Table of Contents
Development of Alternatives
Clear sky Airways discovered a new avenue of revenue increase by launch of its new In flight Entertainment product with capabilities to include internet connectivity via WiFi into the global internet segment. The strategy needs to be redefined in view of the latest announcement by competitor DarkSwordAir about entering into a pact with Surfshop LLC-the principal vendor and proposed supplier for the WIFI application. There has been a major setback to the plans of taking the ???First Mover Advantage??? by this announcement. The Clear sky Airways has to deal with the new threat and define the best way forward. As it is found that company is facing the problem with change in customer??™s preferences, by its competitor launching new services very soon, to sustain the market share, face the competition effectively and enable growth of the business it??™s important to study the problem and take required steps as soon as possible.
The main problem is the sudden announcement of DarkSwordAir of acquisition of a controlling interest in Surfshop LLC, which was in talks with Clear sky Airways to provide the internet product with compatibility for Panasonic IFE system. DarkSwordAir intends to limit the product of Surfshop LLC to its own aircrafts for first two years. The company therefore faces a threat to its first mover advantage in the launch of internet enabled IFE (Inflight Entertainment) system as well as of losing an opportunity of increasing its revenue by around 45%. It may also cause a decline in the company??™s revenue by the shifting of customers, wanting to experience the flight borne facility, from our client base to that of DarkSwordAir. The urgent call is to confront this new threat, need is to develop strategic options and deal in the best possible manner.
1. CHANGE IN CUSTOMER PREFERENCE:
More than 80% of the revenue of the company comes from premium class. Recent customer preferences show that there is a huge inclination to use the WiFi internet surfing facility in the flights.
Surveys undertaken have shown that approx. 58% of the passengers are willing to use such facilities for a price. We are expecting more than 75 passengers using this facility per flight for the first six months; the number is expected to grow up to 200 passengers per flight by the sixth month.
2. CLIENT MIX-MAJOR SHARE OF PREMIUM CUSTOMER
The major share of our revenue is coming from the premium class passenger who is ready to pay higher but cannot compromise on the level of services; we may face a sharp decline in level of business if we are unable to provide latest technological upgrades in our flights.
The company may see a lot of business going to rivals if they launch the IFE system and we don??™t.
3. FIRST MOVER ADVANTAGE TO DARKSWORDAIR
Though ClearSkyAirways had been working on this project for a long time and had almost finalized the launch but the rival has very strategically stolen the First Mover Advantage by the recent announcement, it has affected our plans and may affect our business if not countered well.
4. PANASONIC DEAL ALREADY FINALISED- COSTS INVOLVED
The Panasonic deal has already been finalized to provide the basic onboard IFE, the contract needs to be complemented with an internet service provider agreement for full capacity utilization and cost effectiveness.
The customers will be willing to pay more if IFE includes internet capabilities, else this investment will go waste.
5. LIMITED NUMER OF VENDORS FOR WIFI CONNECTIVITY
We have got bids from three suppliers for the services:
b. WildWiFi Co.
c. BruceLeeSurfers Ltd.
Of these, Surfshop LLC is already being targeted by DarkSwordAir
6. SURFSHOPS PRODUCT BEING SUPERIOR AND COST EFFECTIVE
Of the bids received, the product of SurfShop LLC is the most cost effective and superior. Now that it has been taken over by the competitor we do not have any access to it and therefore need to re-evaluate alternatives available.
7. IMPACT ON BUSINESS AND STAKEHOLDERS
The present situation has created a threat of decline in business and market share which directly and adversely affects the business stakeholders whose future earnings as well as present investment are at stake.
Development of course of alternatives:
1. Launch of WiFi enabled In Flight Entertainment System
The ClearSkyAirways Co. may take advantage by deciding on a strategic move of launching the internet enabled IFE with the next vendor available in time when DarkSwordAir is still planning the move with SurfShopLLC .The company should look for value for money and technology been highly perishable, must enter into a maintenance cum up gradation contract with the internet service provider.
The services must be offered at a highly competitive price so that the competition can be effectively handled and penetration obtained. Also since major focus is on the premium class customers, it should be borne that the services provided be excellent. More so, other alternative that the company is to undergo in process of understanding rivalry actions in the competitive market .The need is to consider the price competition, advertising campaigns, introduction of new product with features in product, improved services or warranties. Such tactics tends to bring down the profit margins of the various competitors in the industry either by forcing them to lower the prices of their product or by increasing their cost of doing business.
The options available are:
|Company |WildWifi |BruceLee |
|Name | | |
|One time charge |$200000 |$165000 |
|Usage charges |$0.05 per minute |$2.40 up to two hrs and |
| | |thereafter $0.05 per minute |
We may provide for unlimited internet access to clients for the flight duration so we see that the package offered by BruceLee is more attractive since one time capital installation charges as well as recurring charges are also low.
We may bargain further for a better deal for offering the vendor an exclusive contract for all our aircrafts.
To solve the problem the members of the company as group of Clear Sky airways should consider of finding a set of powerful strategy supported by competitively valuable skills and expertise in key areas find it more competitive to understand Strong Brand name image while recognizing market leader and an attractive customer base.
