Porter, Cost, cost leadership, strategy, low cost, airline industry, strategic, management
According to Porter, there are three ways for a company to success.
- A low-cost provider of product
- A high-cost, differentiated provider
- A focused provider of unique products and services in a niche market
I will focus on the Cost leadership strategy applied by the main companies like: MacDonald's, Wall Mart and principally in the airline industry. That's why, I will present in a second part the cost leadership strategy of Ryanair.
[...] A company which correctly implements the cost-leadership strategy can earn above-average returns even the five competitive forces from Michael Porter. Concerning the existing competitors, company's competitors will hesitate to compete with the basis of price because; the low-cost company will continue to earn profits after its competitors compete away their profits. The power of buyers: the low cost position provides some protection against powerful customers who attempt to drive low prices. If customers attempt to drive prices below the cost of the next most efficient company, that company might choose to exit the market, leaving the low cost company with a monopoly position. [...]
[...] To retain customers, the low-cost leader can more easily reduce prices to maintain the price-value relationship and retain customers. Despite attractiveness, this strategy is also accompanied by risks. First, technological innovations from competitors can eliminate the low-cost leader cost advantage. Overly focusing on process efficiency may cause the low-cost leader to overlook significant changes in customer preferences. Competitors may successfully imitate the low-cost leader's value chain configuration. The case of Ryanair I choose to explain the case of Ryanair because low-cost airlines have been a trend nowadays anywhere in the world. [...]
[...] That's why, I will present in a second part the cost leadership strategy of Ryanair. Cost leadership strategy The cost leadership strategy is the way for a firm to compete on cost focuses on gaining advantages by reducing its costs below all of its competitors. By investing in larger-scale modern equipment, some manufacturing firms are able to reduce costs and thereby obtain economies of scale in manufacturing. Cost leadership involves generating higher margins relative to competitors by achieving lower relative manufacturing and distribution costs. [...]
[...] There are many airlines that have adopted this strategy and have become more successful because of this. Among these low cost airlines that are in existence nowadays is Ryanair. The Irish airline company Ryanair is the first low-cost, no-frills European airline to have any impact Ryanair was founded in 1985 by the three brothers Cathal, Shane and Declan Ryan, and based in Dublin, Ireland. It is now the largest low cost airline in Great Britain and Europe and has modeled its operations on the very successful Southwest Airlines Low Cost Leadership model. [...]
[...] In order to reduce these fees, the firm avoids congestedmain airports and chooses secondary and regional airport destinations which arevery interested in increasing passenger throughput. Staff Costs and Productivity In order to control employee compensation costs, the firm implements a performance related pay structure. Although the company provides lower labor costs, the employees can earn additional pay or remuneration base on their performance. Marketing Costs In order to reduce marketing costs, the firm cut its rate commission to travel agents. [...]
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