Differentiation in a service industry is likely to be achieved by three factors; the first one would be the uniqueness or improvements in the service itself that makes a difference from services offered by the competition, the second one can be regarded as a market based approach and it implies demonstrating better than the competition how the service meets customer needs, this is likely to be build by the power of brand or strong promotional campaigns (Johnson & Scholes 2002). The third one is the competence-based approach; a competence can be regarded as the activities within a company and the processes that link those activities both within the company and outside of it (Johnson & Scholes 2002), in this competence based approach for differentiation the organization builds the competitive advantage on the basis of its competences (Johnson & Scholes 2002). These competences are the building blocks of what Porter (1985) described as a company’s value chain and are where differentiation begins.
Even though it has been mentioned how differentiation is achieved, this is not likely to be a meaningful competitive advantage if it is not sustainable, there are three factors influencing the sustainability of differentiation, the first one being the difficulty of imitation based on core competences (Johnson & Scholes 2002). Core competences are regarded by Johnson and Scholes (2002) as those competences that critically underpin and organizations competitive advantage, in Porters (1985) value chain these core competences can be regarded as the primary activities of the chain, and the difficulty to imitate these have their causes in the robustness of the core competences, this robustness has four dimensions, rarity, complexity, causal ambiguity and culture (Johnson & Scholes 2002), in this case the sustainability of differentiation based on the core competences is closely related with complexity, where competences are to complex to comprehend (Johnson & Scholes 2002). The second factor, causal ambiguity implies the difficulty for competitors to understand the cause and effect of the competences (Johnson & Scholes 2002). The third factor influencing the sustainability of differentiation is called imperfect mobility, this relates to the capacity of a company to trade its capabilities and competences, if it is like for the competition to trade them then sustainable differentiation is not achievable (Johnson & Scholes 2002).
The sustainability factors mentioned above are influenced by the ability of a company to identify who their customers are, what they value and who the competitors are (Johnson & Scholes 2002). Sustainable differentiation competitive advantage will also depend on the company’s capacity to mobilize the necessary cultural and political support within the company for the use of value generating resources, the strategic assets of a firm are information technology, brand management, superior channel access and favorable cost structure, institutional capital would include incentives programs and training programs that facilitate resource adoption and learning (Oliver 1997). It is unusual to be just one specific advantage or difference that is important for achieving sustainable advantage but a mix of activities, relationships and competences throughout the different strategic activities of a firm, the company’s value chain that provide the basis of sustainability (Porter 1985).
The airline industry is very complex and unique, the key players are airport operators, airlines CEO’s and country governments, the international air market is not a homogeneous market, there are market niche for premium or “ brand “ airlines, what makes one airline different from another one is a matter of service quality but governments also play an important role by negotiating favorable agreements and gaining access to new markets for the airlines (Chan 2000).
According to Hamill (1993) in the global airline industry there are three distinctive strategies being followed by all major carriers, the first one is the expansion of the global route networks, which is reflected in the alliances recently formed like Star Alliance, Sky Team or the recently failed attempt of British Airways to form an alliance with American Airlines and KLM; that would give carriers access to new markets (Done 2002). The second strategy is the implementation of customer and marketing oriented strategies to increase brand loyalty and service quality, these include information technology systems like centralized reservation systems, this centralized reservation systems in the early beginnings, around the 70’ needed the cooperation between airlines for its development and implementation in order to share resources and risk, therefore no single airline could keep this systems to have a competitive advantage(Copeland & Mc Kenney 1988). Market segmentation, service orientation, brand management, staffing, training, frequent flyer programs, safety and security are also regarded as marketing oriented strategies. The third kind of strategy is cost control strategies like downsizing and renegotiating wages with industry unions; Virgin Blue and Qantas are an example of cost control strategy with their cheap prices and Virgin Blue ticket less system.
Hamill (1993) argues that to support these strategies airlines will have to improve in-flight services, like entertainment, food and beverage and flight attendant service, this also implies a good human resource management to hire and train highly qualified and motivated staff to deliver this kind of service. Another aspect would be the use of global branding; which is very important for competitor differentiation and assumes a huge advertising expenditure, but the most likely strategy to implement and sustain competitive advantages are the global mega carriers’ alliances even (Hamill 1993; Weil 2002).
In service based industries like the global airline industry, two main reasons why sustainable differentiation is unlikely to be is firstly that in this market customer needs are constantly changing and therefore the basis of differentiation also needs to change, therefore organizations have to move fast and become learning organizations, secondly even if a constant number of customers needs can be identified, as time passes, competitors may be able to imitate the bases of differentiation, which means that the possibility of building entry barriers or to assume a lock in position and become the industry standard is very limited, so that’s why if a company chooses this strategy it has to review the bases of differentiation very often because successful strategies tend to be copied when the competition faces uncertainty and causal ambiguity (Johnson & Scholes 2002).
Differentiation in the airline industry by significantly improving the service or to make it unique is very limited because even though Air Bus is planning to release a 550 seat plane, any other carrier with sufficient funds to get one will (Chan 2000), differentiation using a market approach is more likely to be because of the power of brands, a powerful brand name is not easy to build, it has to be build over the years through advertising and promotional campaigns and word of mouth that at the end will constitute the reputation of the firm.
Frequent flyer programs where aimed at the beginning to create brand loyalty among business travelers and to stop price wars within the industry, at the beginning it worked, but the numbers of passengers flying free became a threat to the airlines financial well being, the first airline to implement these was United Airlines by presenting half price discount coupons to all of its passengers, but soon after American Airlines and all other major carriers copied this strategy (Kearney 1989).
As we previously discuss to adopt a differentiation strategy in the airline industry is very difficult to sustain because any significant improvements, marketing practices or competence based differentiation elements a company is able to create are easily and quickly copied by competitors because the industry is very standardized, the suppliers are not many and the competences and core competences in through out the value chain are not very robust.
References.
Johnson, G. & Sholes, K. (2002). Exploring corporate strategy. Essex: Pearson Education.
Porter, M. (1985). Competitive advantage: Creating and sustaining superior performance. (1st ed.). New York: The Free Press.
Oliver, C. (1997). Sustainable competitive advantage: Combining institutional and resource based views. Strategic Management Journal, 18(9), 697-713.
Chan, D. (2000). Air wars in Asia: Competitive and collaborative strategies and tactics in action. Journal of management development. 19(6), 473.
Weil, H. (2002). BA must use a service-focused strategy to woo its customers. Financial Times. February 5, pg. 14.
Done, K. (2002). Thwarted at every turn: After failing to forge a joint venture with American, BA must find new ways to cut costs. Financial Times. January 28, pg. 19.
Copeland, D., & Mc Kenney, J. (1988). Airline reservations systems: Lessons from history. MIS Quarterly. 12(3), 353.
Kearney, T. (1989). Frequent flyer programs: A failure in competitive strategy. The Journal of services marketing. 3(4). 49.
