Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema...

28.11.06 EasyJet & Ryanair: flying high with low prices 1

Success through low prices

Advantages andRisks

Conditions for Charging low prices

easyCinema

Case Study:easyJet & Ryanair

Flying high with low prices

Caglar CintugluDeniz YararUli Breunig



Advantages andRisks


easyCinema

Introduction

Source: Jobber, p410


Advantages andRisks


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First Question

How do EasyJet and Ryanair achieve success using low price strategies?




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EasyJet & Ryanair

The orange-liveried airline is one of the pioneers of low-cost travel in the UK

Established in 1991Europe’s largest

budget airline



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Short History: 1978Deregulation of American Skies

Southwest Airlines first „no-frills, low-fare“ business model

– No free meals or coffee, only peanuts

– Secondary Airports:– Faster turnaround times– Cabin crew does the cleaning– No waiting for incoming flights



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Only one type of aircraft

• i.e. Boeing 737– Keep costs down by

– Reducing pilot training costs– Reducing maintenance

costs



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Internet booking

• Cut paperwork and administrative costs

Source: www.easyjet.com; www.ryanair.com



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Product Strategy

EasyJet & Ryanair have successfully attacked British Airways with their rapid penetration strategy

(Price: low, Promotion: high)



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Target segment

• Independent customers (no need for bundled services) with high grade of self organized market overview/comparison

• Rather young and flexible (Generation @)



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Customer Characteristics

• Independent, self organised• Desire of object: pure, cheap

transportation service• Familiar with new media and

interactive devices (internet)• Flexible• Easily maintained (low

expectations, shrunk space for complaints)



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Second Question

What are the advantages and risks associated with low-price strategies?




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Advantages of low-price/rapid penetration

• Fast diffusion and adoption leading to – High market penetration

rates quickly– Competition by surprise, no

time to react

Source: www.answers.com



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easyCinema

Advantages of low-price/rapid penetration

• Goodwill among early adopter segment word of mouth

• Cost control pressure greater efficiency

• Barrier to entry for new competitors (Porter‘s 5 forces)



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Disadvantages for customers

• Fast turnaround times: – No waiting for connecting flights– No entry for customers checking

in too late

• Paying compensation:– Compensation for cancelled

flights is only the ticket price



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Risks of low-price/rapid penetration

• Low price conveys an image of low quality; Image!

• Competing suppliers also reduce prices, nullifying the advantage

• Long term price expectations



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Third Question

To what extent do the conditions for charging low prices discussed in this chapter hold for EasyJet and Ryanair?




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Conditions for charging low prices



- Only feasible

- Market

- Make

- Make

effect/low costsor domination

Alternative

- Experience curve

- Barrier to entry

- Predation

Presence

Money later

Money elsewhere



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Only feasible AlternativeConditions for

Charging low prices• Rather homogenic

service• Cut down to core value

(transportation)• Low price as incentive

for consumers to switch from usual brandSource: Jobber, p385



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Market presence or domination


• Aggressively pricing• Segment of price-

sensitive consumers (Price elasticity)

• Only way to overtake national airlines on the low-cost laneSource: Jobber, p386



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Experience curve effect/low costs


• Cost decline of 20% if production doubles

• Becoming the lowest-cost supplier




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Make money laterConditions for

Charging low prices• Price-sensitive

consumers in the low-cost segment

• No way for airlinesto makemoney later




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Make money elsewhereConditions for

Charging low prices• Low-cost airlines

concentrate on the core competence: Transportation

• Selling food on planes



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Barrier to entryConditions for

Charging low prices• Satisfied market in all

price segments• High costs of entry• High fixed costs• Only small margins• National airlines partially

subventioned by state



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PredationConditions for

Charging low prices• National airlines backed

up by subsidies• Alliances• Special contracts with

airports• BA & TWA accused

predatory pricing



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Fourth Question

How successful do you believe EasyCinema is likely to be?




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What is EasyCinema?

Source: www.easycinema.com



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EasyCinema

• Film bookings 2 weeks in advance

• Starting from 20pence (<30 cent)

• The earlier the cheaper (like with aircraft seats)



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Cutting EasyCinema costs and staff

• No popcorn etc.– „If ya want popcorn, go to a

popcorn vendor. For movies come to easyCinema“

• Internet:– Print out membership card,

access via turnstile



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EasyCinema‘s success

• Direct changes of price according to demand

• Cheap for cineasts, who plan watching films in advance



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easyCinema

Thank you for your attention!

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema...

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