Free Business Essays - Jetblue embarked upon an aggressive growth strategy supported by cost advantage, differentiation and e-commerce related tactics
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Jetblue embarked upon an aggressive growth strategy supported by cost advantage, differentiation and e-commerce related tactics. The company positioned itself firmly within the growing low-cost carrier (LLC) segment of the US airline industry, (Kathawala, 2004). Thus low price was a major stimulus in attracting particularly business travellers and passengers from dense urban locations such as New York City. A vital innovatory aspect of its business model was its application of e-commerce solutions such as the provision of online ticket ordering which assisted considerably with JetBlue’s low price strategy. The online booking system not only offered customers much lower prices compared to other companies but also reduced JetbBlue’s operational costs in terms of physical locations and personnel. The potential market for business travellers and people living around big cities was identified as being the principal source of the LLC marketplace. Therefore the strategic differentiation adopted by JetBlue can be seen to comprise two elements which were superior customer service and the use of technological developments. For example JetBlue served snacks instead of meals on its shorter flights but provided expanded entertainment facilities such as Live Satellite TV. By offering more space for each seat it was able to ensure more a comfortable journey which helped build a good reputation for the company in being customer orientated through providing great customer service. As a result of this effective differentiation strategy along with significantly lower price premiums JetBlue grew rapidly and was voted the best domestic airline in the US in 2002 and 2003.
One of the most important competitive advantages for JetBlue is its lower prices compared to major carriers as well as other competitors in the domestic marketplace. In order to achieve these cost advantages the company chose to use a point-to-point model which was able to reduce airport and gate renting expenses. Technological innovation in relation to the planes as well as an online ordering and ticketing systems helped JetBlue maintain lower costs hence allowing it to offer lower prices to the customer. It is fair to say that this price-based strategy contributed significantly to the company’s growth since price is considered as being a direct factor in purchasing motivation, (Jobber, 2001). Secondly JetBlue attempted to sustain this competitive advantage through differentiation related tactics. As Johnson and Scholes (2002) argue the aim of differentiation is to achieve higher market share over competitors by offering better products or services at the same or lower price. JetBlue utilised the delivery of high quality customer service at lower prices in order to achieve this strategic goal. Services for passengers included flexible online booking and securing of tickets in advance, special check in facilities such as a number of roaming ticket agents and self service kiosks and in-the-plane facilities such as leather seats, live TV, more leg room and free snacks. In addition JetBlue employed effective advertising campaigns to help differentiate their flying as a more sophisticated and special experience over their competitors. In doing this JetBlue successfully gained good word-of-mouth from past customers which also again contributed to corporate growth. This is because in the modern business world as JetBlue’s strategy recognised public relations based on word-of-mouth has become an essential determinant achieving corporate strategic goals and particularly for service based firms, (Blythe, 2000). Again the use of an e-commerce model effectively created a corporate image of convenience, sophistication with cheap prices for the company which spread rapidly among its targeted customers.
According to White (2004) the business environment can be viewed from macro and micro angles, Johnson and Scholes (2002) suggested that the PESTEL and five forces framework as part of an environmental analysis can illustrate and illuminate the various factors contributing towards corporate success or failure. In looking at the environmental context of the US airline industry a major issue was how deeply affected it was by the terrorist attacks in 2001. This meant passengers’ confidence in travelling by air was low and as such security issues were a principal concern for travellers. JetBlue responded to these concerns by installing bullet-proof Kevlar doors on its planes. These measures sought to instil a sense of security yet the actual effectiveness of such measures in negating future terrorist activities can be debated. Secondly while technological development resulted in competitive advantages for JetBlue its competitors also adopted new technology to enhance their position. As a result competition in the airline industry has become increasingly intense both from traditional major competitors and also new entrants spurred by the very successes of non-traditional entrants like JetBlue. In addition subsidiaries of other companies are a threat to JetBlue as it means customers have so many alternatives to choose from in the marketplace. As such then it appears that buyer power is strong thus JetBlue’s competitive position relies to a large on its excellent service and internal efficiency in attracting the choice of travellers.
