Future Strategy of Ryanair to increase market share in USA

To: The Director, Ryanair

From: The marketing consultant

Date:

Subject: Strategic Marketing Planning For Ryanair To Start Business In USA

Future Strategy of Ryanair to increase market share in USA 1

1.0 Introduction 4

1.1 Briefly explain the strategic marketing planning process and importance of conducting a strategic marketing plan for Ryanair. 5

1.2 Strategic marketing 5

1.3 Why Ryanair needs a strategic marketing plan? 5

1.4 Strategic marketing Plan: 6

1.5 Situation Analysis: 6

1.6 Objectives:7

1.7 Strategies: 7

1.8 Tactics: 8

1.9 Action 8

1.9.0 Control: 8

2.0 Marketing audit using SWOT, Porter’s 5 Forces and PESTLE analysis. 9

2.1 Marketing audit 9

2.1.0 SWOT Analysis of Ryanair9

2.1.1 Strength of Ryanair 9

2.1.2 Weakness of Ryanair 10

2.1.3 Opportunities 10

2.1.4 Threats 10

2.2 Porters 5 forces Model 11

2.2.1 Bargaining Power of buyers 11

2.2.2 Bargaining Power of Suppliers 12

2.2.3 Availability of Substitutes 12

2.2.4 The threat of New Entrants 12

2.2.5 Competitive Rivalry 13

2.3.0 PESTLE Analysis 14

2.3.1 Political Factors 14

2.3.2 Economic Factors 14

2.3.3 Social-cultural Factors 15

2.3.4 Technological Factors 15

2.3.5 Legal Factors 16

2.3.6 Ecological factors16

3.0 Identify the range of strategic options open to Ryanair and then recommend and justify the most appropriate for the company in order to achieve the objective of growing its market share. 16

3.1 Ansoff’s Matrix 16

3.2 Market penetration 17

3.3 Market development 18

3.4 New Product development 18

3.5 Diversification 19

3.6 Reason for choosing Market Penetration strategy: 19

4.0 Based on your recommended strategy, explain how will employ and apply the marketing mix to support the chosen strategy. 19

4.1 Product 20

4.2 Pricing 20

4.3 Placement 21

4.4 Promotion 21

References: 22

1.0 Introduction

Ryanair operates around 610 routes to 26 European countries, has 24 European bases and employs a team of 5,000 people, comprising over 25 different nationalities. It has been characterized by rapid expansion and has evolved into one of the world’s most profitable airlines. It is the third largest airline in Europe in terms of passenger numbers. The company has the world’s youngest fleet of Boeing 737-800s, with an average age of around 4 years (as of December 2008). Ryanair plans to double its fleets to 262 planes by 2012.

This report is prepared to cover the strategic marketing planning process, the marketing planning process, the marketing audit, strategy development as well as the application of the marketing mix for Ryanair.

2 Briefly explain the strategic marketing planning process and importance of conducting a strategic marketing plan for Ryanair.

1.2 Strategic marketing

It is a managerial process of developing and maintaining a viable fit among the organization’s objectives, skills, and resources and its changing market opportunities to shape the company’s businesses and products so that they yield target profits and growth and keep the company healthy despite any unexpected threats that may arise ( Kotlar, P 1999).

Marketing strategy deals essentially with the interplay of three forces known as the strategic three Cs: the customer, the competition, and the corporation. Marketing strategies focus on ways in which the corporation can differentiate itself effectively from its competitors, capitalizing on its distinctive strengths to deliver better value to its customers (Jain SC 1999).

1.3 Why Ryanair needs a strategic marketing plan?

In the field of strategic marketing, it is usual for CEOs and marketing executives to be confronted with sudden but urgent marketing challenges that often have the potential to determine or affect the future of the company for many years. But incommensurate with the gravity of these decisions, most of these crucial emergency decisions have to be taken without the opportunity to study the situation and make a thoroughly informed and considered decision.

