Introduction
Summary
ClearSky Air faces the problem which lies with the launch of its new product-IFE. It faces the threat of losing the first-mover advantage which is necessary to heap rewards by capturing the target market’s attention (Kevin.& Kotler, 2008).
Problem
After the acquisition of the vendor of IFE by a rival company-DarkSword, the product would be limited for its aircraft which can earn them the title of first-mover in the in-flight entertainment before ClearSky launches it globally.
Critical factors
ClearSky had made the deal with SurfShof, LLC which has been acquired by the arch-rival airliner-DarkSword. Acquisition of the vendor of IFE product by the competitor airliner would result in loss of first-mover advantage and several critical issues for ClearSky.
In terms of market share, the acquisition of the vendor of IFE by DardSword would mean that it will be able to introduce inflight Entertainment products in its airliners globally and capture the market share before ClearSky gets its foot in the inflight entertainment market. In terms of marketing and brand perception, the first-mover has the advantage of getting the target market’s attention. The first-mover gets the benefits of developing favorable perceptions about the product in the minds of customers. A critical look at the histories of different companies reveals that consumers treat the first-comer favorably and perceive it as having better quality. According to the law of leadership, it is better to be first than be better. Often, the name of the product which is introduced first becomes generic and people start treating it as of better quality than the late-comers (Al Ries and Jack Trout, 2001).
The acquisition by DarkSword may also hit the revenue of CearSky. Around 80% of the annual profits are being drawn from cabin revenue and inflight Entertainment is important for ensuring healthy profits from cabin revenue. Thus any delay or postponement of the launch of inflight Entertainment globally can result in the shape of a revenue gap. Also, the survey results have already shown that around 58% of passengers favor the launch of Inflight Entertainment which means there is significant potential in the entertainment market. Losing on the inflight Entertainment market can hit the company hard in terms of revenue and also brand perception. The brand perception of ClearSky can be hit in the sense that after the announcement of the launch of IFE if the company retreats from the entertainment front the customers may interpret it as a bad sign for the company in terms of having problems. To maintain its brand perception and meet the expectations of passengers and other stakeholders, ClearSky has to devise strategies to strengthen its market position and brand perception by fulfilling customers’ expectations. (Ries and Trout, 2001)
Another important aspect of the situation arising from the acquistiton of SurfShop, LLC is the leverage factor of ClearSky. As the aircrafts are financed by leveraged assets, the company has to keep its revenue resources rich to avoid any setbacks to avoid the risk of going bankrupt. ClearSky has to ensure its cabin revenue does not fall and keeps on increasing. (Paul, 2004)
Inflight entertainment is a market with huge potential as there is enormous demand for access to internet while flying. A significant number of airline passengers are businessmen and managers who need continuous access to internet and connectivity while flying to their destinations. If ClearSky caters to this need which has been previously unmet, it can attract more passengers and can also find a niche market in terms of IFE product. Now that DarkSword is planning to go on first with the introduction of IFE in its aircrafts, ClearSky may lose significant number of passengers who would prefer to travel by DarkSword airliner.
Inflight Entertianment is a niche market which rewards those who tap it first. If DarkSword airliner introduces the IFE product in its aircrafts and goes global, it would be a huge setback for ClearSky as it may not tap the niche market with the same potential by delaying. Thus the acquisition of the vendor of IFE product vendor by the rival airliner has long term shortcomings. Being the first in the entertainment market would help DarkSword in being first in the minds of customers too. (Ries & Trout, 2001).
Inflight Entertianment is totally a new category and being the first in this category can result in earning huge rewards in terms of revenue and a strong branding opportunity of the airliner itself. If DarkSword is able to introduce IFE product globally, it can use it as a point of differentiation for its airline service which would attract a number of business travelers and those who travel for vacations. Being firs in inflight Entertainment market would allow DarkSword to first in the minds of prospects which would hit the brand image of ClearSky. In terms of marketing in the aviation industry, there are just perceptions which help a passenger decide the airliner to travel with.
With the acquisition of the vendor of IFE product, ClearSky would have to look for a new vendor if continue with its plans to introduce its internet strategy globally. It would have to face an increased cost of the new bid in case it accepts the most suitable bid from BruceLeeSurfers Ltd which is greater than the previous bid offer of SurfShhop, LLC by SD $ 30,000. ClearSky has estimated the costs of inflight Entertainment business of being around 45% of its annual onboard revenue. Thus a new bid offer from BruceLeeSurfers Ltd would mean more costs thereby cutting the onboard revenue of ClearSky which is not good for the financial health of the airway as it uses leveraged leases to finance its aircrafts. Decreased onboard revenue can risk the financial position of the company and create a threat of bankruptcy. The risk of bankruptcy can increase the cost of debt of the company thereby risking its financial position further.
