Posts Tagged ‘differentiation’

Why Tiger Australia is so toothless

August 5, 2011

A couple of weeks ago I was contacted by a newspaper journalist seeking some comments on the troubles of low-cost airline Tiger Australia.

The reporter was specifically interested in the likely impact of the current grounding on the firm’s relations with its parent back in Singapore (with a particular focus on the cultural aspect of ‘losing face’).  I offered a few insights – that I couldn’t speak to any cultural dimension, but that HQ clearly was very worried given the group CEO was talking of basing himself in Australia presumably to kick some heads… and that the airline was clearly struggling well before pilots (allegedly) started flying a little recklessly.

These nuggets of wisdom never hit the papers, but I thought I should expand upon the latter point – namely why the firm hasn’t won the hearts or wallets of Aussie flyers.

Low-cost airlines have been a business revelation in the past decade or two.

Innovators like Ryanair and Easyjet, and copycats like Air Asia and Jetstar Asia have sliced enormous costs out of the process of offering international air travel.  This has both sliced into the market share of the older full-service airlines, and also expanded the pie considerably by bringing less wealthy passengers into the market (and also allowing greater frequency of short trips away).

In the typically moribund US domestic market (see Michael Porter’s excellent explanation of why US airlines are typically loss-making – from about the 2 min mark of this video), both Southwest Airlines and JetBlue have been very successful using a low-cost model.

Yet Tiger Australia has been a money pit since kicking off in late-2007. So what is Tiger doing so wrong?

It would seem this a combination of mis-reading the local environment and under delivering on customer value.

Air travel in Australia is an awkward exercise.  While there is little threat of substitutes due to the enormous distances between our major cities (other than Sydney-Canberra driving between mainland capitals takes >7 hours), the fact that there are single airports in pretty much every major city (other than Melbourne’s inconvenient Avalon option).

Low cost airlines typically seek to avoid the high landing costs (and associated parking costs etc for price-sensitive passengers) by using smaller second airports and secondary cities, especially to cross-subsidise those flights that must go through hubs.  In Australia that simply isn’t an option.  The two big local players have very stable and mutually beneficial arrangements with airport management, and upstarts like Tiger are burdened with either tin-shed outhouses or pricey general gates.

The concentration of Australia’s population into a small number of large cities, unlike the more dispersed US markets, has meant Tiger has developed no local monopolies, and struggled to find a niche of consumers willing to sacrifice certainty and convenience for the limited price savings on offer.

At an operational level the firm has also failed to deliver then minimum service required to develop any customer loyalty.  Too many flights are cancelled (and given the infrequent schedule, too long a wait ensues), and the airline is notorious for being close to uncontactable for assistance.

The current grounding of all flights could (and perhaps should) be the end of line for this failed business strategy.

Give the man music

September 26, 2010

This blog has been silent of late due to my travels to, first, a conference in Rome, and then, a couple of weeks of R&R around Puglia.  As such, my ponderings have been banking up while I waited for decent internet access.

All this travel and stays in hotels of various quality and other accommodation has got me thinking about lost competitive opportunities for hoteliers.  The one that is really starting to aggravate is the failure to provide facilities for listening to music.

In a world were huge numbers of travellers are carrying Apple music players of various descriptions, I am stunned that it has not become de rigeur to provide an iPod dock in hotel rooms.  I would love the chance to move beyond headphones or the tinny speaker on my iPhone.

The cost to a hotelier would be low (decent units go for less than $100), and the payoff in terms of satisfaction would be high.  As travellers become more and more linked, and more vocal, through feedback sites such as Tripadvisor, hotels should be looking for simple but effective ways to make the stay more enjoyable and to differentiate themselves from others.  This would be one of them.

I can only recall one hotel that I’ve stayed in which provided a dock. It rocked and was well-named!

e’s doing it, I’m doing it, we’re all doing it

August 22, 2010

It seems a price-war is breaking out in the electronic book market.  British retailer WH Smith halved the price of its entire e-book range last week.

This raises an important business strategy question: How can the e-book vendors avoid ending up in a downward price spiral?

Consider the situation: the actual marginal cost of selling each book is very close to zero for all vendors.  Sure there are a range of ‘lumpy’ costs in setting up the web interface, the transaction system, the relationships with publishers and developing a brand that consumers know and trust.

But selling the next electronic copy of any book is pretty much costless. The publisher needs to get their cut, but for the retailer there are no warehousing or inventory costs and no delivery costs.

Why chase a 100% margin in vain, while your competitor is selling the same title at a 50% mark-up?  And if you drop to 49%, why won’t they drop to 48%? And on it goes?

This becomes a classic low-cost wins scenario.  Can the retailers do anything to differentiate themselves?

And how to the retailers running both “clicks” and “bricks” stores cope?  How do they reconcile their pricing of physical books relative to the e-versions?

Raising the glasses bar

July 21, 2010

Almost eighteen months ago, I blogged about the trouble faced by Australian optometry chain OPSM (and their Italian parent Luxottica) from the challenge of low-cost newcomers such as Specsavers.

It would seem we’re finally seeing the strategic response of OPSM, a new, innovative store concept launched this week:

“The OPSM Eye Hub, which opened yesterday, is designed in the shape of a retina, and offers next best thing to augmented reality – a simulation machine so people can road test their choice in eyewear in action such as jogging, along with playback mirrors so people can view videos of themselves sporting glasses while not staring forward”

You can read more of the spiel at their dedicated website. This is a classic differentiation ploy, as the firm attempts to make customers willing to pay a premium for bells and whistles.

As spectacles (and sunglasses) are clearly fashion items, it certainly makes sense to try and build a brand and experience that moves away from solely price considerations.  Utilising technology and store architecture are both viable ways to create a clear point of difference from others.  Destination stores (e.g. Apple’s temples) and retail theatre may well be the next phase in once staid optometry market.

From an International Business perspective, it is fascinating to see that Luxottica is allowing subsidiaries to experiment in this manner. Might this be an innovation that gets rolled out around the international network in the future (a la McDonald’s roll out of the Melbourne-initiated McCafe concept)?

Selling sexy Samui potatoes

January 27, 2010

My blogging cousin Steve has a nice theory, that there may be still a lot of money to be made selling potatoes. His argument is that targetting proven markets for products with a fresh take on quality or service (for example) may be much more promising than trying to convince prospective customers about a completely new value proposition.

I was thinking about this when I landed in Koh Samui earlier this week.  We have all got so used to airports being, at best, something we suffer on the way to our end destination.  I had given up thinking they could ever make me want to visit a particular locale.  Until now…

Check out these pics of the Samui airport:

Instead of the usual authoritarian and impersonal setting, here was a facility that felt like it was a spruced-up leftover from the Fantasy Island set.  From the cute tram/golf-cart/bus cross-breed transport from the plane to the terminal, to the Gilligan’s Island architecture, the invisible security, the fishtanks in the bathroom to the open-air set-up, it is a fantastic point of differentiation from so many other satisficing airports I’ve visiting.

Who runs it? The airline (Bangkok Airways) that has a stranglehold over the landing slots.  They can clearly see the positive effect it has on customer perceptions.

Let’s hope some others embrace such mundane potato selling.