Question

Analyze Ryanair strategy related to the PLC (Product Life Cycle), justify your answer.

Answer 1

Ryanair is Europe largest low cost airline service which has its headquartered in Ireland.It was established in the year 1985 with the launch of daily flights on a 15 seated turboprop plane between Waterford airport and London Gatwick. It’s a public quoted company which has its shares traded on London, Dublin and New York (Nasdaq) stock exchanges. Its is now the largest low cost airline service in Europe and United Kingdom which is based on the strategy of a Low Cost Leadership model. It commits to low cost airfares and introduces competition to flag carriers and growing alliances in the European airline market. With its ability of offering lowest fares in this industry to passengers makes it one of the toughest competitors for any new entrances. Ryanair was the first European airline specifically to offer low fares to its customers on short inter European routes.

Ryanair Product Life Cycle

Life cycle of a company is a theory that infers that products are like humans, they have a life, and this life goes through a cycle; birth, growth, maturity and inevitably death.

There are four stages in a products life cycle. They are:

1.Introduction

2.Growth

3. Maturity

4. Decline

Introduction Stage
This is essentially the beginning of a products life as it is being launched into the market.At the introductory stage, sales are slow as demand develops. Here the goal is to create awareness and get a piece of the market share.

Ryanair first entered the European air travel industry in 1985, with focus on the Ireland-England market. By 1986, it began to threaten the existing aviation superpowers on the same route, Aer Lingus and British Airways.

Before the introduction of Ryanair to the Ireland-England market, the market seemed to already be in a mature, stretched stage, with over 500000 passengers a year. To effectively penetrate the market and gain a market share, the company adopted a low cost strategy. At that time, their round trips cost about £99, while those of Aer Lingus and British airways cost twice as much at £209. By 1987, Ryanair expanded its routes exponentially and its low fare strategy enabled it to position itself effectively.

Growth stage
This stage is characterized by rapid increase in sales.This is because of the awareness created in the introduction stage. The focus of the growth stage is the retention of customers.

Ryanair’s Growth stage was characterized by an increase in customer base and profit. From the turn of the 21st century Ryanair has continually made exponential profits that were envied by other industry heavy weights.

Maturity Stage

This stage is characterized by stability in sales. A company in this stage intensifies promotional activities in order to maintain their market share. Ryanair from 2006-2008 experienced a level of stability in revenue and customer base. The increase in customer base over these three years was only 15%.

Decline stage
This is a stage characterized by a sharp decrease in sales.The focus in this stage is to “increase marketing productivity rather than holding or building sales.”

For most companies in the industry, the recession that hit the last few years affected their sales and profit levels. However, Ryanair’s strategies of cutting cost and low fares were very suitable for the economic condition and therefore they were patronized by customers also affected by the credit crunch.

Price Mix
Price is an essential element of the marketing mix as it’s the only element that generates revenue. Therefore, it requires strategy to effect price so that customers will not be undercharged leading to loss of margin or overcharged leading to loss of sales.

Ryanair has identified itself as a low price airline, since inception and has risen to be the lowest in terms of fares among airlines that service routes within Europe. This arouses questions as to how possible is it for Ryanair to sustain its low pricing strategy. In executing this strategy, Ryanair has identified its target market which happened to be price sensitive customers and added a differential advantage (value) to suite this market as the case is in positioning strategy (a marketing oriented strategy) involving the combination of these two factors for a new product to be well positioned in the market. This gave birth to the low pricing strategy.

Furthermore, Pricing should not be done in isolation without considering other elements of the marketing mix, therefore, proper blending of price with all the other elements of the marketing mix is necessary to arrive at a reasonable price. This concept is known as Launch Strategy.

For Ryanair, price is well blended with promotion giving rise to what is known as Rapid Penetration Strategy. This gave birth to the low pricing strategy of Ryanair.

Ryanair successfully uses a rapid penetration pricing strategy, where low prices are combined with decent promotional expenditure. This strategy has enabled it to penetrate and dominate the market as it is explained in price elasticity of demand (which relates elasticity with price), that low prices increases the demand for a product or service while promotion creates awareness of its product to its target market which comprises mostly of price-sensitive customers.It was made clear that fares of no frills carriers like Ryanair were 40-60% lower than that of their full service competitors for example British Airways. Ryanair has therefore become renowned for stimulating the market through its low fares which gave rise to the term “Ryan air effect".In other words, by influencing demand, revenue is driven. Although with this strategy Ryanair may likely increase its price after it has gained a substantial market share.

Secondly, Ryanair discovered that in order for its Rapid Penetration Strategy to be effective, the airline must have to increase its output to reduce its costs. The experience curve effect shows that cost reduces by 20% if production is doubled.As a result of this, more airplanes were acquired at cheap rates to service more routes within Europe. According to global airlines, price elasticity is the very key, as a fall in price will lead to an increase in total revenue. Although the flaw of this is that all seats must be fully allocated without any left vacant as this might result into a loss.

Consequently, Price may not necessary drive both revenues and costs meaning that a pricing strategy that maximizes revenue may not have such large impact on profit. Ryanair, in order to hold up this strategy and not run at a loss introduced some income streams. The company has deals with Hertz car rental, a number of hotel businesses, phone cards and bus tickets by taking commission on ancillary revenue. About 16% of its profit is made this way. This keeps costs lower.

Ryanair embarked on this pricing strategy to create a barrier of entry into the industry by new competitors as high prices attract new entrants reflecting an increase in profit margin but low prices deters them especially in cases where start-up costs are high as it is seen in the airline industry.

Predatory pricing is another form of pricing strategy that Ryanair adopts. Predatory pricing describes a situation where a company or an organization offers the lowest possible price in order to eliminate competition with the intention to increase its price when competition is completely eliminated. Therefore, the intention of predatory pricing is to drive competitors from the market and to open up the opportunity for prices to be raised and profits to be earned. In other words, the objective of Predatory Pricing may be to deter new entry into the market, as they would be discouraged that profitability will be reduced if they settle for a high price. Ryanair offers the lowest possible price indicating a clear case of predation.

Place Mix
“Place includes company activity that makes the product available to the target customer”.

Distribution or place is where the producer transfers an optimum amount of goods to majority of the target market, either to individual or business users. The distribution can happen in different ways, supplying a product or training servicing or Internet services. Irrespective of the modes the marketing strategy has a direct affect on the distribution channels.