If DarkSword airliner is able to go on with the launch of IFE product in its aircrafts globally, this would help it in wining such attributes as luxury, leisure and connectivity for its airline service which would be simple and benefit-oriented and would result in loss of a huge customer base for ClearSky. Inflight Entertainment would help an airliner find a way to be able to win a strong, attractive word in the minds of passengers (Meyerson & Scarborough,2007).
After the acquisition of vendor of airborne internet application-IFE, DarkSword airliner may choose to cancel the deal which was about to be close with ClearSky or delay it so that it launches the product first before ClearSky does. Thus, DarkSword would be able to decide the course of actions or strategies of ClearSky if it chooses to go on with the same deal of IFE purchase even after the acquisition of the vendor by DarkSword.
Introduction of IFE on the aircrafts by DarkSword may prove to a critical success factor in terms of its competitive strength relative to ClearSky. Critical success factors often give competitive advantage to a company as compare to its rivals in the industry. In order to ensure that the company meets its strategic objectives, the strategy about the launch of IFE is very important for the long-term growth of ClearSky airways.
As the results of the survey have depicted, the passengers have strong preference for internet connectivity while flying and this strong preference for an additional service can help DarkSword boost its cabin revenue which may result in decline of cabin revenue of ClearSky. It has been discussed already that around 80% of the profits are drawn from cabin revenue for ClearSky which means acquisition of SurfShop, LLC may hit its cabin revenue severely which would hit the financial health of the company.
ClearSky caters to a number of categories and classes of passengers. It specifically targets the high paying business class and leisure travelers. It has positioned itself to cater to high yielding passengers and classes. Thus internet connectivity is important for both business class and leisure travelers who have great preference for internet access while flying. If DarkSword is able to introduce IFE in its aircrafts globally, it would snatch most of the business and leisure travelers from ClearSky.
Overall, if ClearSky airliner is not able to answer the problem on time with the development of right strategies it would have to face loss of market share, customer base, brand image, revenue and brand perception of its airliner. It would also send negative waves about the condition and financial health of the company if it draws back from the lunch which has already been announced. It is very crucial for the operational and financial health of the company to devise alternative plan and strategies on right time and implement them quickly.
Development of alternative actions
ClearSky airways can pursue different alternative courses of actions. The first alternative comprises of selecting a new vendor which provides it with the most attractive bid among the other tender offers and launching its infligh Entertainment product globally. ClearSky may select BruceLeeSurfers Ltd as the vendor and get services from Panasonic to provide the basic IFE system.ClearSky should select BruceLee Ltd it has a better bid offer then the other offer that is from WildWiFi Company as it provides with a lower fixed cost i.e. $165,000 per aircraft as compared to $ 200,000 by WildWiFi Company.
Keeping the fixed cost low would help ClearSky keep the overheads low to ensure healthy financial position. Also, the offer from BruceLeeSurfers Ltd carries a number of features which are almost at par with the previous deal with SurfShop, LLC. These features would help ClearSky in reducing the loss of lost deal with SurfShop, LLC. BruceLeeSurfers is offering better features than WildWiFi Company as it provides two types of packages for different users i.e. short package of per minute usage with SD $.05 per minute for occasional users and long package for those who wish continuous or long internet connectivity with SD $ 2.4 for up to 120 minutes.
This alternative would help ClearSky to reduce the loss of low fixed cost offer bid from SurfShop, LLC as the previous deal with it had been of SD $ 135,000 per air craft with internet connectivity charges of SD $ 5 for 4 hours and SD $ 9 for more than 4 and up to 10 hours. In terms of packages and niche market, the offer from BruceLeeSurfers is more attractive is it caters to both types of internet users;
- Occasional or leisure users who need short packages in terms of per minute usage. For this segment of users the connectivity charges are SD $.05 per minute
- Business users and those users who need continuous connectivity and long hours of internet access. For this segment the charges of internet connectivity are SD $ 2.4 for up to 120 minutes.
Thus the deal with BruceLeeSurfers would help ClearSky segment the inflight Entertainment users in terms of usage time and thus target them by providing them with customized packages according to their need. ClearSky would be able to go global with this deal and brand its infligh Entertainment service and heap the reward of being the first-mover.