Such strategic decisions taken on the spur of the moment are driven by contingency and seldom turn out to have been the best or the most ideal one possible to address the circumstances. For this reason, a far better approach is to be prepared for such contingencies by performing annual comprehensive reviews of markets and opportunities, and basing long-term strategic decisions on that data without the stray distractions of day-to-day marketing and sales activities. If such a strategy is adopted, even daily decisions could be worked out in keeping with the company's overall strategic marketing goals.

1.4 Strategic marketing Plan:

The strategic Marketing process involves the SOSTAC model which is also known as a best model for the strategic marketing plan. As a straightforward model, it goes systematically through the steps to build a marketing plan, and helps to ensure that all relevant factors are considered, without the need to go into excessive and expensive detail. The model then continues to look at the practical issues of putting the plan into practice.

SOSTAC is an Acronym for the 6 basic elements of the Marketing Plan:

Situation: Where is Ryanair now?

Objectives: Where do Ryanair want to get to?

Strategy: How are Ryanair going to get there?

Tactics: How are Ryanair going to get there?

Actions: Who is going to do what and when?

Control: How can Ryanair control, measure and develop the process?

Each of the every letter stands for in the SOSTAC model is explained here:

1.5 Situation Analysis:

This answers the question where are we now? It involves conducting a marketing audit, which is comprehensive and periodic examination of Ryanair’s marketing activities so as to identify problem areas and then proper solutions for overcoming problems. The situation analysis can be done using SWOT, Porters 5 forces model and PESTLE analysis, which are explained in the next section.

1.6 Objectives:

It means Ryanair’s expectation thorough their operational activities.

The SMART Test for objectives may be considered here to make sure that the objectives are practical and measurable.

❖ Specific (with numbers)

❖ Measurable (to monitor progress and confirm achievement)

❖ Actionable (can Ryanair do it?)

❖ Reasonable (realistically attainable)

❖ Timed (incorporate deadlines)

One main objective of Ryanair is to increase their market share in US airline industry and thus make more profit.

1.7 Strategies:

Strategy may be defined as means to achieve the organization’s stated objectives. This is

categorised as Growth and competitive oriented strategies. Growth strategies include –

❖ The Ansoff matrix

❖ The BCG matrix

❖ Gap Analysis

❖ The GE matrix

The outcome of strategy objectives:

❖ Segmentation – How does Ryanair want to divide up the market(s)?

❖ Targeting – Which segments of the market does Ryanair wish to focus upon?

❖ Positioning – How do Ryanair want to be perceived in each different target segment?

1.8 Tactics:

Its measures or techniques that help the organization to achieve the strategies or goal. Tactics usually include the use and manipulation of the 7 P’s -

❖ Product

❖ Price

❖ Place

❖ Promotion

❖ People

❖ Process

❖ Physical evidence

1.9 Action

Action means setting the budget all Ryanair can afford, allocating tasks and

responsibilities to planning team members, scheduling of marketing activities.

The outcome of actions:

❖ Who is going to do what?

❖ When are they going to do it?

❖ What is the resource allocation for the action?

❖ What are the key performance measurements?

❖ How is performance going to be recorded?

1.9.0 Control:

It means monitoring everything whether it is going according to the plan and

taking corrective actions as early as possible if anything goes wrong.

The outcome of control:

❖ Do action performance measurements relate to objectives?

❖ Responsibility for measurement?

❖ Frequency of measurement?

❖ Resources for measurement?

❖ Review of measurements?

❖ Actions on variance?

2.0 Marketing audit using SWOT, Porter’s 5 Forces and PESTLE analysis.

2.1 Marketing audit

Marketing audit analyses competitor activity, providing relative position of the organization within the total market. It assesses firm’s internal strengths and weaknesses as well as firm’s external opportunities and threats (Stone MA and McCall JB 2004).

2.1.0 SWOT Analysis of Ryanair

SWOT Analysis is a very popular method to understand the internal strengths of a company to determine future strategy. A SWOT Analysis is a method for examining the Strengths, Weaknesses, Opportunities, and Threats of an organization.