JetBlue’s skilled workforce and professional management team could be a strategic resource in maintaining its competitive advantage in relation to customer service but internal efficiency through effective term work and an effective strategic plan needs to be integrated effectively also for continued success. It is clear that brand name and good reputation are vital strategic resources for JetBlue which have significant impacts on customer choices. However due to the fast growth of the company potential problems exist in that inefficiency might occur because of lack of training for new positions and new staff. A major factor of consideration for JetBlue and the airline industry in generally is the cost for fuel. With the relationship with Middle Eastern countries politically being unstable this has significant potential threats for airline companies such JetBlue in ensuring a low cost for fuel through stable prices. This is to say the cost advantages through lower costs in other areas might be completely eroded by high costs for fuel. In light of this competitive advantages need to be created within every function in the value chain from logistics, operation, marketing and service in competing in the airline industry.
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Greiner (2000) contends that each growth phase for an organisation begins with a period of evolutionary change followed by a revolutionary period which pushes the organisation into the next stage of growth within the specified industry. Therefore different strategies and organisational structures may be more appropriate under the different circumstances characteristic to the specified industry and its growth stage. Accordingly it can be said that organisational change is the result of external environmental changes and internal demands in terms of structure, system, product and the human resources necessary for the organisation to mediate successfully the various elements involved in change. In the case of JetBlue the company’s structure was flat and the hierarchical level was low thus in the first growth stage the structure contributed to effective communication and innovation between different levels of the organisation.
However the internal conditions for the next stage of growth along with the external changes faced by the company such as intense competition from competitors and subsidiary products JetBlue needs to create innovation based on an altered organisational architecture. For example the addition of new flying routes has resulted in more operations as well as a need for more personnel. The flat organizational structure is ineffective here as unclear delineation of responsibilities and conflicts at similar levels of management will occur. Linked with this inefficiency may occur due to the loss of control of head office over local operations as chains of control are stretched with continued expansion. Therefore an integrated structure required by the next growth stage needs to be more effective in maintaining innovation in JetBlue’s operations. In short strategies need to effectively respond to outside forces causing revolutionary and evolutionary changes however change in an organisation’s architecture often determines the success of organisational change in terms of managing the impacts of these changes, (Greiner, 2000).
As mentioned before innovation should occur in each function of the value chain which can be defined as logistic, operation, marketing and service, (Haberberg and Rieple, 2001). In addition it is vital to apply corporate strategic resources to these functions in order to add value to the organisation as well as the customer. Firstly the most important competitive advantage for JetBlue is its low pricing. Innovations which contributed to this competitive advantage include the company being the first to use an online ticket booking system as well as self service kiosks. The cost savings come from reduction in numbers of physical agents and lowered cost of labour. Additionally use of leather seats not only reduced the cleaning time between each flight but also offered better service to customers in terms of comfort flying. Innovations like these not only reduced costs for JetBlue but also helped with providing greater customer service and creating a good reputation for the company. Competition though and a price war could cut down the profit margin for the firm and the price advantage may disappear in the LLC industry. At this stage then JetBlue should focus on innovations which are able to generate cost-effective solutions over the longer term such as effective team work based on technological developments in the computerised system of ordering and booking. The organisation’s operational control could also be completed through the development of an integrated internal communications network.
Second of all the differentiation strategy adopted by JetBlue was supported by professional customer service to create competitive advantages during the period of rapid growth. Innovations like Airplane Yoga instructional cards were part of this customer friendly service in ensuring relaxed travel especially after the 2001 attacks when customers did not feel confident about flying. JetBlue’s branding strategy saw the introduction of the TrueBlue Frequent Flier Program in which regular travellers could earn points instead of traditionally miles to get a reward. This outstanding level of customer orientated service successfully achieved strategic goals for branding JetBlue. Research demonstrates that when customers evaluate alternative choices they based evaluations on perceived experience with good quality service being a main factor in repeat choices of particular alternatives, (Franzen & Bouwman, 2001). Ogilvy’s (1983) suggestion is for a business to ‘never sell to a stranger’ which means it is important to understand the target audience and their purchasing behaviour and from this foundation build long term relationships with them. Companies therefore choose different tools in order to segment customers and then position their products in order to sell the right product or service to the right people.
For instance one of JetBlue’s target customer groups was business passengers. The provision of a service for flying late night and arriving in the early morning services offered convenience for the needs of business travellers. Therefore in addition to innovations made by the firm focused differentiation could help JetBlue create a new marketplace for domestic passengers. This is because the airline industry is a major market with low growth rates and after the terrorist attacks major setbacks occurred to the already low growth of the market. It is difficult to say whether the market could recover over the short term and because of major carrier’s interest’s turning to the LLC market as well as new entrants, the LLC industry was expected also to see lower growth rates. The issue for JetBlue is to maintain its existing customers while at the same time creating new markets. For example they could offer special domestic travelling flights for those people who wish to have weekend holidays nationally. An argument commonly made though is that the cost of attracting a new customer is twice that of maintaining an existing customer, (Haywood, 1991). JetBlue needs as such to focus on public relation and other promotional activities which can provide a cost effective means of attracting new customers. Good word-of-mouth in this instance may be a significant exploitable resource for the company.
