The Advantages and Disadvantages of Market Segmentation and Positioning with the Case Study of Ryanair

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Introduction

According to Wirtz and Lovelock (2018), the right market segmentation, targeting and positioning make organisation identify which segment of the market is competing which can allow them to develop the right product for target customer in the particular market and position the company to develop the suitable strategies in order to gain competitive advantages. Thus, the benefits of the right market segmentation, targeting and positioning (STP) can bring variety of advantages to the organisation. However, there are some disadvantages when the organisation extremely focuses on its STP. Therefore, in this report, the definition of STP background and the history of Ryanair will be shown to relate with the Ryanair case in order to analysis the STP of the organisation. Then, the benefits and disadvantages of STP approach to Ryanair will be mentioned with examples and in the last, some recommendations will be given with theories and examples.

Background History of Ryanair

Ryanair started in 1985 in Dublin, Ireland with a total of 25 staff members and its first routes were from Dublin to London and had served 85,000 passengers in its first year. In 1990, due to the intense competition of Ryanair ended the year with the losses of £ 20 million (Tran, et al., 2015). Ryanair changed its strategies as low-cost by following the structure of Southwest Airlines and rebranded themselves as the first lowest fare airline in the Europe by cutting unnecessary expenses such as free inflight drink and expensive meals (Tran, et al., 2015). Start from this moment, Ryanair’s success was contunied and become the first and largest low-cost airline in Europe (Ryanair, 2019). However, the organisation now is facing the condition of recognising them as the worst customer service brand which impact the organisation image that can cause disadvantages to the organisation. In the following paragraph, the success and problems of Ryanair will be discussed by analysing with STP.

STP approach to Ryanair

1. Segmentation

Market segmentation is the process of dividing up a mass-market into similar needs and wants. In doing so the company establishes the target their marketing effort and customise their products and services to meet the target preferences (Kotler, Roberto & Lee 2002). Kotler Philip, Adam Stewart, Brown Linden and Armstrong Gary (2003) stated that the companies normally segment their market based on the four basic major categories of segmentation such as geographic, demographic, psychographic, and behavioural (Table 1). Demographic Segmentation is a traditional method for market segmentation, it has some limitation, for instance, two people in the same demographic can have different buying behaviours, thus, the organisation cannot get the exact information of the market which they need (Wirtz and Lovelock, 2018). In the case of Ryanair, Ryanair divides from mass airline markets into the market where customers have similar needs and wants in order to able to make effective business strategies and to offer the matching product or service of customers’ wants and needs. To create the clear segmentation, Ryanair uses demographic and psychographic. To stand as a low-cost airline, demographically, Ryanair focuses on the customers who are both male and female between 16-65 ages and the customers who have low and middle income. Since it has some limitation, the company use Psychographic segmentation to get more exact information for the market (Tran, et al., 2015). Thus, psychographically, they focus on Lifestyle (Leisure, Family and Business) and Personality (Price Sensitive). Thus, by applying these segmentation theories, the organisation can offer the right product or service to the right market which help the business growth. According to the data based figure1.8, price was the highest priority overall as demonstrated by two-thirds of decision-makers (67%) saying that it was a ‘very important’ consideration in their choice of flight (Civil Aviation Authority, 2015, pp. 36). Thus, focusing on the market segment of low-income and price-sensitive customers is right segment for Ryanair thus it can contribute benefits to Ryanair since the right market segmentation can bring variety of advantages to the organisation such as better matching of customer needs in their segment market, improved customer retention, enhanced opportunities for growth, enhanced profitability, more effective in targeting of communication and opportunities of segment dominance (Jones, 2019).