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2.1.1 Strength of Ryanair

Strengths refer to the competitive advantages and other distinctive competencies that a company can exert in the marketplace (Jain SC 1999).

The most important factors that may be considered as strength for Ryanair are as follows:

❖ Europe’s largest low-cost airline

❖ Annual turnover of Ryanair is remarkable and in 2005 there was a 28% increase of revenue with £253 million of pretax profit.

Ryanair has enhanced its position as the leading brand for low fares in Europe during the current downturn. The carrier now likens itself to budget-conscious consumer brands like Ikea, Aldi and McDonald's - rather than airlines.

2.1.2 Weakness of Ryanair

Weaknesses are constraints that hinder movements in certain directions (Jain SC 1999). They are known for having poor service/people skills, especially if someone has a problem of issue with

booking, and cabin crew so this would need to be looked into before expanding. Ryanair (like all low cost airlines) is extremely sensitive to changes in charges (increase in fare value).The value of the euro is falling, as is the dollar. Being Ryanair an European airline it might be difficult to develop a market in the U.S.A.

2.1.3 Opportunities

A marketing opportunity is an area of buyer need in which a company can perform profitably (Kotlar, P 1999) or possibilities in the firm’s environment that it can capitalize upon by entering in new market or developing new product (Willan, M 2010). Transatlantic open air pact has opened a new era for low cost airline to enter USA and this will allow extensive expansion of the budget airlines. Previously with its European flights Ryanair has relied on a high number of seats sold to leisure travelers (those visiting family or taking a short trip away) but its proven that events such as “SARS” and 9/11 have a massive effect on air travel especially with that of leisure travelers. So Ryanair may start new service by targeting business people and being as business people who some often require long haul to locations such as China and America.

2.1.4 Threats

A threat is a challenge posed by an unfavorable external trend or development that would lead, in the absence of defensive marketing action, to deterioration in sales or profit (Kotlar, P 1999). Threats to this dynamic industry are ever-changing and ever-challenging.

Recently terrorism in transport has imposed stricter measures passengers checking causing significant delay. It has indirectly has lead to the thought of taking alternative means of transport like high speed rails. On the other hand airlines has been forced to increase their prices or absorbs the additional costs.

Environmental campaign may force the industry to adopt carbon offsetting technology mandatory and which ultimately may cause price hike and development of pressure to create fuel efficient aircraft.

The airlines sector has been highly competitive now a days as some companies are trying to consolidate through mergers and acquisitions. As a result non scheduled airlines sector are expected to dominate in years to come. Nevertheless Ryanair has got a number of rivals both in scheduled and non scheduled service.

2.2 Porters 5 forces Model

This model is used to analyse and better understand the industry in which Ryanair operates. These five forces can affect all the firms in the industry (Stone MA and McCall JB 2004). These five forces are:

1. Bargaining power of buyers

2. Bargaining power of suppliers

3. Availability of substitutes

4. Threat of new entrants

5. competitive rivalry

2.2.1 Bargaining Power of buyers

Buyers are the customers who use the services or products of the company. Bargaining power of buyers refers to the choices that buyers have as regards which company’s product they buy. (Willan M, 2010). Customers of USA have many choices of air bargaining. Infact customers are price sensitive. Switching to another airline is relatively simple and is not related to high cost as all airlines of USA are online.

2.2.2 Bargaining Power of Suppliers

Suppliers provide the necessary inputs needed by Ryanair to provide its services.

❖ Boeing is the main supplier of carrier to Ryanair. Actually Boeing has more power to bargain as there is only one supplier left in the market other than Boeing.

❖ Switching costs from one supplier to the other is high because all mechanics and pilots would have to be retrained.

❖ In case of fuel supply Ryanair has got a strong position to bargain as there are many fuel suppliers in USA.

❖ Regional Airports of USA have wide range of bargaining power as they are not heavily dependant on one airline.

