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Eurostar Strategic Analysis

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Eurostar International Ltd. Strategic Analysis Report. |CONTENTS | 1. Introduction 2. Strategic Issue 4. PEST analysis 4. 1 Political 4. 2 Economic 4. 3 Social 4. 4 Technological 5. Porter’s 5 Forces 5. 1 Barriers to Entry 5. 2 Substitutes 5. 3 Bargaining Power of Buyers 5. 4 Bargaining Power of Suppliers 5. 5 Rivalry 6. Grant’s Framework 7. SWOT Analysis 7. 1 Strengths 7. 2 Weaknesses 7. Opportunities 7. 4 Threats 8. Generic/ Competitive Strategy 10. Recommendation 11. Implementation 12. Conclusion References Appendix – RACES 1. Introduction: We have undertaken a strategic analysis of Eurostar Plc. Having looked at the external influences we have identified the difficulties faced by the company and the coming threats. The aim was to particularly identify the strategic issue and possible solutions to tackle and resolve it, taking into account internal resources of the company and their limitations.

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Through extensive use of frameworks and analysis tools we have identified the strategic issue as “How Eurostar can sustain its monopolistic position with the increasing competition in the cross-channel transportation industry? ” We have recommended that this could be best addressed by… Throughout the years Eurostar have been following mainly emergent strategic approach, because it didn’t have any direct competition and therefore could enjoy being passive in its actions.

There was simply no necessity to make any deliberate strategic plans.

This was acceptable as long as they were the only players in the market and held a monopolistic position. Due to the circumstances they have been focused differentiators as they were the only ones doing cross channel route by rail on passenger trains. However, now, with the opening of the St Pancras International and the Deutsche Bahn waiting to come into the market, the threat of direct competition is real and Eurostar will have to start making strategic plans for their actions. Deutsche Bahn is a very old and strong brand, subsidised by the German Government.

Hence, it would be fair to assume that Deutsche Bahn have necessary resources to quickly gain market share in a new market by the means of cost-leadership. Eurostar may use differentiated approach to strengthen their situation against Deutsche Bahn and use deliberate strategies in order to do so. They could differentiate on quality service offerings and make emphasis on climbing the loyalty ladder towards their existing customers. As their main advantage against the German competitor is the existing market share, great efforts have to be put into maintaining and improving relationships with their customers. . Strategic Issue: We have identified an industry as cross channel transportation industry because taking the whole of the industry in this area will require including a lot of unnecessary activities and players that do not affect Eurostar in any way. On the other hand, excluding air and sea in this case would not be right, because the do provide offering substitution for transportation. Therefore, we chose a compromise in the middle. The main competitor to come is Deutsche Bahn. They will come prepared to enter and win market share in the new market.

Eurostar may find it difficult to change its strategy planning approach from emergent to deliberate. This may also open doors for other rail direct competitors: Dutch, French and etc. Eurotunnel and Eurostar have managed to ‘share’ up till now, but as competition in this market intensifies – it may lead to more active behaviour from Eurotunnel’s side. Airlines and Ferries provide increasingly cheaper transportation. However, train saves a lot of hassle as it delivers from the city to the city and therefore must concentrate its sources on communicating this value to existing customers. 4.

PEST: Of course, with Eurostar being a company that specialises in international train travel, the industry is geared towards that. Naturally, the analysis is relevant to the UK side of things where possible. 4. 1 Political The political climate is not exactly stable with the War on Terror continuing as well as a proposed General Election looming on the horizon with both the Conservatives and the Labour Party continuing to dominate the UK political sphere. Also, recently an EU directive was passed that basically entitles the rest of Europe to use the UK’s “High Speed 1” under license. . 2 Economical Recent changes in the interest rate and inflation in the UK in combination with certain banks (like Northern Rock) failing have knocked consumer confidence to a low as well as reducing the money that can be spent on leisure trips. Businesses also looking for custom abroad prefer the cheaper options such as flight which could affect the target market. 4. 3 Social Because of acts of terrorism, many people in the UK are choosing not to travel due to the fear of terrorism although this has changed in recent months with a general increase in travel to foreign countries.

