WAL-MART and easyjet approach to CRM in the B2C value chain
PgDip/MSc OPERATIONS AND SERVICES MANAGEMENT
MANAGING CUSTOMER REALTIONS
COURSEWORK 1 - WAL-MART AND EASYJET
APPROACH TO CRM IN THE B2C VALUE CHAIN
Prepared by: George Gourlay Date: 12th November 2004
Executive Summary
Customer service, not surprisingly, has been researched extensively: from the conceptual framework of service quality, to the positive and negative impacts of service quality, to the effect of favourable and unfavourable customer intentions on perceived quality. Superior service generates favourable behavioural intentions in customers, including increased future spending, acceptance of price premiums, "word of mouth" referrals, and, ultimately, customer retention (Zeithaml et al., 1996). Quality service builds customer faith in the organization, and "is essential for maintaining competitive advantage" (Berry, Parasuraman and Zeithaml, 1994)
Longstanding, satisfied customers will generally continue, or often increase, purchasing, require less operational and customer service support, and be more willing to pay price premiums to remain with the company--all without incurring new customer acquisition costs (Pine II, Peppers, and Rogers, 1995)
Weinstein and Johnson (1999) recommend that companies should spend "75% of its marketing budget on customer retention strategies" and to strengthen these relationships.
CONTENTS PAGE
. Introduction 4
2. Wal-Mart 5
3. Wal-Mart SWOT 5
4. Porters Five Forces Model - Wal-Mart 6
5. Wal-Mart PEST Analysis 7
6. Wal-Mart Managing Customer Relations 8
7. Easy Jet 9
8. EasyJet SWOT 9
9. Porters Five Forces Model - EasyJet 10
0. EasyJet PEST Analysis 12
1. EasyJet Managing Customer Relations 13
2. Recommendations 14
3. Conclusion 14
4. References 15
5. Bibliography 16
6. Appendices 17
Introduction
The purpose of this paper is to compare and contrast Wal-Mart and EasyJets approach to CRM in their B2C Value Chain. We will investigate this with a SWOT Analysis, Porter's Five Forces and PEST Analyis Models
There are various viewpoints of customer value according to numerous authors, researchers, consultants and practitioners. They consider customer value not just as a term by a plain definition, but can be understood in different ways and angles.
In today's global competitive market, first class products no longer guarantee success in the aggressive battle for market share. To be successful, organizations need to increase their productivity and reduce costs. To survive in the present global competitive environment, organisations need to show a heightened awareness to customers' needs
Gardial and Woodruff say, customer value is the customers' perception of what they want to have happen (i.e., consequences) in a specific use situation, with the help of a product/service offering, in order to accomplish a desired purpose or goal (Gardial and Woodruff 131).
Customer value is focused mostly on customer relationships to gain much of the competitor understanding (Piercy, 1998; Webster, 1997). According to Parasuraman (1997) and Woodruff (1997), customer value is an orientation under marketing strategy.
With this paper we will investigate the SWOT, Porter's Five Forces and PEST Models and their relevance to customer relations within Wal-Mart and EasyJet.
Wal-Mart
Wal-Mart was created in 1962 by the late Samuel Moore Walton (Sam Walton) and it was 'built' on his three basic beliefs; respect for the individual, service to customers and, striving for excellence (www.walmartstores.com). These philosophies are 'religiously' nurtured into the hearts and minds of employees who are more known as associates in Wal-Mart.
Wal-Mart SWOT Analysis
Wal-Mart strengths lie in its strategy of brand recognition and low prices, also the fact that they are operating in all 50 states of the US under a variety of formats and Wal-Mart now serves more than 100 million customers a week (www.walmart.com).
Wal-Mart weaknesses can be attributed to frugality and always looking at the bottom line which has amounted to bad PR, lawsuits over unionisation and unfair labour abuses, and monopolistic characteristics.
Wal-Mart opportunities are their expertise in expansion; Wal-Mart could use this expertise to move more onto an international arena. Wal-Mart could implement more technology i.e.:- e-business thus reducing personnel and reduces the printing and cost of flyers to be mailed out.
Wal-Mart faces the future threat that Kmart experienced and that is the threat of neglect. On top of that, ferocious critics also come from the community accusing the retailer giant of monopolistic behaviour, waging aggressive price wars and using its power to bully suppliers (Quinn, 2000). Lower prices do not automatically mean satisfied customers the ...
