This paper seeks to explore the marketing techniques utilised by the low cost airline, Ryanair. Specific analysis of its target market will identify that whilst its cost leadership strategy is hugely successful in its appeal to the mass market, closer analysis of the increasing ‘budget business traveller’ segment reveal opportunities for further industry growth poignantly amidst the current economic climate.
Analysis of Ryanair’s market position as ‘Europe’s largest airline carrier’ shows that the airline is currently market leader and cost leader. This is in sync with the business operation of the ‘no frills’ concept extrapolating a low cost, high volume market yield. A specific insight into Ryanair’s marketing mix shows that its business is defined through a price orientated business construct aimed at meeting consumer needs through the promotion of low cost travel.
The Changing face of Commercial Aviation Since its conception the Global commercial Airline industry had been dominated by national flag- carrier airlines such as British Airways, Lufthansa, American Airlines and Air France. This oligopoly market, consisting of few companies advocated the utilisation of restrictive trade practices (such as collusion and market sharing) to raise prices and restrict the emergence of new competition (Button et al. , 1998). However, in 1978, the Airline Deregulation Act passed in America conceptualised the economic liberalisation of air travel amid growing realisation that a politically controlled economy served no continuing public interest (Smith & Cox, 2002).
This was soon followed by a greater global inclination to liberalise respective airline industries. In Europe particularly, the ‘open skies’ legislation of the late 1980’s aimed at challenging the cartel of flag-carrying national airlines such as British Airways, Air France and Lufthansa which controlled 40% of the available passenger-kilometres on scheduled intra-European flights through bilateral agreements (Ghoshal et al. , 1988).
Resultantly, the once formidable barriers of market entry were removed allowing the competition, namely Southwest Airlines and ‘ copycat’ companies such as Ryanair, to realise the entrepreneurial opportunity for the introduction of a pricing strategy targeted at shattering the then existing pricing stronghold on the market. The Southwest Airlines model Aligned with the theories of Porter (1985), the ‘adopted’ Ryanair model or ‘the Southwest model’ advocated the implementation of a cost leadership strategy.
Porter stated that there are three generic strategies aimed at obtaining a competitive advantage;
The cost leadership strategy is designed to produce goods or services at a lower cost than competitors by stressing efficient scale of operation (Wook Yoo, Lemak & Choi, 2006). Characteristics of successful implementation of this strategy include the sale of a comparable product more efficiently than the competitor whilst applying an industry wide market scope (Parnell, 2000; Brooks, 1993).
Firms often drive their cost lower through investments in efficient-scale facilities, tight cost and overhead control, and cost minimizations in such areas as service, selling and advertising (Porter, 1980). They often sell no-frills, standardized products to the most typical customers in the industry. Thus, the primary thing for a firm seeking competitively valuable way of reducing cost is to concentrate on maintaining efficiency through all activities in order to effectively control every expense and find new sources of potential cost reduction (Dess and Davis, 1984).
The Southwest model aimed at matching this criterion by offering the consumer the possibility of low cost regional air travel through its ‘no frills’ business concept. This model focused on supreme price differentiation through reducing overheads and operational inefficiencies, in particular;
- Flying one type of plane to cut engineering costs
- High frequency flights
- Quick airline turn- round
- No free meals or drinks on board
- No seat assignment
- Abandon Air mile schemes
- Keeping overheads down
- Point to point service
- Short flights
Flights to secondary airports. Emergence of Ryanair Witnessing the success of Southwest model and its potential, it wasn’t long until its success was imitated in other continental markets. In Europe, the emergence of this new niche market in the 1990’s saw the expansion of two relatively new operators adopting the Southwest business model; Ryanair and Easyjet.
Founded in 1985, Ryanair has grown exponentially to become Europe’s largest airline carrier. Currently the airline services 830 low fare routes across 26 European countries. Operating in a sector suffering from several external factors such as the war in Iraq and subsequent rises in the cost of fuel, the recession and the ensuing impact on the disposable income of the consumer, the company’s success can only be levied on its commitment to lowering prices and the efficiency in which it conducts its business (Sum Chau & Kao, 2009).