There has also been a general outcry to the USA’s “9/11” tax which charges tourists extra to go to any US destination. 4. 4 Technological The new high-speed train line is well and truly overdue as the UK is at least 10 years behind European high-speed rail travel and even more when compared to Japan. Safety advancements have kept relatively in line, however, with the rest of the world. 5. Porter’s 5 Forces: Porter’s 5 forces is used mainly to access the rivalry, bargaining power of the suppliers, bargaining power of buyers, available substitutes and the barriers to entry to the industry.

Each of these categories are then categorized into low, medium or high depending the level. These levels are then used to evaluate the overall profitability of the industry, as mentioned before, is the rail, air and sea cross channel travel. 5. 1 Barriers to entry (High) To enter into the industry one will need to acquire various different licenses, such as rail, a license of approval to use the euro tunnel will be needed. Also for anyone looking to enter the industry they will need to meet various safety laws for airlines, trains that sub-divide to travel both ways and for sea.

Lastly specialist knowledge is needed. 5. 2 Substitutes (Medium) this area was probably the most difficult to consider as there are not possibly many substitutes for cross channel sea, air and train travel. But with this said, we managed to decide that E-commerce is a good substitute as people that travel to shop may simply do it online with most companies having international shipping and for business clients there other methods such as tele-conferencing to have their meetings with people all over the world.

Also National car holidays can be considered a substitute as people can travel in their cars to place like Butlins, Alton towers etc instead of going paris to Disney land. Lastly technology developments such as Skype and cheaper international calls can be considered a substitute for seeing family and relatives instead of travelling. 5. 3 Bargaining power of Buyers (High) For buyers there are many ways in which they can bargain within this industry, particularly by booking early which will get them a cheaper price> there are also student discount through agencies like STA travel. 5. Bargaining power of Suppliers (Medium) Most of the companies in this industry have the same suppliers for their type of travel such as the airline will have the same manufacturers for their airlines and there are not many of these suppliers making it hard to bargain. But with the catering of this industry, such as the food and hospitality, this can be easily found with various different suppliers offering discounts and benefits from economies of scale etc. 5. 5 Rivalry (High) Within this industry lies the airlines such as British Airways, Virgin Atlantic etc, there is also the rail, mainly Euro-star and Sea such as P&O.

Now between these companies, there is very rivalry, particularly between the airlines and rail. 6. Grant’s Framework: Having looked at the external environment in PEST, we then decided to look at Grant’s framework. The reasoning behind this framework is to differentiate between the two levels (resources and capabilities) of a firm’s ability to create a competitive advantage. RESOURCES Tangible • High speed lines • The trains are divided in the middle, so they are able to go either way. France and Germany are yet to adopt these types of trains. Contract with Euro-tunnel (long-term customer supplier relationship) • Invested in Customer Resource Management software. • Efficient station location Intangible • Good reputation and brand name (‘World leading rail service’) • High speed trains • Priorities over their competitors Human • Customer service skills (e. g. Bilingual staff on trains) • Years of successful industry experience ORANISATIONAL CAPABILITIES • Provider of fast efficient cross channel service and other routes • Improve efficiency (through faster rail) • Capable of sustaining long-term relationships with suppliers and affiliates • Agility – e. . adaptation of CRM software TACTICAL STRATEGY • Protect existing customers from switching to their competition by the means of service and offering improvements (e. g. sleeper trains) • Win more customers (particularly business travellers) with first class updated COMPETITIVE ADVANTAGE • Strong long-term relationship with ‘Eurotunnel’ and affiliates • ‘Ready-to-go’ – the current ownership of fast, rail friendly and dividable trains as opposed to competitors • Market leader for many years = trust from target markets • Adaptable to change (moving and increasing promotion online) • Innovative ideas (e. g. nique idea to promote offerings online and encourage online traffic) INDUSTRY KEY SUCCESS FACTORS • Ability to reduce travel time between UK and France • Keep the delays and service interruptions to a minimum • Create a more comfortable and attractive interior than the competitors • Have good relations with suppliers and alliances • Strong logistics and supply chain 7. SWOT: After using our PEST analysis, we identified the internal strengths and weaknesses and the external threats and opportunities using a SWOT framework. 7. 1 Strengths • Eurostar has managed to hold a monopolistic position in the market for many years. They have the technology in place already, unlike their competitors whom of which will have to begin from scratch and build up knowledge. • They have a strategic alliance with SNCF (Societe Nationale des Chemins de fer Francais) the French national railway company, and SNCB (Societe Nationale des Chemins de fer Belges), the Belgian national railway service. They also have an established relationship with Eurotunnel. • There are new safety laws that must be adhered to. Eurostar now has special trains that divide in the middle and are able to take passengers in either direction of the tunnel in the event of an emergency for example, fire.