2.2.3 Availability of Substitutes

Substitutes are alternative products that can satisfy the same consumer needs. Substitutes could be direct or indirect (Willan, M 2010). In USA there are many substitute airlines including buses, train, and walking. In fact there is no brand loyalty of customers and no close customer relationship. Its very easy for customers to find out direct substitute airlines and the cost of switching is not high. Ground transportation, for example, will lose its appeal as a substitute the greater the journey length. The propensity to make substitutes will tend to be greater among leisure travelers who are generally more price sensitive than their business counterpart.

2.2.4 The threat of New Entrants

This refers to how easy or difficult it is for new competitors to enter the firm’s industry. How easy or difficult for new entrants to enter the US airlines market depends on such factors as:

❖ Government regulation.

❖ Cost of capital on investment needed.

❖ Level of expertise required

❖ Demand and profits levels

❖ Exit cash

US Government regulations like airworthiness, certification procedures, fuel venting and exhaust emission requirements, airline safety and service standards may make less chance for a new airline to start (Electronic code of federal regulation, 2010). US government has deregulated airlines industry and no longer had any state owned carriers. Foreign firm are blocked from owning 50% of US airline (Haberberg, A and Rieple, 2008).Cost of capitals to start a new airline is extremely high and its not like other business. It is also a negative factor for a new start. In order to run a new airlines the company will need skilled expertise and some times its more difficult to find skilled technical support than huge capital investment. Demand of a new airlines is not dire and its not unlikely to face loss after huge investment. Exit cash is also extremely high in airline business. So its more tough to exit than a start.

2.2.5 Competitive Rivalry

This refers to the level of the intensity of competition in the airlines industry. There are mainly two types of competition namely; friendly and hostile (Cut-throat) (Willna, M 2010). Competitive rivalry is high in US market for Ryanair for the following reasons:

❖ The LCC market is highly competitive

❖ Most cost advantages can be copied immediately

❖ High levels of existing rivalry in USA

❖ However if any company does decide to compete on the same basis as Ryanair there will be heavy pressure on prices, margins, and hence on profitability

❖ Not much differentiation between services. Price is the main differentiating factor

2.3.0 PESTLE Analysis

PESTLE analysis is a planning tool for identifying the external/legal, economical, social and technological issues that could affect the strategic planning of an organization (Kotler P 1999). This helps in analyzing and better understanding the firms external or macro environment. The firms has no control over these factors and should therefore change and adapt changes to PESTLE factors. PESTLE stands for:

P= Political factors

E= Economic factor

S= Socio-cultural factors

T= Technological factors

L= Legal factors

E= Ecological factors

2.3.1 Political Factors

Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate(Willan, M 2010). If Ryanair wants to set up their business in USA then Political factors will not be such a barrier for them to grow because USA has got exemplary stability in politics. Incidence of strikes by union is low. But level of taxation in USA is one of the world highest. US domestic transportation tax is 7.5% (US department of state, 2010). More over threat of terrorism has an intense impact in terms of government regulation and customers’ choice of air route. Specially the situation has been exacerbated after September 11.

2.3.2 Economic Factors

Economic factors like recession, demand, interest rates of banks inflation rate, exchange rates, employment status and disposable income of people of a country greatly affect customers purchasing behavior.

Recession, demand and employment status are basically interlinked in terms of people’s buying attitude. Last recession has left many Americans unemployed and it has directly forced to reduce demand of luxary and nonessential living cost. This may affect r

Ryanair adversely because naturally people will reduce their traveling attitudes for a while.

2.3.3 Social-cultural Factors

Social factors include the demographic and cultural aspects of the external macro-environment. These are as follows:

❖ Education level of people

❖ Population demographics

❖ Religion

❖ Beliefs

❖ Aesthetics

❖ Ethics

Education level of customers affect service facilitation of airline industry and it is directly related to cost. In USA Ryanair may not need to employ agents as nearly half of Americans who travel prefer to use an airline's Web site to all other booking methods (Goliath 2010). American travelers who remain defiant in the face of health, employment and security anxieties are buoying the hopes of people in the travel industry (CNN travel 2003). This will have a positive effect on Ryanair business.