Ryanair’s self professed image as the ‘world’s favourite airline’ is further substantiated by its large customer base (67. 7 million in 2008) and unparalleled annual turnover (€1,811million in 2008). This considered Ryanair bears testament to the belief that there is an ever growing demand for cheap low cost travel. Market Analysis The Airline sector is currently experiencing its worst ever trading environment. The impact of fluctuating oil prices coupled with the economic downturn has lead to dwindling profits across the sector with several big name airlines such as ‘XL’ ceasing to trade.
From the perspective of the customer, the economic downturn has also impacted greatly on their behaviour. The need to streamline personal expenditure has seen the current necessity to adopt cheaper forms of travel (Kasper et al. , 2006; Bor, 2003; Doganis, 2001). It must therefore be an organisational imperative to construct and implement coherent marketing strategies in order to survive operationally within the current trading environments through meeting and exceeding customer needs better then the competition (Jobber, 2004).
The Marketing concept holds that achieving organisational goals depends on determining the needs and wants of target markets and delivering the desired satisfactions more effectively and efficiently than competitors do (Kotler et al, 1996) Webster (1997) points out that, of all the management functions, marketing has the most difficulty in defining its position in the organisation, because it is simultaneously culture, strategy and tactics (Hooley, Piercy & Nicouland, 2008) :
- Organisational Culture: Marketing may be expressed as the ‘Marketing Concept’ (Drucker, 1954; McKitterick, 1957; Kieth, 1960), i. . a set of values and beliefs that drives the organisation through a fundamental commitment to serving customers’ needs as the path to sustained profitability.
- Strategy: As strategy, marketing seeks to develop effective responses to changing market environments by defining market segments, and developing and positioning product offerings for those target markets.
Tactics: Marketing as tactics is concerned with the day to day activities of product management, pricing, distribution and marketing communications such as advertising, personal selling, publicity and sales promotion. Webster, 1997). However, due to its nature it is essential that marketing permeates all levels of business for the effective coordination of business operations and thus its intrinsic success (Amit and Zott, 2001).
As sales are the focal point of any business, it is therefore prudent to suggest that effective marketing constructs are key to overall business success. Fundamental to the marketing discipline is marketing knowledge. This requires extensive knowledge of marketplace dynamics, competition, the consumer and competitive position in achieving overall business definition.
Defining the business adroitly is key to having superior performance – it sets up the strategic market posture of the firm and it defines its competitors and hence it’s relative competitive position. Clearly developing a clear, correct and unique business definition is the starting point for any strategic point for any strategic plan (Mc Namee, 2009). Simply, defining the business requires identifying true competitors, customer knowledge and analysis of current position enabling businesses to adopt concurrent strategies adapted to market conditions and customer specifications.
As stated this requires in-depth internal and external knowledge. With reference to the ‘CALM’ model (or Strategic Compass, Figure. 1) it is possible to identify how Ryanair defines its business within the current economic climate, meets its desired position, targets and meets the demand of the market through the implementation of its pricing strategy. The Strategic Compass Many strategic frameworks, models and portfolios have been suggested as a means of selecting key strategies and, through them, gaining the often sought, but seldom found, sustainable competitive advantage in a desired market (Day, 1984; Day and Wensley, 1988).
The strategic compass is a marketing mechanism aimed at assessing the factors contributing to the success of strategies through analysis of internalities and externalities affecting the business. Analysis of the internal business structure assesses resources so that concurrent strategies can be initiated to drive competition. Competitive Position Competitive positioning is based on the dimensions of market share, strategic marketing ambition, return on investment and growth (Moutinho, 1987) as well as knowledge of competition (McNamee, 2009). In this context it is necessary therefore to access Ryanair’s position in regard to where it currently resides within the market and to ascertain its aspirations for continued growth. As aforementioned Ryanair is currently Europe’s largest airline carrier.
Its position as market leader and indeed cost leader is tenable due to its large customer base its operation of ‘economies of density’, its ability to provide low cost travel across its business spectrum and emphasis on reaping scale or absolute cost advantages from all sources (Porter, 1985; Johnson and Scholes, 2001). These cost advantages are adherent to its adoption of the Southwest model. The fact that Ryanair carries more travelers than any of its competitors evidently dictates that it has a higher market share (Prescott et al. , 1986).