Only the ? 20million Eurostar trains have this function. Their rivals, Deutsche Bahn are yet to produce trains that meet the British safety laws. 7. 2 Weaknesses • They have unrealistic targets Eurostar’s passenger numbers, have failed to meet the ambitious predictions that were previously made. In 1996 London and Continental Railways forecast that passenger numbers would reach 21. 4 million by 2004, but only 7. 3 million was achieved. Eurostar’s current target is 10 million passengers by 2010. • Reliant on their sub-contractors, customs, partners, more so than the rest of the rail industry. The Rail Professional Interview, Richard Brown, CEO of Eurostar, Feb 2008; http://www. railpro. co. uk/issues/pdfs/feb08_interview. pdf) • They have no single financial report because Eurostar is split into 3 parts between SNCF and SNCB and Britain. Therefore it is hard to make forecasts thus accounting is not particularly transparent. (http://www. railpro. co. uk/issues/pdfs/feb08_interview. pdf) • The highest charges in this consortium ?? 7. 3 Opportunities • The opening of Stratford International station for the 2012 Olympics will increase passenger travel by Eurostar from the Europe to London. It is possible to increase operations within the UK, for example expand their national rail system. • Create a strategic alliance with Deutsche Bahn, thus reducing rivalry and competition and sharing the profits rather than losing customers to each other. Or with Eurotunnel ????? • Expand operations into more European destinations, including Spain and Portugal. • Differentiate on internal operations, e. g. culture (hard to copy) 7. 4 Threats • German national rail, Deutsche Bahn has applied to use the Channel tunnel which will end Eurostar’s monopoly and increase rivalry and competition. Airlines and ferries are offering increasingly cheaper transportation as they are desperately trying to gain market share. O – anything can go in this section, whether they might follow it or not. 8. Generic/ Competitive Strategy: Throughout the years Eurostar have been following mainly emergent strategic approach, because it doesn’t have any direct competition in its niche and, therefore, can still enjoy being solitary and unique rail service across the channel. There is no immediate necessity to make any deliberate strategic plans. This is acceptable as long as they are the only players in this niche and hold a monopolistic position.

Due to the obvious circumstances they are focused differentiators as they are the only ones doing cross channel route by rail on passenger trains. Since, as far as cross channel transportation is concerned the cost leadership is with air industry, thus, London to Paris flights can be as cheap as 20 pounds per flight. However, main focus niche for Eurostar is the city centre to city centre in fast and convenient way. For example, in 2005, for example, Eurostar took 71 per cent of London-Paris air-rail passengers and 64 per cent of London-Brussels trade.

That shows that Eurostar is a very firm and main provider in its niche. However, now, with the opening of the St Pancras International and the HS1 (High Speed Rail) through London and Kent, there are benefits and potential dangers (see next section 8. 2 for dangers). First the benefits are: an even quicker travel time making it in around two hours from central London to central Paris. And, increase in ticket sales since 14 November 2007 indicate that faster travel times to Paris and Brussels, plus the move to the more easily-accessed St Pancras, have wooed more Europe-bound passengers onto trains.