Figure 1.8 data of the survey to 1,330 decision-makers who have flown in past 12 months

Demographic

Psychographic

Geographic

Behavioural

Age
Gender
Family Size
Occupation
Religion
Income
Social Class
Lifestyle
Personality
World Region
Country
City
Climate
Benefits
Status

Table 1. Four Major Categories of Market Segmentation

2. Targeting

Due to the clear segmentation for the market, Ryanair able to target the right market to develop their product for the customer which can increase the profit and successes in the market. Targeting is breaking down the key things from the segmentation and focus on a few major things. For Ryanair, they target two types of customers such as the customer who want the lowest price and the customers who still want the cheap price but with more option to be comfortable for their trip (Ryanair, 2019). For two types of customers, Ryanair offers various options based on their travel behaviours to match their needs such as seat only product (basic ticket) for the customers who have price-sensitive. In which the customers will not get a chance to check in their bag and choose their seats (Ryanair, 2019). They only get the allowance of a 7kg cabin bag. For those who want to make comfortable their journey, Ryanair offers priority plus ticket or priority Flexi ticket in which the customers will get extra 20 kg check-in bag plus 2 cabin bag, priority boarding, able to choose their seat, however, some are limited in priority plus ticket. But in the priority Flexi ticket, the customers will get to choose more legroom seats for free, free airport check-in and free security fast track (Ryanair, 2019).

3. Positioning

Positioning is a vital tool that is used in a market environment to confront competitive pressures. There are many authors and scholars who mention that positioning is essential for an organisation for example, according to Ries and Trout (1986), it is used as a foundation to develop marketing communication strategy and according to Lovelock and Weinber (1984) positioning helps organisation to develop a distinctive image in order to identify its image by customers and organisation can provide a suitable products or service that is needed by the target market. Dibb and Skimm (1997) said that the organisation needs to position its products or service in the mind of customers and design a suitable marketing mix to communicate positioning. According to Table 1.1, it is clear that Ryanair targets the price-sensitive customer in the market and offers the cheapest products to the customers. Also, in order to achieve the lowest price, the company reduces its service for customers and reduce all the unnecessary operating costs. Moreover, the owner tries to find ways in order to increase their profits and reduce the expenses such as selling food & drink onboard, partnership with car rental and other business to get commission fees, ask pilots and cabin crews to pay their training fees and uniform fees and buy the discount aircraft (Zakher, 2016).

Marketing Mix of Ryanair

Product

Low Cost, No extra luxury air travel to European Destinations
No free food or drink onboard, Food and Drink are income streams
Has deals with Hertz car rental, some hotel businesses, phone cards & bus tickets

Price

Lowest fares in market
70% seats at lowest price and 30 % seats at higher prices

Place

Create own website to reduce 15% of agency fees
Based in Stansted which make customers cheaper to fly than Heathrow or Gatwick

Promotion

Spend as little as possible on advertising
Do not employ an advertising agency & simply advertise to tell that Ryanair has low fares

People

Young pilots are recruited as they work hard
Cabin Crew pay for their training and uniforms to be cleaned. Their main responsible is for passenger safety and revenues onboards

Physical Evidence

Pay as little as possible for aircraft since they buy aircraft which other companies do not want to buy that give them a big discount

Process

No check in for lowest fares
Cannot select a preferred seat for free
No air bridges to walk to the aircraft
Do expect low levels of customer service when customers have problems

Table 1.1 Marketing Mix 7Ps of Ryanair

As the result of analysis based on its Marketing Mix, Ryanair position itself as low-cost and low-quality airline. Moreover, based on the customers’ experience, customers mark Ryanair in the position where low cost and low-quality service are offered.