Large market share is both a reward for providing better value and a means of realizing lower costs (O’Regan, 2002). This is in line with the High volume, low cost strategy commonly existent with differential pricing strategies. Furthermore, a company’s competitive position determines its price and the subsequent perceived quality of its brand (Dolan and Simon, 1996; Gabor and Granger, 1966). Ryanair’s competitive position is fundamental to its price. Ryanair’s pricing strategy appeals to all market segments regardless of apparent social class.
Increasing within the business class, price sensitivity has influenced modes of travel. Within SME’s especially, where expenditure directly impacts on profits, companies are increasingly resorting to adopting the use of low cost airlines for business travel. A brand harnesses both qualities that differentiate it from its competitors and develop a deep seeded connection with the consumer (de Chernatory and Riley, 1996). Brands are viewed as key value creating resources and useful sources of sustained competitive advantage because they are firm specific, protected by law and inimitable (Barney, 1991; Urde, 1999; Teece, 2000).
Thus a key challenge facing contemporary strategic marketers is the ability to conduct successful brand management activities (Doyle, 2001). Branded as ‘the low fares airline’, Ryanairs brand conveys images of value travel to its target market. It can be argued that the Ryanair brand does not have the particularly reputable strong brand presence and assured quality of some of its rivals; namely British Airways. It can be argued that Ryanair could be largely viewed as a ‘commodity airline’, due to the generic nature of low cost travel and lack of distinction between carriers.
Despite having none of the physical characteristics akin with basic commodities such as milk or bread, the broad scope of its customers, the influence of price and the lack of apparent brand loyalty would argue otherwise. However, Lury (2004) cites that customer perception is in fact the essence of a brand regardless of its apparent attributes. Ryanairs image aligned with its mission statement and commitment to offering low cost travel can therefore be regarded as an effective marketing mechanism in the attraction of the consumer.
Currently, Ryanair aims to offer increased numbers of low cost seats to stimulate a market in stagnation. Its position as cost and market leader enables this capability, as its main price competitor; Easyjet, due to the choice and cost (landing fees) of airport destination, does not have the capacity to do so. This would suggest Ryanairs intention for further growth in terms of market share and business volume. Ryanairs brand image as being a basic (no frills) service also asserts the recognition that consumers are willing to sacrifice basic luxury for basic price (Bamford and Xystouri, 2005; Rhoades and Waguespack, 2005; 2008).
Asset Utilization An efficient firm produces goods or services economically; the benefit is that the cost per unit of output is low and, therefore, the potential for offering low prices to gain market share is present (Jobber, 2004). A major factor in the success of low cost carriers has been the efficiency with which they conduct their operations. Reductions in overheads such as customer interfaces and subsequent staffing due to the utilisation of the online interface have allowed for investment in other areas of business.
Primarily, many low cost airlines have invested in their fleet of airplanes in an attempt to increase flight frequency and capacity to lower operational cost per passenger. This operation of ‘economies of density’ in which flight time for each aeroplane is maximised (Sorensen, 1991; Caves et al. , 1984). In conjunction with this, many low-cost carriers aim for improved flight efficiency and quicker turn around times. Ryanair in particular, targets turn around time of on average 25 minutes. This will not only improve efficiency in terms of flights per plane but also allow for more customers to be serviced over a shorter period of time.
Recently, Ryanair have announced ambitious plans to further increase their fleet of planes due to the expected influx of budget travellers amid the economic downturn in attempt to increase its number of flights and attract more custom. This should increase interest especially amongst once disparate market segments, such as the business class, as frequent flights offer added value in terms of a more convenient and efficient service. Leadership In line with cohesive market strategies, there needs to be similar effective leadership constructs in place for them to be successful.
McNamee (2009) cites that effective strategic leadership entails corporate vision, strategy, inspirational, communicational and motivational skills. This has required corporate planning in terms of cost control techniques and prudent route selection. Ryanair’s corporate vision and strategy is that success can be achieved through providing customers with low cost travel and customer service. The airlines recognition that most travellers are driven by price is the bedrock of its business. In offering the consumer the ‘lowest fare’, Ryanair has had to ensure cost effective methods of production whilst still making profits.