Between 14 November 2007 and 31 December 2007, Eurostar saw an 11 per cent increase in passengers against the same period in 2006. 8. 2 Future potential developments Since the expansion to a larger St. Pancras International Station and opening of the High Speed line, as well as the approaching 2012 London Olympics Eurostar’s field had become very attractive to the potential new entrants. And, due to the European legislation on fair trade and freedom of movements, Eurostar may soon have to face a direct competition in its own niche.

That is because Deutsche Bahn waiting to come into the market, so the threat of direct competition is real and Eurostar will have to start making strategic plans for their actions. Deutsche Bahn is a very old and strong brand, subsidised by the German Government. Hence, it would be reasonable to assume that Deutsche Bahn would have necessary resources to quickly gain market share in a new market by the means of cost-leadership. Eurostar may use differentiated approach to strengthen their situation against Deutsche Bahn and use deliberate strategies in order to do so.

They could differentiate on quality service offerings and make emphasis on climbing the loyalty ladder towards their existing customers. As their main advantage against the German competitor is the existing market share, even greater efforts would have to be put into maintaining and improving relationships with their customers. 9. Options: Realistic and suitable opportunities: Their strongest benefit over Deutsche Bahn is that they have a lot of existing customers already and D. B. will have to acquire new ones from scratch. Therefore they have to strengthen customer relationship and increase loyalty.

Differentiate for example on service and use existing customers. By the time they become loyal to Eurostar, they will hesitate to switch to D. B. Considering the evidence, Eurostar can not afford to follow a cost-leadership strategy, because of their debts and charges (especially higher than that of the European competitors) and also because of their main concern being return on investment from shareholders. D. B. must be aware of that; and being a government subsidised company it can afford to use a cost-leadership strategy, penetrate the market and gain market share.

This is where another recommendation follows: create a strategic alliance with them and become friends instead of fighters. Or form a strategic alliance with Eurotunnel to strike back at competition. Due to the lack of information we are unable to suggest the only right one (whichever will create and acceptable rate of return), however those were the realistic options. 10. R ACES: Strategy: – Invest to maintain the existing position or invest to grow? Realistic and suitable opportunities: Their strongest benefit over Deutsche Bahn is that they have a lot of existing customers already and D.

B. will have to acquire new ones from scratch. Therefore they have to strengthen customer relationship and increase loyalty. For example, they could introduce reward schemes for loyal customers like rail miles. For their business customers, increase the value that they need, which will be saved time and increased convenience. This could be done through easing the travel as much as possible: e. g. introduce a special membership card that will allow ‘platinum’ cardholders to move through the queue immediately and taxi could be ordered during check in or something like that.

Differentiate for example on service and use existing customers. By the time they become loyal to Eurostar, they will hesitate to switch to D. B. Considering the evidence, Eurostar can not afford to follow a cost-leadership strategy, because of their debts and charges (especially higher than that of the European competitors) and also because of their main concern being return on investment from shareholders. D. B. must be aware of that; and being a government subsidised company it can afford to use a cost-leadership strategy, penetrate the market and gain market share.

This is where another recommendation follows: create a strategic alliance with them and become friends instead of fighters. Or form a strategic alliance with Eurotunnel to strike back at competition. Due to the lack of information we are unable to suggest the only right one (whichever will create and acceptable rate of return), however those were the realistic options. Recommendation: 11. Implementation: For example, they could introduce reward schemes for loyal customers like rail miles. For their business customers, increase the value that they need, which will be saved time and increased convenience.