2.3.4 Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production

levels, and influence outsourcing decisions. Technological factors include the following:

❖ Communication infrastructure availability

❖ Transport infrastructure availability

❖ Peoples it skills

❖ Rate of new product development

USA has got most developed communication infrastructure in the world. In fact it harbors eminent IT personnel’s of the world. This is a plus point for Ryanair to expand their business in USA. Number of both domestic and international airports is satisfactory and all has got equipped air navigation system.

2.3.5 Legal Factors

legal factors like employment laws, health and safety laws, monopoly legislation law and investment laws in USA is strict this may restrict more the growth of the company than any other countries.

2.3.6 Ecological factors

Certain ecological factors like emission of carbon di oxide and other green house gases by air industry may impose legislation to adopt carbon offsetting technology and its an extra pressure on Ryanair to use bigger and more fuel-efficient aircraft.

3.0 Identify the range of strategic options open to Ryanair and then recommend and justify the most appropriate for the company in order to achieve the objective of growing its market share.

There are different existing models of strategic marketing which are suitable depending on business type or service or geographical variations. Among the models, the model of Ansoff which is widely known as “Ansoff’s Matrix” got widespread popularity.

3.1 Ansoff’s Matrix

Ansoff’s product/market growth matrix suggests that a business’ attempts to grow depend on whether it markets new or existing products in new or existing markets.

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Source: Tutor2u, 2010

The output from the Ansoff product/market matrix is a series of suggested growth strategies depending on the prevailing shape of the service or product. These are described below:

3.2 Market penetration

Market penetration is the name given to a growth strategy where the business focuses on selling existing products into existing markets. Based on the objectives those are expected to achieve through market penetration, Ryanair as an existing aviation service provider may increase their share in American market by combination of competitive pricing strategies, advertising, sales promotion and perhaps more resources dedicated to personal selling. There are some low cost airlines in USA but definitely they may not offer as aggressively as Ryanair can do but in this case the service quality may be compromised. But still it can be overcome by increasing personal selling. Each customer may have their personal choices of services among some set facilities available. Ryanair must be more aggressive in terms of promotional campaign and pricing strategy which will make the market very much unattractive for the other airlines and this is how Ryanair is going to restructure the already mature market by increasing usage of service by existing customers.

3.3 Market development

Market development is the name given to a growth strategy where the business seeks to sell its existing products into new markets. Ryanair has already been this stage partially.

There are many possible ways of approaching this strategy, including:

❖ New geographical markets; for example exporting the product to a new country like Ryanair trying to start business in USA

❖ New distribution channels-incase of Ryanair they can employ some regional agents who may uphold the service facility to the US the us citizens more efficiently.

❖ Different pricing policies to attract different customers or create new market segments

3.4 New Product development

Product development is the name given to a growth strategy where a business aims to introduce new products into existing markets. This strategy may require the development of new competencies and requires the business to develop modified products which can appeal to existing markets. Incase of Ryanair they can add some new fleet or change their packages for special group of people by categorizing on the basis of income , socio-economic status and ethnicity. They can also develop new products that are not exactly related to airlines business; like building hotels for passengers, or launching alternative transport service for tourists like fancy buses.

3.5 Diversification

Diversification is the name given to the growth strategy where a business markets new

products in new markets. This is an inherently more risk strategy because the business is

moving into markets in which it has little or no experience. For a business to adopt a diversification strategy, therefore, it must have a clear idea about what it expects to gain from the strategy and an honest assessment of the risks. In a country like USA its actually impractical to think about a new product.

Among the four key strategies I would like to use Market Penetration strategy for Ryanair in USA.