Advantages
The advantages of this course alternative of action which comprises of closing a new deal with BruceLeeSurfers Ltd and going global are as follows:
- ClearSky would be able to boost its cabin revenue, improve the brand image of its company and travel service by fulfilling a previously unmet need of passengers- the need of internet connectivity while flying and provide customized packages for different users according to their need
- ClearSky would be able to heap the rewards of being the first mover in the inflight Entertainment market. It can launch the IFE product globally before DarkSword does and get a huge market share in inflight entertainment market as well as in aviation by attracting more passengers
Disadvantages
- ClearSky has to face an increased cost of the new bid which is greater than the previous bid offer of SurfShhop, LLC by SD $ 30,000 which would result in increased overhead costs for ClearSky
- Its cost would increase which would cut down overall profits. The estimated costs of inflight Entertainment business were 5 million Euros per years which are already around 45% of ClearSky’s annual onboard revenue. Increased costs with the new bid would further cut down the profits
Second alternative course of action available to ClearSky is to quit its internet strategy from going global and follow a totally different strategy of finding and investing in a different niche market. That is, ClearSky can quit its inflight entertainment strategy from entering the global internet business invests in a different niche market thus differentiating it from its rival DarkSword airways. (Paul, 2004)
Advantages
- In case the company quits the option of going global with its inflight Entertainment strategy, it can save costs of that business and thus strengthen its onboard revenue and overall profits
- It can save revenue as retained earnings to invest in a different niche market other inflight entertainment market. It can work on providing services of hotels and inns for leisure travelers and business persons whom it targets specifically. If ClearSky is able to save its overhead costs and invest in a different niche market it can differentiate itself easily from its arch rival DarkSword aireliner.
Disadvantages
- If ClearSky quits its internet strategy to go global, its arch rival DarkSword would launch it globally and attract the business and leisure travelers whom ClearSky targets specifically. Thus it would result in loss of customer base and market share.
- ClearSky caters to business and leisure travelers, and its withdrawal from inflight entertainment market would hit its brand image and perception as passengers would have favorable perception for DarkSword if it provided them with additional abenefits.
Synthesis
ClearSky airways should pursue the first alternative course of actions mentioned above. That is, ClearSky airways can select a new vendor with the most attractive bid among the other tender offers that were made to it by BruceLeeSurfers Ltd and WildWifi Company and launch its infligh Entertainment product globally. ClearSky has the option to select he BruceLeeSurfers Ltd as the vendor continue with its plans to launch IFE product globally. BruceLee Ltd has a better bid offer than the offer from WildWiFi Company as it provides customized packages for different users according to their need and offers ClearSky a lower fixed cost i.e. $165,000 per aircraft as compared to $ 200,000 offered by WildWiFi Company. (Paul, 2004)
By following this alternative, ClearSky can keep its overheads comparatively lower to ensure healthy financial position. Also, the offer from BruceLeeSurfers Ltd carries a number of features which were missing in previous deal with SurfShop, LLC. The new and customized features offered by BruceLeeSurfers Ltd would help ClearSky reduce the loss of lost deal with SurfShop, LLC. BruceLeeSurfers helps ClearSky cater to two different categories of users i.e. occasional users and long-time users. It has devised short package of per minute usage with SD $.05 per minute for occasional users and long package for those who wish continuous or long internet connectivity with SD $ 2.4 for up to 120 minutes.
This alternative would help ClearSky to reduce the loss of low fixed cost offer bid from SurfShop, LLC as the previous deal with it had been of SD $ 135,000 per air craft with internet connectivity charges of SD $ 5 for 4 hours and SD $ 9 for more than 4 and up to 10 hours. In terms of packages and niche market, the offer from BruceLeeSurfers is more attractive is it caters to both types of internet users; (Ries and Trout, 2001)
Why advantages outweigh the disadvantages
The recommendation for ClearSky to close a new deal with BruceLeeSurfers Ltd and go global with its inflight internet strategy has huge potential and rewards if implemented successfully and timely. By accepting the bid offer from BruceLeeSurfers Ltd, ClearSky can seek help from Panasonic to install the Entertainment system and enter the inflight internet market before DarkSword is able to launch it. Here it is important for the management to devise the strategy in the shortest time possible so that it is able to get the firs-mover advantage in inflight internet market.
By accepting the bid from BruceLeeSurfers Ltd and going global, ClearSky would be able to ensure that its customer base is not snatched by the rival airliners who are about to introduce inflight internet services to the passengers. As ClearSky caters to business and Leisure travelers specifically, it can ensure that it meets to their expectations. It would be able to capture the attention of travelers by branding its attributes and features. In aviation industry, the brand image of a company is extremely important as it helps in giving a physical perception to the marketing and promotion campaigns. Offering inflight internet would ensure that ClearSky offers an augmented product to its passengers which provide them more than their expectations. Travelling itself is a core service while providing IFE product would result in augmenting the core service.(Paul, 2004)
It was mentioned that this recommendation has the disadvantage of increasing the overall cost of inflight internet business which would cut down the onboard revenues of ClearSky airways. But with a few more wise strategies, these disadvantages can be minimized. ClearSky can use its own engineers by motivating them for multitasking to help in running the inflight internet system successfully thereby saving the maintenance costs. It can also negotiate with a different company other than Panasonic to provide it with the basic IFE system with lower charges. Thus looking for totally new vendors who can provide ClearSky more economical packages is important for bringing down the costs. ClearSky can use its own engineering force to install the system after getting an initial training from a professional vendor who would be willing to train the staff for ClearSky.