This could be done through easing the travel as much as possible: e. g. introduce a special membership card that will allow ‘platinum’ cardholders to move through the queue immediately and taxi could be ordered during check in or something like that. 12. Conclusion: References: Books: Journals: 1. [Mannion E. , Whittaker P. , 1996 Volume: 1 Issue: 6 Page: 12 – 16 ‘European Passenger Services Ltd’] Websites: 1. [‘Eurostar Card Sorting Case Study’, Sep 12, 2007, by Donna Maurer] http://www. rosenfeldmedia. com/books/cardsorting/blog/eurostar_card_sorting_case_stu/ 2. http://web. ccam-dm. com/content/eurostar-case-study 3. http://wordpress. com/tag/eurostar/ 4. http://en. wikipedia. org/wiki/Eurostar#Future_developments 5. http://www. thisismoney. co. uk/news/article. html? in_article_id=425859&in_page_id=2&ct=5&ito=1453 6. http://fortomorrow. eurostar. com/ 7. http://www. profound. com/research/newSearchFromLink. do 8. http://www. emeraldinsight. com. chain. kent. ac. uk/Insight/viewPDF. jsp? Filename=html/Output/Published/EmeraldFullTextArticle/Pdf/1370010602. pdf 9. http://www. eurostar. om/UK/uk/leisure/about_eurostar/press_release. jsp 10. http://www. eurostar. com/UK/uk/leisure/about_eurostar/press_release/high_speed_1_record_year_eurostar. jsp 11. http://www. eurostar. com/UK/uk/leisure/about_eurostar/company_information. jsp 12. http://www. eurostar. com/UK/uk/leisure/about_eurostar/press_release/press_archive_2007/eurostar_world_leading_rail_service. jsp 13. http://www. eurostar. com/UK/uk/leisure/about_eurostar/procurement_portal. jsp 14. http://www. eurostar. com/UK/uk/leisure/about_eurostar/company_information/ownership_structure. jsp 15. www. eurostar. com Appendix 1. Options |Resources |Acceptability |Consistency |Effectiveness |Sustainability |Overall Evaluation | |Carry On as we |Medium: physical |Medium: |High: Existing |Low: |Low: |Generally this will be | |are |assets and good |unsatisfied |Strategy |Increasing |no sustainable |a bet on the actions of| | |reputation, |customers, | |competition |contribution to |increasing competition | | |financial and HR |Creditor debts, | | |sustainable | | | |are on the downside| | | |advantage | | |Increase |Low: |High: |High: |Medium: |Low: |Reject on grounds of | |operations |Would require |Aim is to |That is what |Effective if they |No resources and |limited resources | |within the UK |sufficient |increase the |they have done |can become the |too much | | | |investment, |profits for all |so far by |technologically |competition and | | | |training and etc. , |stakeholders |expanding with |advanced monopoly |alternatives | | | |which they do not | |St Pancras Int. nationwide, however | | | | |own | |and Ebbsfleet |they have to | | | | | | | |overcome competition| | | |Strategic |High: |High: |Low: |High: |Low: |Reject on the basis of | |Alliance with |Eurostar will have |More operations |Very different |Will give Eurostar |The choices depend|limited sustainability | |Deutsche Bahn |to contribute |and services ( |to previous |the necessary |on more than one |and consistency | | |mainly their market|more profits ( |strategy; risky |resources to stay |player, i. e. | | |expertise and their|happier |because Deutsche|competitive in |Deutsche Bahn | | | |existing customers |stakeholders |Bahn could use |today’s market |could decide to | | | | | |Eurostar’s | |pull out | | | | | |knowledge for | | | | | | | |their own | | | | | | | |benefit | | | | | | | | | | | | | | | | | | | | | | | | | | | | |Differentiate on|Medium: |Medium: |Medium: |High: |Medium: |Accept on the basis of | |the basis of |Will have to invest|Employees might |main focus of |Already half way |Resources allow, |no other option and no | |excellent |in training and |experience |the strategy |there and have |however |real risk; and direct | |customer |make service |resistance to | |advantages over |competition may be|costs are less than | |relations |improvements, |change | |competitors |able to employ |that in other | | |possibly alter | | | |that

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Eurostar Strategic Analysis. (2016, Oct 29). Retrieved from https://graduateway.com/eurostar-strategic-analysis/

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