This has required a rigid cost control system as well as vision to choose were the business establishes its travel routes. Consistently, Ryanair has limited travel to destinations with low demand to once in every few days in an attempt to fill f lights whilst still offering the destination. Furthermore the companies realisation of market opportunities in terms of offering of lower cost flights when the demand for travel is down Markets Addressed An analysis of the markets in which a company operates or wishes to operate, can serve to throw into focus the opportunities and threats facing the company.
The opportunities and threats stem from two main areas; the customer (both current and potential) and the competitors (again both current and potential) (Hooley, Piercy and Nicolaud, 2008). Traditionally the low cost airline has been the selected method of air transport for the budget traveller. Subsequently low cost carriers such as Ryanair, have coordinated their marketing strategies to this effect. The generic cost leadership strategy adopted by Ryanair, asserts that the business will have a broad market scope and will serve many market segments (Porter, 1985).
Conversely this has led to Ryanair’s expansive marketing belief that price deviation will drive business. However, as market dynamics go through transition within a changing economic climate especially within the commercial aviation sector, specific knowledge of the consumer has become ever more pressing. Target marketing is a key decision area for all organisations undertaking marketing and strategic planning (Mc Donald, 1995; Piercy, 1992). It is also part of the market segmentation process, which groups together customers with similar needs and buying behaviour.
Market segmentation is the process of classifying customers into homogeneous groups with similar demand or preferences (Beane and Ennis, 1987; Dickson and Ginter, 1987; Tynan and Draton, 1987; Wind, 1978). In most cases, it is almost impossible to satisfy all customers in a single market with a single marketing strategy. Therefore, market segmentation is the basis for market strategy development (Kale and Sudharshan, 1987). Bruning, Hu and Wei Hao, (2009) identified five distinct consumer segments within the airline industry;
- price sensitive
- quality seeker
- convenience-oriented punctuallers
- COA (country of airline)-oriented.
Of these segments, it is fair to state with a certain degree of clarity that Ryanair customers fall into price sensitive category. In correspondence, it could also be asserted that as there are other low cost carriers within the market, the extremely price sensitive must choose the lowest possible fare available. In line with this, Sum Chau & Kao, (2009) argue that these ‘extremely price sensitive consumers’ are devoid of brand loyalty and quality assurance. Hey are prepared to sacrifice service quality for price orientation.
However, within current economic climates the need for low cost travel has grown as the board with all segments of consumers desiring to streamline personal expenditure. As mentioned, this has also become apparent in the ‘budget business traveller’ segment as businesses particularly, SME’s, have become increasingly price sensitive as businesses look to curtail expenditure. Summary Ryanair’s competitive position as market leader is substantiated and defined by its mass market appeal through the utilisation of its cost leadership strategy and the efficiency with which its business operations are performed.
Its market position within the airline sector, as the lowest cost operator continues to pay dividends as the company has been able to increase the volume of its business. Aspirations of further market growth and dominance are supported by its current efforts to provide further cost reductions for its increasing customer base. A possible redefinition of its mass target market, with specific reference to the ‘budget business traveller’ segment ,would reveal that whilst its potential for further growth is substantial, Ryanairs current position within the market, as the lowest fare airline remains the most effective way of meeting this demand.
Ryanair’s position as market leader and cost leader should thus be reflected within its marketing mix. Through analysis of Ryanair’s marketing mix it should be possible to decipher how it creates a differential advantage above competitors and enforces its cost leadership strategy whilst meeting the needs of the customer. Price Jobber (2004) cites that an effective marketing mix is a well blended mix of the 4- Ps aimed at creating a consistent theme driven towards an overall strategy. As a price orientated business all of Ryanair’s marketing initiatives must therefore be affected and contribute to the role of pricing within its business.
Pricing is a dimension that can be identified from the perspective of the customer as well as that of the retailer/manufacturer (Sivakumar, 2000a, p. 294). Pricing represents both the consumers perceived value of the product gauged against the cost of production and the desired profit of the business (Gross, 1978; Monroe, 1990; Nagle,1987; Shapiro and Jackson, 1978). Therefore to meet the demands of industrial customers seeking value, the seller must understand value from the buyer’s point of view and use that information in determining price (Shapiro and Jackson, 1978).
