In addition, the price concept can be seen as a differentiation strategy. British airways offer different types of tickets, i. e. e-tickets, family tickets etc. , which differ in price and service levels. BA has become an above average performer within the airline industry due to being able to achieve and sustain differentiation. They have achieved this as their price premium exceeds the extra costs that have incurred in being unique. A misunderstanding about this strategic position adopted by BA is that a successful differentiator operates in high-price markets.
In some circumstances, a strong price can be a positive differentiator, as consumer’s associate price with value. However, differentiation strategies also have risks. For instance, strong differentiation can be costly, buyers may be dissuaded by rising selling prices and decide to opt to lower cost competitors, and are willing to sacrifice some of the features and attributes. The buyers need for a highly differentiated service like the one BA’a offers can decrease over time, a trend that is becoming more common by other imitations narrowing the differentiation gap.
A differentiator like BA cannot afford to be complacent. Easyjet’s competitive capacity is more limited than that of British Airways as it only focuses on price sensitive customers, therefore Easyjet concentrates on a very narrow target market. Easyjet must find and exploit all sources of cost advantage. As they are able to achieve and sustain overall cost leadership, they have become an above-average performer in the airline industry, as long as it can continue to command prices. Concerning competitive advantage, Easyjet concentrates on costs therefore achieves overall cost leadership.
It inhabits a low cost Niche position. “The low cost airlines developed sufficient lead times and competitive advantage to limit any new entrants to niche positions – and we still do not believe that the full service airlines have the culture to successfully develop sustainable in house low fares subsidiaries” (Bingelli and Pompeo, 2002) However, there are problems associated with the idea of sustainable cost leadership as this entails that Easyjet has the lowest cost compared with competitors over time.
This is unlikely to be achieved simply by cutting back costs however their competitors i. e. Ryanair can and will do this too. The search of a cost-leadership strategy will require Easyjet to have a strong focus on cost management, scale economies, and have experience curve cost advantages through the maintaince of volumes. In reality, it can be questioned whether cost leadership is a separate strategy. Sharp (1991) stated, ‘having a cost advantage is merely a facilitator to differentiate, usually on price’, adding that low-cost form seeks to remove bases for differentiation, so as to offer a generic service to the entire market, therefore reducing differences between segments.
Finally, it could be argued that cost leadership can be a precarious strategy, which may speed up the move towards a commodity market in which; ultimately, no one benefits (Partridge ; Perren, 1994) Both British Airways and Easyjet have a possible threat in losing their current position, however, this is more so in the case of British Airways, due to their period of restructuring. Its trying to offer different levels of services and price, from their ‘First’ for business traveller to their low frills carriers from Manchester to Belfast and Cork.
They are trying to please different customer targets at the same time. To avoid being ‘Stuck in the Middle’, they need to redefine their position as soon as possible. According to Porter, a company should be specific in their choice of competitive strategy otherwise, they run the risk of being ‘Stuck in the Middle’. Easyjet’s ‘Stuck in the Middle’ danger is not as harsh as British Airways as they are relatively aware of the fact that they need to stay focused. However, if they start to concentrate more on growth instead of cost they may loose their main strength, which is low production costs.
Miller (1992) argued that a sharply specialised strategy could be disastrous. He stated ‘… most products must satisfy a significant market in numerous ways: with quality, reliability, style, novelty, convenience, service and price. Unless all of the important hurdles are met, customers will be driven away” (Miller, 1992) Therefore being ‘Stuck in the Middle’ may not be so disastrous. All products and services must own core attributes which will be offered by all competitors within the given market and without which they would not be sellable in that given market.
The strategies of BA and Easyjet vary vastly due to their varied core competencies. This is mainly due to the two different historic backgrounds of both companies and the differences in the nature of their business. Easyjet’s core competences can be defined as a strict leadership and disciplined management towards a strong low cost focus, therefore its strategy is to maintain low production costs, thereby being able to offer low fare tickets for less service. BA’s core competence can be defined as its strong geographic position in the global market.
Its former concentration on business travellers has not been top priority as demand decreases. Even though BA tries to gain in the business class segment its recent focus has been towards a very wide range of customers by offering low, medium and high price levels for different service levels. Resulting from different core competences both Easyjet and BA’s strategies differ also. Easyjet’s cost focus leads to the lowest possible fares and a limited service level in terms of airport choice, in-flight service, ticket printing, and seat reservation.
BA’s complex situation in the weak industry leads to strategic modification. It now offers a more diverse choice of tickets with a different price and service range due to instability. Its attempt to reposition itself includes the consequence of losing their loyal business customers and is therefore risky. Finally, it can be stated that Easyjet’s strategic performance is very straightforward and the company acts proactive. In contrast, BA seems to have difficulties in defining such a ‘clear-cut’ strategy and finding its new market position. Due to recent changes in the airline industry BA acts reactively.
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