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Wal-Mart opportunities are their expertise in expansion; Wal-Mart could use this expertise to move more onto an international arena. Wal-Mart could implement more technology i.e.:- e-business thus reducing personnel and reduces the printing and cost of flyers to be mailed out.
Wal-Mart faces the future threat that Kmart experienced and that is the threat of neglect. On top of that, ferocious critics also come from the community accusing the retailer giant of monopolistic behaviour, waging aggressive price wars and using its power to bully suppliers (Quinn, 2000). Lower prices do not automatically mean satisfied customers the company has to stay on their toes to keep the upper hand and avoid losing out to other stores
Porters Five Forces Model - Wal-Mart
Porters model (Appendix A) states that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strengths of five forces. These include:
Current Competition
Although the supermarket industry is limited, the competition is very intense. Even though Wal-Mart is the market leader for catering products at cheap prices they still need to be aware of what prices their rivals are charging.
Even though many of Wal-Mart's rivals cannot keep up to date with their prices, they have begun to offer their customers other services. For example, other companies have diversified into providing financial and travel services to their customers. Wal-Mart needs to be aware of this.
Potential Competition
The degree of potential competition depends on the existence of barriers of entry and exit in the market. Wal-Mart needs to be aware of the firms coming in and going out of the market. Due to the nature of Wal-Mart's business they are deemed to be in an oligopolistic market, this type of market is restricted. This is an advantageous factor as not every firm can enter into the market. Another barrier of entry Wal-Mart benefits from is economies of scale. As Wal-Mart is a fairly large firm their average production is reduced and not every firm can benefit from large amounts of economies of scale.
The threat of substitute products
Wal-Mart along with their rivals caters for a wide range of substitute products. For this reason the supermarket industry faces a lot of competition and all rivals have to fight to achieve a great deal of market power. Although many of the products sold in supermarkets are the same, what Wal-Mart has to ensure is that their products differentiate from the rest.
The Power of buyers
Wal-Mart has a greater degree of power in comparison to that of their customers. However, they must not take advantage of this fact because this could create a loss for them. If Wal-Mart begins to charge higher prices this would only cause them to lose their customers.
The Power of Suppliers
Wal-Mart (like many other retailers) purchase direct from the manufacturer. In this case, both the supplier and the buyer have a certain degree of power. The buyer (being Wal-Mart) has some sort of power because Wal-Mart being a large company can purchase a lot of stock from the supplier. On the other hand, the supplier has some degree of power because if there is a shortage of a particular product then the supplier can take advantage by charging the price they like.
Wal-Mart PEST Analysis
Political
Political decisions can affect Wal-Mart in a number of ways. If taxes increase then prices will in turn increase. This could result in customers buying less. With the elections now complete, government laws may change i.e. working hours, opening times etc. This could create additional overheads for Wal-Mart as the changes in law will result in more staff being employed.
Economic
Wal-Mart offer the customer the best value with prices 10-15% lower than that of their competitors. Along with this an almost unmatchable mix of fresh food, clothing, home, leisure and entertainment goods.
Wal-Mart currently employs 1.3 million "associates" and serves 100 million customers globally.
Socio-cultural
Wal-Mart encourages all of its suppliers to manufacture or obtain its supplies from U.S. companies. This generates well being with its patriotic American customers.
Social attitudes of customers are changing, the average consumer likes to shop in a place that is cheap but also offers outstanding quality and service. Wal-Mart have created the supermarket that caters for both cheap, quality goods with an excellent service.
Technological
With the introduction of shopping via the internet, customers now have all the benefits of a Wal-Mart superstore from the comfort of their homes. This is especially beneficial to customers who have difficulty in travelling. An added value to this method of shopping is that all the goods are delivered to the customers home.
Wal-Mart Managing Customer Relations
To sustain its competitive advantage, Wal-Mart has constantly adapted to its existing strategies to threats and opportunities in the environment. As noted by Warren Buffett (of Berkshire Hathaway) when it came to casting his vote for the most admired company in America for 2002, 'Wal-Mart is the largest company around, and it hasn't lost a bit of the dynamism that it had back when Sam Walton started it' (Stein, N. 2003).
Wal-Mart stores operate according to their 'Everyday Low Price' philosophy. Wal-Mart has emerged as the industry leader because it has been better at containing its costs which has allowed it to pass on the savings to its customers. Wal-Mart has become a capabilities competitor. It continues to improve upon its key business processes, managing them centrally and investing in them heavily for the long term payback.