Analysis
ClearSky’s strength to cater to its passengers successfully lies in its cabin service wise marketing strategy and large market share by differentiating its services. It can move introduce inflight internet globally to strengthen its market share and customer base. Due to its customized service, and target marketing, ClearSky can successfully increase its market share and revenue. In aviation industry, the technical aspects and service issues are more important factors in deciding he healthe and growth of an airline. With continous innovations in its cabin service and price mix strategies, ClearSky can invest in a new bid offer with BruceLeeSurfers Ltd to ensure long-term success and protect its market share from continuous threats from its arch rivals such as DarkSword. As ClearSky has repute for its quality service and standards, it has successfully developed a strong and loyal customer base of business and leisure travelers. An airway which uses good brand management and promises its passengers comfort, leisure and connectivity while travelling can expect long-term success. The customized packages for internet access for different users according to their need and demand would help position and target passengers successfully. If weaknesses are analyzed, it is revealed that ClearSky is facing costs as high as 45% of its overall onboard revenues and uses leveraged leases to finance its aircrafts. In case, the revenue declines due to any competitive advantage by the rival DarkSword, its overall position would come under threat. Also, ClearSky is facing tough competition from DarkSword as it would soon launch the inflight internet in its aircrafts which does not omen good for its position in industry in case it quits the strategy to go global (Guiltinan and Paul ,2004, p. 221).
Time, costs and results from the implementation
As DarkSword has announced the acquisition of SurfShop, LLC before ClearSky airways could actually close the two year deal with it that would have given it the advantage of moving first in the inflight Entertainment market, ClearSky is short of time to carve out an alternative plan and implement it if it is to survive in the market. It should take a few weeks for the top management at ClearSky to negotiate with the other bidders to carry on with its IFE product in the global arena. It will take 2 to 3 weeks to finalize the deal with BruceLeeSurfers Ltd. (Ries and Trout, 2001)
For the costs, the new bid by BruceLeeSurfers Ltd is greater by SD $30,000 from the previous bid by SurfShop, LLC. ClearSky can seek to bring the costs of installation and maintenance down by training its managers in multitasking and finding an alternative vendor other than Panasonic Ltd to provide it the basic inflight entertainment system. Finding an alternative vendor and closing a new deal requires more time but the management can decrease that time limit by using ads and referral methods to achieve the goal. It can be estimated that it will take around 3 weeks to meet the objective (Clawson & Conner, 2004).
In terms of cutting down the time period to close the alternative deal and enter the global market with the IFE product, the management at ClearSky can look for implementing the alternative strategy in the shortest time possible. It can use its own engineers to help in the installation and maintenance of the system by closing the deal with a vendor who can train its engineers in such areas.
Conclusion
There are a number of factors which recommend that ClearSky should choose the alternative strategy as it is recommendation is superior.
With this recommendation, ClearSky airways can not only find a new vendor and launch its infligh Entertainment product globally. ClearSky may select BruceLee Ltd it has a better bid offer then the other offer that is from WildWiFi Company as it provides with a lower fixed cost then the other bid offered i.e. $165,000 per aircraft as compared to $ 200,000 by WildWiFi Company.
ClearSky can keep the overheads low to ensure healthy financial position. Also, the new strategy or plan is more attractive as the offer from BruceLeeSurfers Ltd carries a number of features which are almost at par with the previous deal with SurfShop, LLC. These features would help ClearSky in reducing the loss of lost deal with SurfShop, LLC. BruceLeeSurfers is offering better features than WildWiFi Company as it provides two types of packages for different users i.e. short package of per minute usage with SD $.05 per minute for occasional users and long package for those who wish continuous or long internet connectivity with SD $ 2.4 for up to 120 minutes. ClearSky would be able to go global with this deal and brand its infligh Entertainment service and heap the reward of being the first-mover.
References
Clawson, J.G. & Conner, M.L., 2004, Creating a Learning Culture: Strategy, Technology, and Practice, Cambridge University Press.
Guiltinan J.P. and Paul G.W. (2004). Marketing Management: Strategies and Programs. 9th ed. Mc Graw-Hill, p. 221
Kevin,K.& Kotler,P., 2008, Marketing Management. 13th Edn. Prentice Hall.
Meyerson, M & Scarborough, M.E., 2007, Mastering Online Marketing. 1st Edn.Entrepreneur Press.
Ries, Al & Trout. J, 2001, Positioning: the battle for your mind. Boston: McGraw-Hill