Other factor to be considered is proper allocation of resources helps in avoiding conflicts and sorting out issues that may crop up during implementation of the plan.
The need is to carry out low cost strategy which may have capability of improve or to modify the existing technology to bring down cost of production with strategy of differentiation.
The company needs to be ready for expansion and up gradation as and when needed in the IFE system to keep an edge over others in the industry and to maintain the market share.
2. Strategy – Cost Leadership With this strategy, the objective is to become the lowest-cost producer in the industry. Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimizing costs. If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits. This strategy is usually associated with large-scale businesses offering “standard” products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing to increase in market share. Here, this strategy may not be as successful since the clientbase is niche- premium class .Such a customer is ready to pay high but is very particular about the quality of services.
The cost needs to be minimized in order to have higher profitability but the cost leadership strategic advantage will not be a good move since it will not help in retaining the high expecting clientbase.
3. Wait and let the market respond to DarkSwordAir??™s move:
The company may also for the time being consider waiting and watching the market??™s response to the deal between SurfShop LLC and DarkSwordAir. This may help the company to study the cost benefit analysis of implementing the IFE system by analyzing the competitor??™s results. Also it will protect the company form taking any hurried action as a response to the competitor??™s move which may not prove profitable later on.
This is a conservative strategy and is not highly recommended as it may fail to retain existing customer base and may leave the company obsolete on technical footing.
The high class customer base catered by the company is prone to change preference and shift to competitors offering new services. The company faces a danger of lagging behind technologically by choosing this alternative which may be detrimental to its existence.
Roll out new services
The company should consider strategy 1, keeping in view the drawbacks of the other strategies, The ClearSkyAirways Co. should work for the launching the internet enabled IFE with the next vendor available in time when DarkSwordAir is still planning the move with SurfShopLLC Internet technology is probably the most perishable technology. Ownership may not be an option in order to allow for future exchange of a new vendor. Renegotiate price to offer ???best value for money???
The strategic clock may be used by charging low for such services in the beginning and then go on charging higher later on, also expansion of services to different classes later on may help in overall cost reduction so we may continue at the same prices or reduce them with expansion.
To be global in market the Clear Sky Airways Company is to understand customers of the company service the kind of expectation of the customer .It is important to find out the demand and recent changes in demands of the customer. Not only this it??™s also important to keep an eye on substitute goods available in the market. The availability of the substitute service affects the price that firm in industry charge for their products as increase in price of the product by the firms may motivate customers to switch to the substitute product. The availability lowers the profit potential of all firms in the industry.
Differentiation strategy should be focused which influence the perception of customer that a product or service is unique rather than having to reduce its cost to attract customers. As such method is having various low drawbacks, if the customer perceives the prices of the product as too high; they may choose alternatives which rate less expensive, even if it means sacrificing some desirable features. Customer tastes preferences and requirements are unpredictable. Such preferences keep on changing rapidly and constantly. If business pursue with differentiation, it must analyze the shifting of taste preference of customers carefully. Such an effective strategy when the differentiation factor is both essential for customer and hard for competitors to imitate. It aimed at large market and such focus concentrate on particular niche market.
The premium cabin seats may be the first to be offered the IFE services and then these may be extended to the other sections, this will give the benefit of differentiation strategy or limited IFE services to economy classes and IFE with internet may be offered to premium customers. The logic behind the use of this strategy is to serve a market segment more than effectively than its competitors if it specializes in serving that segment, as compared to its competitors who covered the entire market. This produces a cost advantage, since a firm that is specialize may offer better prices on custom orders than a firm that has leadership position in serving the needs of the entire market.
After this need is to determine about core competencies of business:
Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analyzing core competencies is recognizing that competition between businesses is as much a race for competence mastery as it is for market position and market power. Identifying Core Competencies, so that business can enjoy best position in competitive world. The core competencies here are those that enable the creation of new products and services. For E.g. Wide body fleet, better IFE system, Major premium class capacity, better services, better internet connectivity etc.
1. Established airline for over 10 years.
2. Trusted brand in premium customer service
3. Fleet of over 300 wide body aircrafts.
4. Excellent research and development facilities
1. Huge capital layout required for intended expansion in services.
2. Limited number of service providers available
3. Best service provider poached by competitor.
4. Customer might shift if offered better and innovative services by rivals.
1. The ability to emerge as trend setter in case the co. is able to launch the services before others
2. Huge potential available for such WiFi services.
3. Increase in revenue by a whooping 45%if services initiated
1. Competitor with deep pockets.
2. Panasonic deal may face problem if not finalized soon.
3. Our first mover advantage is under serious challenge by the competitor.
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Porter??™s Five Forces of Competitive Position
New Market Entrants, eg:
??? entry ease/barriers
??? rival??™s strategy – Deal between Darkswordair & surfshop
??? incumbents resistance
??? routes to market
Buyer Power, eg:
??? buyer choice for internet services
??? buyers size/number
??? change cost/frequency
??? product/service importance
Product and Technology Development
??? alternatives price/quality
??? trends of revolution in IT
Supplier Power, eg:
??? Limited suppliers
??? Brand reputation
??? product/service level quality
??? bidding capabilities
??? industry size and trends
??? fixed & variable cost bases
??? product/service ranges
??? differentiation, strategy