Wal-Mart has been regarded as an industry leader in 'testing, adapting, and applying a wide range of cutting-edge merchandising approaches' (Thompson & Strickland, 1995, p. 860). The word 'always' can be seen in virtually all of Wal-Mart's literature. One of Walton's deepest beliefs was that the customer is always right, and his stores are still driven by this philosophy. When questioned about Wal-Mart's secrets of success, Walton has been quoted as saying, 'It has to do with our desire to exceed our customers' expectations every hour of every day' (Wal-Mart Annual Report, 1994, p. 5)
EasyJet
EasyJet was established in March 1995, with low-cost flights from London's Luton Airport to Glasgow and Edinburgh in Scotland
EasyJet SWOT
Eliminating costs to the customer has been one of EasyJet main strengths, thus boosting not only the customer relations but also the company profits. The so called paperless ticketing, and sales over the internet and phone, rather than through a travel agent creates the opportunity to keep the costs down. And since the airline is in the no-frills segment of the industry there are no catering department expenses. (Piercy, 2000)
A Weakness of EasyJet is that it flies only to European countries inside the European Union, where the customer potential is limited and the market is saturated. Opportunities - there is always an opportunity to increase the customer base by expanding the flight routs or destinations into new markets where the competition is not established. There is also a big market for transportation of freight which has seen constant growth over the past decade, and can be viewed as another possible opportunity for EasyJet. (Serpen, 2003).
The main threat for EasyJet is that the airline is only concentrated in the E.U. market where the competition is coming not only from the low-cost-carriers, but also from the major full-service-carriers, so the competition is higher.
The market for fast and low cost transportation is not limited only to the airline industry but also the competition might come from the fast train services such as Eurostar which are considered as a threat to EasyJet. This is due to the fact that they operate from the main railway stations which, in Europe, are located closer to city centres, and might be perceived more convenient to business or tourist travellers.
Porters Five Forces Model - EasyJet
Porters model (Appendix A) states that the structure of an industry and the ability of firms in that industry to act strategically depend upon the relative strengths of five forces. These include:
Current Competition
EasyJet have taken the European budget airlines market by storm. When people think cheap flights they now think Easyjet. Even though EasyJet is the market leader for low cost flights they still need to be aware of what prices their rivals are charging.
Easyjet's main low cost carrier competitors are Ryanair, Virgin express, Go, Buzz and BMI Baby.
Potential Competition
The degree of potential competition depends on the existence of barriers of entry and exit in the market. EasyJet needs to be aware of the firms coming in and going out of the market. The airline industry is fiercely competitive; EasyJet owner Stelios claims that 'availability of slots is a problem.' At the moment companies like British Airways dominate the primary airports e.g. Heathrow, therefore it is difficult for Easyjet to compete so directly here. (Orchard 2003)
Along with Ryanair, Virgin express, Go, Buzz and BMI Baby they are now also competing with the standard frills offering airlines, such as British Airways and Lufthansa.
The Threat of Substitute Products
As Easyjet operates solely within the EU, many substitutes are available such as the EuroStar Train from London to Paris; Coaches that offer relatively competitive prices for travelling in and around Europe. Along with this there is the threat of the other low-cost carrier airlines that are offering lower prices than EasyJet.
.
The Power of buyers
With the global growth of Internet awareness and its use for obtaining the best prices for almost anything customers looking for cheap flights have what economists would call perfect information available to them.
The Power of Suppliers
Power of suppliers is very high with suppliers in the Airline Industry being concentrated: Airbus and Boeing dominating the market. With there being very little choice for the likes of EasyJet it is very difficult for them to play one supplier against another for competitive prices. In the case of aviation fuel then EasyJet has no power to reduce this as it is directly linked with the current price of Oil, if there is a shortage of Oil then the supplier can take advantage by charging the price they like.
EasyJet PEST Analysis
Political
With the EU increasing in size, over the next few years, EasyJet can expand on its operating buses that will in turn increase the demand for cheap flights to potential customers. Reduction in the protection of slots, particularly those at the primary airports could enable Easyjet to take routes served by other airlines
Economic
With the majority of countries that EasyJet fly to in or near to recession, no matter how cheap the flights, it is still difficult for potential customers to be able to afford the luxury of flying. Mergers and acquisitions by national carriers and low cost carriers could have dramatic implications on Easyjet's market share and customer numbers
Socio-cultural
The general public warm to the idea of cheap flights that is easily accessible through the internet. With numerous promotions for cheap flights in the press, EasyJet customers could feel begrudged when they actually try to obtain the cheap deals only to find that they are not valid on the days that they wish to fly. As more flights are now leaving from the secondary airports used by Easyjet and others, more revenue should be available to improve the facilities offered in these airports. These improved facilities could help to decrease customers negative perceptions of flying from these sites
Technological
With the ticket-less approach almost all of EasyJet customers purchased their tickets online. The more tickets that are purchased in this way will reduce the amount of staff and overheads that are required. This in turn keeps the costs down for customers.