3.6 Reason for choosing Market Penetration strategy:

I will prefer Market Penetration for Ryanair in USA because this strategy implies that

Ryanair will grow its business by ramifying its aviation service in the existing market. They have the essential knowledge and skills to run a low cost airline in Europe. It will be an easier task for them to merge in the existing competitive business environment in USA. It is likely that they will face some problems of different magnitude but they can use their own knowledge and experience that they have gathered from Europe.

4.0 Based on your recommended strategy, explain how will employ and apply the marketing mix to support the chosen strategy.

The marketing mix is probably the most famous marketing term. Its elements are the basic, tactical components of a marketing plan. Also known as the Four P's, the marketing mix elements are price, place, product, and promotion. If Ryanair want to achieve its objectives by marketing by its products or services effectively to a particular marketing or customer group, it is also referred to as 4 P’s. Based on the above discussion Ryanair can take the following marketing mix to boost their market in USA to become no 1 low cost airline company.

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Source: Learn marketing (2010)

4.1 Product

The product is the physical product or service offered to the consumer. In the case of physical products, it also refers to any services or conveniences that are part of the offering. Product decisions include aspects such as function, appearance, packaging, service, warranty, etc. In USA there are many low cost airlines, namely AirTran, ATA, JetBlue (ETN, 2010) but none gained such popularity like of Ryanair has achieved in Europe . So if Ryanair wants to keep their brand name then they should provide a comparable services with a competitive price.

4.2 Pricing

Pricing decisions should take into account profit margins and the probable pricing response of competitors. Pricing includes not only the list price, but also discounts, financing, and other options such as leasing. In USA competition is very high so they must set their price according to the context of local market and as well satisfy the customer needs.

4.3 Placement

Place (or placement) decisions are those associated with channels of distribution that serve as the means for getting the product to the target customers. The distribution system performs transactional, logistical, and facilitating functions. Placement under marketing mix involves all company activities that make the product available to the targeted customer (Kotler et al., 2008).

Ryanair can set their business in the particular region of America where the concept of low cost airlines may get popularity. Of course the selection of place will depend on many factors like the socioeconomic condition of inhabitants, ethnic preponderance, and number of young people living.

4.4 Promotion

Promotion decisions are those related to communicating and selling to potential consumers. Since these costs can be large in proportion to the product price, a break-even analysis should be performed when making promotion decisions. It is useful to know the value of a customer in order to determine whether additional customers are worth the cost of acquiring them. Promotion decisions involve advertising, public relations, media types, etc. For expansion of Marketing and to popularize their brand name, they must go for mass media campaign, targeting new customers through both electronic and print media. Sales promotion plays a vital role in attracting customers by giving discounts or vouchers to the existing or new customer when they launch new services like while opening a new route. Moreover they can sponsor youth friendly TV programs or different types of events to boost up their sales.

References:

CNN Travel (2003) ‘Travel expert: Nothing will deter Americans' travel plans’ (online) (cited April 24, 2010) Available from

Electronic code of federal regulation (2010) ‘Aeronautics and Space’ (online) (cited April 24, 2010). Available from

Goliath (2010) ‘More Americans opt to book air travel online’ (online) (cited April 24, 2010) Available from

Haberberg, A and Rieple, (2008) Strategic Management: Theory and Application, Oxford university press, UK

Jain SC (1999) MARKETING: planning and strategy (6th edn), Cengage south-eastern, USA

Kotlar, P (1999) Marketing Management, (10th Edition), Prentice-Hall, Inc, USA

Learn marketing (2010) ‘Marketing Environment - PEST Analysis’ (online)(cited April 20, 2010) Availbale from

Stone MA and McCall JB (2004) International Strategic Marketing: A European Perspective, Routledge, London

Tutor2u (2010) ‘Ansoff’s product / market matrix’ (online) (cited April 22, 2010) Available from

US department of state (2010) ‘Taxes and Fees Associated with Air Travel as of 2006’ (online) (cited April 24, 2010) Available from

Willan, M (2010) Strategic Marketing, Icon college of Technology and Management, London.