Word-of-mouth also works however among employees within the organisation. JetBlue in this area attempted to maintain good relationships with staff from top managers, engineers to pilots and flight crew. The development of the JetBlue University was able to provide professional training for employees as well as create an esprit de corps within the company. Numerous studies indicate that workers with higher levels of motivation perform better in their jobs, (Baron & Kreps, 1999). These innovations at HR level generated several benefits to the primary activities in the value chain since effective work performance among employees is a prime determiner of effectiveness in many business activities.
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Culture can be defined as the pattern of basic assumptions that a given group of people has invented, discovered or developed in learning to cope with its external adaptation and internal integration according to Schein’s (1990) model. Thus the concept of culture is widely used in organisation theory as it has a major impact on people’s value and performance within an organisational context. This can be expressed as the ideas and feelings that are consistent with corporate beliefs and have a powerful effect on individuals within the organisation, (Kahn, 1998). JetBlue expressed its culture in terms of five core values and aimed to maintain the feel of a small organisation through a strong corporate culture. Organisational behaviour in terms of innovation, decision making, communication, organizing and rewarding are largely affected by organisational culture hence JetBlue’s culture contributed to its success in a variety of ways. The starting point in understanding organisational culture should always be about understanding the building of processes which enable communication between members of the group.
As such then the flat architecture used by JetBlue created short distances between management and employees in communicating organisational information. As organisations grow however more people from different cultures are brought together so in one sense building an organisation can be seen as the process of re-establishing people’s culture in terms of shared sense of history and values which seek to create norms for acceptable behaviour in an organisational context, (Schein, 1999). In JetBlue’s case it shaped employee’s behaviour by setting up team working practises and fostered risk taking attitudes as acceptable behavioural rules which encouraged innovation at all levels of the organization. In addition JetBlue University as a training centre for the firm enhanced and reinforced the importance of its corporate culture and customer service orientation. As a result the professionalism of its customer service successfully differentiated it from other competitors. Therefore the growth of an organisation is closely related to the development of an organisational culture.
Organisational change is incremental when the components of change, defined as a system, process or product, undergo minor changes but the structure of the organisation itself remains unchanged, (Sircar, Nerur & Mahaoatra, 2001). However while evolutionary changes are essential for short term success it can not sustain an organisations long term survival in the face of external and internal pressures. In this case innovations linked with e-commerce, customer service and cost reductions can be seen as evolutionary changes. During corporate growth stages they are essential and necessary in gaining market share and building reputation in the short term. However Tushman & O’Reilly III (1996) point out that almost all successful organisations expand through relatively long periods of evolutionary change combined with bursts of revolutionary change. This means revolutionary change is critical for long term organisational growth. Changes in terms of organisational culture and architecture are necessary prerequisites for this sort of change. Revolutionary change as such is essential in all periods of an organisations’ growth and a significant factor in particular in pushing an organisation into the next phase of their growth cycle.
While evolutionary change is easier to accommodate, revolutionary change causes stress because the implicit architectural basis for organisational knowledge such as the organisational culture is embedded in various processes which undergo fundamental and dramatic alterations. Defining the cultural web elements like symbols or the routines of work are easier to change while factors such as power structures and organisational structure which are likely to reflect power structures are difficult to change in the short term, (Johnson & Scholes, 2002). For example during the changing process conflicts between management and stakeholders might increase since their respective focus might be on different strategic goals. It is obvious that there is potential risk for public companies experiencing poor performance in the stock market during the revolutionary process which is harmful for stakeholders’ interests. Furthermore because revolutionary changes tend to be more complex and uncontrolled and are associated with rapid external changes in the industry organisational efficiency as a result might decrease. Therefore the success of revolutionary change is closely linked with effective communication and balance between short term sales goals and long term strategic objectives.