This requires understanding factors affecting the transactional nature of the consumer in terms of disposable income and associated industry paradigms. Furthermore in matching these customer preferences, cost of production must be regarded as a key factor in determining price (Wickham, 2004). However, in the face of these competitive realities, the old dependence on cost-driven pricing strategies and techniques must give way to profitable customer-driven pricing procedures (Forbis and Mehta, 1981; Shapiro and Jackson, 1978).
Further to this, when determining price a number of factors need to be taken into account;
- Production costs
- Economic Value to the customer
- Competitor price levels
- Desired competitive positioning
- Corporate objectives
- Price elasticity of demand
In Ryanairs case, the operation of the cost leadership strategy aims to stimulate the consumer’s imagination in the possibilities of travel to a growing variety of destinations at a relatively low price.
The operation of the Southwest model and cost leadership strategy extrapolates that efficiency, volume and frequency are paramount in aiming for lowering costs per unit in the contribution to the organisations ability to offer more competitive prices than its competition whilst commanding higher market share. Further more this aims to consolidate its market position as the ‘lowest fare airline’. However as mentioned earlier in this paper, Ryanair customers do not attach much brand affiliation with the service due to its commodity like nature.
Place involves decisions concerning distribution channels to be used and their management, the locations of outlets, Methods of transportation and inventory levels to be held. The objective is to ensure that products and services are available in the proper quantities at the right time and place (Jobber, 2004; Bennett, 1997). Simply, ‘place’ involves the businesses ability to ensure a product or service is widely accessible to the consumer market whilst matching corporate resources. In the case of Ryanair, this involves the use of its online interface, airport check-ins and the airport itself.
Within contemporary business environments the use of the internet has become an integral part of any companies business (Limayen et al, 2000; Levy & Weitz, 2004; Shim et al, 2001; Forsythe & Shi, 2003). The ease of use, wide accessibility, efficiency and ability to offer valuable information to the consumer makes it an increasingly popular customer/business interface (Balasubramain et al, 2005, Detlor et al, 2003; Noble et al, 2005). The use of an online customer interface increases Ryanairs ability and capacity for business whilst further reducing operational overheads fundamental to its business concept.
As mentioned this entails larger consumer exposure to its service offerings as well as concurrent promotions and sales windows. Additionally, utilisation of customer online check in reduces administration time and further increases operational efficiency. The airport also plays an important role in Ryanairs marketing mix. Although the businesses primary business interface is online, its ‘bricks and mortar’ check in also offers a point of sale (Rayport and Jaworski, 2002). Additional charges are however, levied against this to deter customers and emphasize the businesses online utility whilst further reducing cost.
The selection and marketing of routes is a vital step for any airline and new entrants often face blocking tactics in gaining landing slots at prime airports such as London Heathrow and Paris Charles de Gaulle. These airports are also the most expensive and most congested, causing delays (Rae, 2001). Consistent with the Southwest model, Ryanair chooses to fly to secondary airports, which incur lower landing fees, less restrictions on landing and take-off slots and offer faster turnaround times (Rae, 2001). As mentioned throughout this paper, Ryanair’s business is based on cost leadership.
Cost control must take centre stage (Wickham, 2004). Therefore consistent with this strategy, Ryanair must reduce operational costs at almost every point of business. The significance of ‘place’ within its marketing mix serves to offer an example of how the business can do so whilst simultaneously targeting the mass market. The utilisation of the online interface serves the mass market at relatively low operational costs. The deterrent of physical check ins and the use of secondary airports further reduce cost adding value to Ryanair operations.
The product decision involves deciding what goods or services should be offered to a group of customers. Product decisions also involve choices regarding brand names, guarantees, packaging and services that should accompany the product offering (Jobber, 2004). Other factors influencing product decisions include its defining characteristics and most importantly customer perceptions (Kotler, 1997). Hooley, Piercy & Nicouland (2008) contend that this exerts particular implications for marketing. Firstly, the customers perception of a product can be as, or more, important to them than the objective reality.
Simply, the consumer will purchase on the basis of how the product or service will augment their own appearance. Secondly, as evidence suggests product/ service life cycles are shortening leading to a dwindling sense of customer loyalty as products and particular services only exist as solutions to customer problems until a better solution comes along (Hooley, Piercy & Nicouland, 2008). Basically, the concept of product within the marketing mix is how effectively a business meets the customer’s wants and needs. For the ‘budget traveller’ segment, Ryanair matches their need for low cost travel with its low cost service.