EasyJet Managing Customer Relations
Some may argue that the thought of adding value throughout the process and customer service should not be of that much concern to EasyJet, since it is a 'no frills - low cost' airline. However, Stelios the founder of the airline understands that they have to meet and exceed customer satisfaction -or expectations.
What easyJet does is relationship marketing; they are concerned with customer retention as much as finding new customers. This process can be summed up by the following diagram:
(Hooley et al. 1993,98)
On the whole the airline industry is a service industry. Airlines are primarily concerned with customer service, and look to add value to the customers experience at different stages in the value chain. Eastern Airways, for example, is a full service airline that charges premium prices for the high levels of service they provide; by comparison EasyJet positions itself at the other end of the scale but still uphold a quality service to their customer.
Recommendations
Benchmarking with competitors (Lynch, 1997) can be done to identify areas for improvement in the B2C value chain. Once problems or areas for improved performance have been identified instant corrective actions can be implemented. Walmart could be benchmarked against the likes of Carrefour, Target and K-Mart. EasyJet could benchmark themselves against Ryan Air, Go or BMI Baby.
Both EasyJet and Walmart are very successful companies, they have shown the ability to capture market share by providing services that are required by the B2C value chain. However, to keep the competitive advantage, both companies must focus on taking advantage of emerging opportunities and capitalising on their existing strengths.
Conclusion
"Competitive Advantage occurs when a firm's value chain generates superior product and service features, quality, availability, lower cost, or other things customers care about." (Alter 2002)
The ever-changing market presents continuing challenges to retailers. First and foremost, retailers must recognize the strong implications of a 'buyers' market' (Lewison, 1994). Customers are being offered a wide choice of services, but no one operation can capture them all. Therefore, it is upon management to define the customer base that they wish to target and direct their energies toward giving value and complete customer satisfaction. Technology, demographics, consumer attitudes, and the advent of a global economy are all conspiring to rewrite the rules for success. Success in the next decade will depend upon the level of understanding retailers have about the new values, expectations, and needs of the customer. If Wal-Mart and EasyJet continue their customer-driven culture, they should remain industry leaders well into the next century.
References
BERRY, L., PARASURAMAN, A. and ZEITHAML, V. (1994). Improving Service Quality in America: Lessons Learned. The Academy of Management Executive, 8, 32-52.
PINE II, Joseph B., PEPPERS, D. and ROGERS, M. (1995). Do You Want to Keep Your Customers Forever? Harvard Business Review, 73, 103-114.
WEINSTEIN,A and JOHNSON, W. (1999). Designing and Delivering Superior Customer Value: Concepts, Cases, and Applications. Boca Raton: CRC Press.
LEWISON, M. D. (1991). Retailing. New York: Macmillan.
QUINN, B., 'How Wal-Mart is Destroying America and the World', Berkeley CA: Ten Speed Press, 2000.
THOMPSON, A. A., Jr. & STRICKLAND, A.J. III. (1995). Strategic management concepts and cases (8th ed.). Chicago: Irwin.
STEIN, N., 'America's Most Admired Companies', Fortune Magazine, Feb 18,2003.
HOOLEY et al., (1998) Marketing Strategy & Competitive Positioning Prentice Hall
ALTER, S. (2002). Information Systems: the foundation of e-Business. 4th Edition. Prentice Hall.
ORCHARD, A. (2003) Marketing: EasyJet Report MMM3310
Wal-Mart Annual Report, 1995
Bibliography
PEARCE and ROBINSON, Strategic Management - Formulation, Implementation and Control Strategic Management Case Study on Case 27
Wal-Mart Stores, Inc. (1995). The story of Wal-Mart. Bentonville, Arkansas: Corporate Offices of Wal- Mart Stores, Inc.
CORDLE et al (2002). The web-based Marketing Strategies of Five Airlines - Internet Marketing
Walmartstores.com, "Wal-Mart Selected by CIO Magazine as a Top 100 Company to Excel in the 21st Century". August 16, 1999
www.walmartstores.com
www.easyjet.com
www.airwise.com
www.asda.co.uk
www.ryanair.com
Appendix A
Porters Five Forces Model (M. E. Porter, 1979)