The intense competition in the LLC market resulted in a price war which reduced the profit margins for companies and reduced the price advantage held by JetBlue. Therefore changes in terms of cultural and architectural structures should be initiated in order to compete with major operators and new entrants. Strong leadership should be applied in a more strict structure due to the growth of the firm. The LLC industry requires differentiated customer service with innovation in this area being a prime consideration. For example there is a tendency for companies to reflect and deal with publicly articulated concerns. In doing so the corporate culture needs to reflect not only the company’s value but also general public concerns especially for example security concerns. This is to say corporate culture which combines with social values and national cultures effectively can provide long term benefits for the growth of JetBlue.
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The first and most important strategic issue for JetBlue is to maintain its cost advantage. Competition requires cost-effectiveness in operational processes as well as in management. Blythe (2001) argues that price is the first tool in communicating with customers directly. JetBlue’s low price strategy should be maintained in the LLC industry yet due to the reduced profit margin and potential risk of increased fuel prices it will be a challenge to do so. JetBlue planned to expand its business internationally in tandem with its aggressive domestic growth strategy. Again as major carriers moved into the LLC market JetBlue’s market share was reduced resulting in decreased profits. Rugman and Hodgetts (2003) contend that one of common ways for pursuing organisational growth is through international expansion. However JetBlue needs to restructure its organisational architecture as well as its applied organisational culture in a national context before it can successfully expand internationally. Another strategic issue for JetBlue was the targeting of mid-sized cities in the US. In doing so JetBlue was able to use its competitive advantages to compete with traditional regional carriers. As a new entrant to these cities JetBlue should integrate its strategic resources supported by cost-effectiveness, excellent service provision and sophisticated communication tools such as e-commerce. This issue is strategically important because offering the same products to newly targeted customers is critical in maintaining an organisation’s growth in a competitive industry like LLC in the US, (White, 2004). The successful integration of resources should produce cost-effectiveness during the expansion process.
In order to maintain cost advantage in the LLC industry efficiency within each function in the value chain is necessary. At the operational level due to the expansion of numbers of flights and related workforce it is the setting up of major agents in big cities is necessary. Sophisticated control systems will be helpful in controlling daily operations as well as providing effective communications with headquarters. An effective control system is also able to cut down the costs of inefficiency and potential risk of inconvenience for passengers as a result of cancellations or delays. Stable contracts for fuel were able to provide competitive advantages to some degree as a result of the uncertainty regarding political relationships with Middle Eastern countries. The building up of long-term business relationships with the providers of fuel should be an integral element of long term strategic plans. In addition the use of public relations particularly publicity activities is not only able to reduce advertising costs but also provides effective information channels for customers, (Kitchen and Proctor, 1991). Effective sponsorship campaigns could help JetBlue build up a public friendly reputation at a lower cost than advertising campaigns on expensive media forms such as TV.
As part of its growth strategy JetBlue planned to expand into providing international flights. However corporate governance models do not necessarily differ from country to country but they can be largely characterised by the ownership structure of the corporation regardless of the geographic location. As a US company JetBlue is much more an outside system which tends generally to be controlled by widely varied and diversified separate owners, (Maher & Andersson, 2002). In this sense the success of revolutionary change remain unclear and it may be risky for JetBlue to pursue international expansion before it has reorganised its strategic resources. The expansion might fail as a result then of the ambitions of management while the board might fail to provide an active oversight of their respective company’s businesses. Generally it can be argued that institutional shareholders/ stakeholders are not interested in governing and managing a company in a minute day-to-day sense but their demands must still be balanced with day-to-day considerations. The ideal situation is for directors to act in the best interest of the company while maximizing the benefits of its trustees yet this may be difficult to achieve while managing revolutionary change, (Stiles & Taylor, 2001).
Last but not least the expansion into mid-sized cities should help JetBlue maintain a competitive position to some extent domestically. From the analysis of the LLC industry in the US it can be argued it is entering the mature stage which means lower growth rate and market size and shares. In this industry competition is intense, profit margins are low thus airline companies have to differentiate themselves from competitors. JetBlube employed a low price and customer orientated service business model in providing high value-added products to passengers. The use of an online booking system contributed to this growth significantly. However these advantages are easy to imitate on the parts of competitors and further innovations need to be based on effective market research. JetBlue needs to carry out research about customer’s attitudes in mid-sized cities towards flying including long and short journeys. In addition understanding passengers’ demands and attitudes towards its major competitors is vital in order to provide differentiated services. As Jobber (2001) argues marketing research is essential for companies who wish to enter a new market as well as existing players as it enables them to satisfy customer needs more effectively. This in sum allows for the creation of new customers and retention of existing ones, the principal factor determining continued future corporate success and growth.
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