Figure 1 Positioning Map of Ryanair

Benefits of STP approach to Ryanair

[image: ]Morgan (2004) stated that to develop the brand in the market successfully, the organisation has to have a clear vision of their STP (Segmentation, Targeting and Position) for their product in order to reach the products to the right market and customers to gain competitive advantages over its rivals (Hunt, and Arnett, 2004). Therefore, due to the impact of clear segmentation, targeting and market positioning the organisation, Ryanair was able to create their business strategy as the cost leadership strategy and gain a variety of advantages in the market. For example, as the result of its marketing mix, to compete in low-cost airline market and to be able to offer the lowest fare to the customer, the organisation tries in the different ways to achieve the lowest fare for customers. Due to the result of it, according to figure 1.1 which is the search result of standard ticket fares, Ryanair has lower fare than its biggest rival in the market ‘Easyjet’ even on the same route from London to Copenhagen (Ryanair, 2019) (Easyjet, 2019) which make the Ryan air gains competitive advantages over its competitors and become cost-leader in the market. Moreover, according to the figure 1.2 and figure 1.3, the organisation takes the second place in airline group and first place in individual branks in carrying passenger numbers in 2018 and the third place in seat share with 8.7% in 2019 in Europe market (Centre For Aviation, 2018) (Centre For Aviation, 2019). Furthermore, according to the statics from figure 1.4, from the years of 2013 to 2019, Ryanair boosted their revenue by roughly 37 percent (Sonnichsen, N, 2019). Therefore, as the result of clear market segment, target market and right positioning, the organisation can compete its rival such as Easyjet, Wizz Air and etc and now become the first and largest low-cost airline which has 17,000 staffs, 430 Boeing 737 aircraft and carried over 1 billion customers in Europe to 216 destinations in 37 countries (Ryanair, 2019).

Figure1.2 Europe’s top 20 airline group and individual airline brands by passenger numbers: calendar 2018

Figure 1.3 Europe Top 12 airline group by seats

Figure 1.4 Annual revenue of Ryanair from 2013 to 2019 (in million euros) [image: ]

Figure 1.1 Search results of ticket fares from the official website

Problem with STP Approach to Ryanair

Although there are lots of advantages that brought to Ryanair by STP approach, on the other hand, there are some disadvantages for Ryanair. As mentioned before, to maintain the lowest fares for customers and competitive advantages over its rivals, Ryanair reduces the operation cost included training fees for staff. However, the result of focusing on being the lowest cost airline in the market, Ryanair lacks to provide a pleasant working environment for the employees. Thus, in recent years, Ryanair received bad feedback from their customers and recognised as ‘The worst brand for customer service’ figure 1.5 (Armtrong, 2019). The reason is that the reducing of operation cost, asking uniform and training fees, low wages for the pilots and cabin crew create an unhappy working environment for their employees. According to Branham (2005), unhappy employees cannot perform their work well which can result in lower productivity to fulfill the customers’ needs and higher turnover rate. Thus, in order to improve the working conditions, in 2018, pilots and crew members went on strike during the holiday season which caused to cancel hundreds of flights that impact 100,000 customers (Statista, 2018). Due to the strike, staff shortage was caused and to operate business as normal again Ryanair paid more wages to its staff to come back and work for the organisation, therefore, according to char 1.6, Ryanair lost its revenue from 1450.2 million euro to 885 million euro (Sconnichsen, 2019). If this happens in the future, the image of the organisation will impact more with negativities and Ryanair will lose its customers and profit since customers will not stick to the organisation that it does not offer the satisfactory service for them.

Figure 1.5 UK Brands with the best and worst customer service in 2019

Figure 1.6 Net profit of Ryanair from 2012/13 to 2018/19 (in million euros)

Conclusion & Recommendation

Taking all into account, Ryanair performs extremely well in their marketing segmentation, market targeting, and market positioning as they stand as the successful and largest low-cost airline in Europe by taking advantage of its competitors. On the other hand, due to extremely focus on being a lowest-fare airline in the market Ryanair lacks in providing a good working environment for its employees which decreased in their productivity and performance in return Ryanair recognised as the worst customer service airline brand.

Thus, in the recommendation, Ryanair should spend part of its profit to create and provide the working environment that the employees’ needs. Mullins (2013) states that fulfilling needs is one of the motivations for employees which can help to increase their productivity. Moreover, according to Frederick Taylor motivation theory, economic awards are the major reason for motivation (Boddy, D. 2014, p 472), thus, Ryanair also should raise their wages or apply financial award scheme for its employees’ hard-working in ordering them to perform with the excellent level of service. In this way, the staff’s performance will increase and their skill in customer relationships will also increase which can erase the effect of the company’s bad image as the worst customer service brand. Therefore, Ryanair should not only focus on their low-cost business strategy but also need to focus on the employees in order to achieve their goals in the competitive market.

Reference

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