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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
28.11.06 EasyJet & Ryanair: flying high with low prices 2
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Introduction
Source: Jobber, p410
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
28.11.06 EasyJet & Ryanair: flying high with low prices 3
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
First Question
How do EasyJet and Ryanair achieve success using low price strategies?
Source: Jobber, p410
28.11.06 EasyJet & Ryanair: flying high with low prices 4
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 5
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 6
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Only one type of aircraft
• i.e. Boeing 737– Keep costs down by
– Reducing pilot training costs– Reducing maintenance
costs
28.11.06 EasyJet & Ryanair: flying high with low prices 7
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Internet booking
• Cut paperwork and administrative costs
Source: www.easyjet.com; www.ryanair.com
28.11.06 EasyJet & Ryanair: flying high with low prices 8
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Product Strategy
EasyJet & Ryanair have successfully attacked British Airways with their rapid penetration strategy
(Price: low, Promotion: high)
28.11.06 EasyJet & Ryanair: flying high with low prices 9
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Target segment
• Independent customers (no need for bundled services) with high grade of self organized market overview/comparison
• Rather young and flexible (Generation @)
28.11.06 EasyJet & Ryanair: flying high with low prices 10
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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)
28.11.06 EasyJet & Ryanair: flying high with low prices 11
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Second Question
What are the advantages and risks associated with low-price strategies?
Source: Jobber, p410
28.11.06 EasyJet & Ryanair: flying high with low prices 12
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 13
Success through low prices
Advantages andRisks
Conditions for Charging low prices
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)
28.11.06 EasyJet & Ryanair: flying high with low prices 14
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 15
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 16
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Third Question
To what extent do the conditions for charging low prices discussed in this chapter hold for EasyJet and Ryanair?
Source: Jobber, p410
28.11.06 EasyJet & Ryanair: flying high with low prices 17
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Conditions for charging low prices
Source: Jobber, p385
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
28.11.06 EasyJet & Ryanair: flying high with low prices 18
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 19
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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 laneSource: Jobber, p386
28.11.06 EasyJet & Ryanair: flying high with low prices 20
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 21
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Make money laterConditions for
Charging low prices• Price-sensitive
consumers in the low-cost segment
• No way for airlinesto makemoney later
Source: Jobber, p410
28.11.06 EasyJet & Ryanair: flying high with low prices 22
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Make money elsewhereConditions for
Charging low prices• Low-cost airlines
concentrate on the core competence: Transportation
• Selling food on planes
28.11.06 EasyJet & Ryanair: flying high with low prices 23
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 24
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
PredationConditions for
Charging low prices• National airlines backed
up by subsidies• Alliances• Special contracts with
airports• BA & TWA accused
predatory pricing
28.11.06 EasyJet & Ryanair: flying high with low prices 25
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Fourth Question
How successful do you believe EasyCinema is likely to be?
Source: Jobber, p410
28.11.06 EasyJet & Ryanair: flying high with low prices 26
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
What is EasyCinema?
Source: www.easycinema.com
28.11.06 EasyJet & Ryanair: flying high with low prices 27
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
EasyCinema
• Film bookings 2 weeks in advance
• Starting from 20pence (<30 cent)
• The earlier the cheaper (like with aircraft seats)
28.11.06 EasyJet & Ryanair: flying high with low prices 28
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
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
28.11.06 EasyJet & Ryanair: flying high with low prices 29
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
EasyCinema‘s success
• Direct changes of price according to demand
• Cheap for cineasts, who plan watching films in advance
28.11.06 EasyJet & Ryanair: flying high with low prices 30
Success through low prices
Advantages andRisks
Conditions for Charging low prices
easyCinema
Thank you for your attention!