Within this, the budget traveller is willing to sacrifice associated luxuries available with the competition for the perceived better value with Ryanair. This consumer segment values the services operational characteristics higher than the perceived benefits such as social status and brand affiliation supposedly gained with more upmarket airlines, such as British Airways. Promotion Promotion regards what decisions must be made involving the promotional mix; advertising, sales promotions, public relations, direct marketing and the internet and online promotion (Jobber, 2004).
It is the selection of the most effective method of communicating business offerings to the selected audience (Wickham, 2004) Daily, the average person is bombarded with sales information disseminated from various businesses promoting various products and services. It is the marketers challenge to therefore connect and engage the consumer more effectively than the competitor in order to communicate his/her business offerings (Srinivasan & Anderson, 1998). To this extent it is emphasized that to be effective, the message must be tailored towards a specific target market.
In addition, the promotional program must offer appropriate incentives for local market conditions; therefore, it is essential that promotions be designed and implemented for each of the target markets separately (Srinivasan & Anderson, 1998). Ryanairs main promotional tool is the conventional online sales promotion. Blattberg and Neslin (1990) describe the sales promotion as an action-focused marketing event whose purpose is to have a direct impact on the behavior of the firm’s customers.
Sales promotions include money off, bonus packs, three for the price of two, free samples, coupons, loyalty cards, prizes, bulk discounts, competitions, allowances and any other ‘creative deal’ that firms can dream up (Hooley, Piercy & Nicouland, 2008). As shown in Figure. 4, Ryanair regularly holds online sales promotions. These promotions are not only aimed at stimulating short term sales but also give the customer the incentive to regularly check Ryanairs online interface for similar deals. This would prove attractive to those regularly commuting abroad for work or family commitments (i. . students or business personnel).
In conjunction with this short term sales effort, this aims to stimulate sales within the industry at a time when the airline industry is commercially suffering due to external factors. The Achievement of Organisational Objectives Ryanairs primary organisational objective is to operate a cost leadership strategy. This is possible through a high market yield and efficient cost control in all facets of its business. It is essential that all components of an organisations marketing mix are correlated with its business strategy.
As price is used to spear head its marketing efforts its sustainability is fundamental to the efficiency of Ryainair’s cost control (Hooley, Piercy & Nicouland, 2008). Analysis of Ryanairs marketing mix serves to demonstrate how in fact it has streamlined operational overheads. In terms of place for example, utilisation of secondary airports and an online interface reveals several measures Ryanair has adopted in order to radically adhere to the Southwest business model.
Abell (1978) argues that a crucial part of any marketing strategy is timing, that at certain times ‘strategic windows’ are open (i. e. here are opportunities in the market they can be exploited) while at other times they are shut. At present, in time of economic difficulties, Ryanair has reiterated its objective to offer the ‘lowest air fares’ by increasing its air fleet whilst offering considerably lower fares in attempt to stimulate the market (Blattberg and Neslin, 1990). This contradicts current market trends, when most operators are in fact cutting the amount of flights offered. This commitment to further market growth bears testament to Ryanairs belief that it can ‘snatch’ competitors customers and that the opportunity for an increased market share is evidently there.
Furthermore, it must be noticed that the affiliation Ryanair customers have with the service is a major component in its success. Bruning, Hu and Wei Hao, (2009) identified five distinct consumer segments within the airline industry;
- price sensitive
- quality seeker
- COA (country of airline)-oriented.
Ryanair customers are prepared to accept lower quality travel in the exchange of price (Sum Chau & Kao, 2009). In conjunction this resonates with the airlines brand image and competitive position.
This increasing lack of brand affiliation within the commercial aviation market and price sensitivity from the consumer allows Ryanair to assert its image as the ‘lowest fare airline’. Despite being susceptible to deviation from the consumer for preference of other carriers, this image will obviously appeal at a time when customer spend has been its lowest in over a decade. In summary, Ryanairs marketing mix contributes to its efficiency in achieving cost leadership. The streamlining of operational overheads in every aspect of its business contributes to this.