a particular flight. There are however other area of the ‘easy’ businesses that combined with easyJet can create customer pull factors. The combination of easyJet with easycar for example, makes easyJet more attractive vis-à-vis other airlines since customers are able to organise other transport for their trip in conjunction with their flights, over the Internet. The separation, the extent of which that lies between each of the ‘easy’ business is very important for the segmentation of the easyJet market. easyJet can feasibly segment its market in many different ways (e.g. by age, type of customer, how often they fly, which routes they take etc.), however their overall marketing strategy is one of mass marketing.

Section 5

PEST analysis

Economic Analysis

• Currently nearly all of the G7 economies are in or near to recession
• However since predictions vary over the expected economic climate even for the next few months it is always difficult to ascertain demand
• Of all the airlines the low-cost ones are the best positioned to withstand recession, but perhaps their stock market valuations are about to peak.
• On January 8th 2002 easyJet announced a plan to open new hubs in Gatwick, Frankfurt and Paris, with 75 new planes worth £2.7bn. These plans are for over the next five years.

Technological Analysis of The easyJet website

As we have noted the website is an integral and crucial part of the easyJet service offering, so we will devote some time to its effectiveness.

According to a report by PhoCus Wright Inc., airline websites accounted for 58% of all air travel bookings in 2000, compared with 53% in the previous year, and will account for 9% of all sales made on the Internet. As such airline websites are a crucial part of the whole industry and to an individual company an important way to add value to the customers experience.

Websites that account for this amount of transactions need to be able to cater for users of all abilities. NPD Online Research polled 13,000 visitors to airline sites and found that only 18% found the information they were looking for every time. The lessons to be learnt from this are crucial because of the ease with which a customer can navigate or often stumble across a competitor. If a customer should have a good experience with a competitor then they are more likely to show loyalty to them in the future.

A study of the websites of five airlines was conducted where different criterion were awarded a score of 1-5:

1        -        Criteria not in evidence on the website

2        -        Minimal/Poor performance

3        -        Reasonable performance

4        -        Good performance

5        -        Excellent performance

The criterion (Annex. 1) for assessment were operationalised from an extensive literature survey and recommendations made by a key sources in the field; IBM’s Ease-of-use guidelines. The criterion fell into three areas: navigation, product / service information and the offer.

Navigation

Overall for navigation easyJet came second from last out of the five. Although the customer is able to navigate with some ease to the product that they are looking for, there is still much room for improvement, such as in the area of navigation back from the cart to the product search. Amazon.com for example displays a list of ‘recently reviewed items’ on the left side of every page, i.e. items that you have just been looking at.

Product / Service Information

easyJet.com does not provide evidence of only one of the criteria for product information. Some of the criteria may however be considered spurious to the low-cost airlines, such as personalised content which BA mainly aims at business class travellers. Again however there are many areas such as allowing customers to compare flights i.e. departure times, prices, destinations etc.

The offer

Only the RyanAir website offers any form of guarantee. Many potential customers need reassurance when purchasing online that it is a safe and viable process. It is advisable that this is visibly displayed on all pages in the ‘shopping basket’ process. They also need to know exactly when they are making a purchase. A simple and understandable shopping basket is very important. Since the study was done easyJet has added privacy and credit card security sections to its site.

Brief Conclusion

In the next few years easyJet has set itself an optimistic expansion programme to increase its fleet by 70 new aeroplanes, to a total of 90 by 2007.  The success of this is contingent on a number of factors, such as: whether they can maintain low prices operating out of new airports such as London Gatwick and Frankfurt, where airport charges are higher – and still maintain their competitive advantage. Competitive advantage may also be threatened by the choice of aircraft that they buy. Currently they solely run Boeing 737s in which their maintenance teams specialise. There is pressure for them to buy planes from airbus (a European company), as this will support the jobs of thousands of British workers. Thankfully easyJet seem aware of what makes there business model a success, and so we may see share prices rise even further.

Bibliography

Cordle et al. The web-based Marketing Strategies of Five Airlines – Internet Marketing Assignment  email:  

Dibb and Simpkin (2001) The Marketing Casebook Second Edition

G. Antonides and Raaij. W (1998) Consumer Behaviour, A European Perspective Wiley

Hooley et al., (1998) Marketing Strategy & Competitive Positioning Prentice Hall

Kotler (1998) Marketing Management Ninth Edition Prentice Hall

The Guardian, Tuesday January 8th, 2002, Keith Harper easyJet plans £2.7bn expansion

The Guardian, Friday December 7th easyJet reports passenger surge

The Economist, May 26th The squeeze on Europe’s air fares

The Economist, November 16th Easy does it

The Economist, November 1st No frills, plenty of promise

The Economist, April 3rd 1997 Freedom in the air

The Economist, 4th January 2002 A new way to fly

The Economist, November 24th 2001 The Unpalatable truth

The Economist, June 30th 2001 Britain takes to the air

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Table 3.1 – Website assessment

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