Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema 28.11.06EasyJet & Ryanair: flying high with low prices1 Case.

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Presentation transcript:

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices1 Case Study: easyJet & Ryanair Flying high with low prices Caglar Cintuglu Deniz Yarar Uli Breunig

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices2 Introduction Source: Jobber, p410 Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices3 First Question How do EasyJet and Ryanair achieve success using low price strategies? Source: Jobber, p410

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices4 EasyJet & Ryanair The orange-liveried airline is one of the pioneers of low-cost travel in the UK Established in 1991 Europe’s largest budget airline

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices5 Short History: 1978 Deregulation 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

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices6 Only one type of aircraft i.e. Boeing 737 –Keep costs down by –Reducing pilot training costs –Reducing maintenance costs

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices7 Internet booking Cut paperwork and administrative costs Source:

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices8 Product Strategy EasyJet & Ryanair have successfully attacked British Airways with their rapid penetration strategy (Price: low, Promotion: high)

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices9 Target segment Independent customers (no need for bundled services) with high grade of self organized market overview/comparison Rather young and flexible

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices10 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)

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices11 Second Question What are the advantages and risks associated with low-price strategies? Source: Jobber, p410

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices12 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:

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices13 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)

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices14 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

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices15 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

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices16 Third Question To what extent do the conditions for charging low prices discussed in this chapter hold for EasyJet and Ryanair? Source: Jobber, p410

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices17 Conditions for charging low prices Source: Jobber, p385 Conditions for Charging low prices - Only feasible - Market - Make effect/low costs or domination Alternative - Experience curve - Barrier to entry - Predation Presence Money later Money elsewhere

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices18 Only feasible Alternative Conditions for Charging low prices Rather homogenic service Cut down to core value (transportation) Low price as incentive for consumers to switch from usual brand Source: Jobber, p385

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices19 Market presence or domination Conditions for Charging low prices Aggressively pricing Segment of price- sensitive consumers (Price elasticity) Only way to overtake national airlines on the low-cost lane Source: Jobber, p386

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices20 Experience curve effect/low costs Conditions for Charging low prices Cost decline of 20% if production doubles Becoming the lowest- cost supplier Source: Jobber, p386

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices21 Make money later Conditions for Charging low prices Price-sensitive consumers in the low- cost segment No way for airlines to make moneylater Source: Jobber, p410

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices22 Make money elsewhere Conditions for Charging low prices Low-cost airlines concentrate on the core competence: Transportation Selling food on planes

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices23 Barrier to entry Conditions 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

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices24 Predation Conditions for Charging low prices National airlines backed up by subsidies Alliances Special contracts with airports BA & TWA accused predatory pricing

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices25 Fourth Question How successful do you believe EasyCinema is likely to be? Source: Jobber, p410

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices26 What is EasyCinema? Source:

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices27 EasyCinema Film bookings 2 weeks in advance Starting from 20pence (<30 cent) The earlier the cheaper (like with aircraft seats)

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices28 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

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices29 EasyCinema‘s success Direct changes of price according to demand Cheap for cineasts, who plan watching films in advance

Success through low prices Advantages and Risks Conditions for Charging low prices easyCinema EasyJet & Ryanair: flying high with low prices30 Thank you for your attention!