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Mar-301 Wa1 Porter's Five Forces Model

|| Written Assignment 1 Frantisek Dzuno 2012-10-MAR-301 Part A Choose a specific industry (e.g., grocery retailing, the airline industry, etc.), and apply Porter's Five Forces Model to discuss that industry's competitive forces and their relative influence. The domestic airline industry has generally been characterized by very high competition and low profit margins. To understand the position of the economic climate in this environment, an examination of Porters Five Forces could be used to obtain a better picture of these factors within the airline industry. New entrants are usually blocked by the cost or difficulty if entering a market (Boone & Kurtz , 41). The airline industry is a typical case when the extremely high initial cost is the main barrier for new entities - entrants. The investment to build, purchase or rent airplane is enormous. Employees such as pilots and maintenance technicians are expensive to pay. The training efforts are extremely high. Security, safety requirements are heavy regulated. Another important factor which creates a challenge for new entrants to enter the airline market is the brand identity. Airlines with a long history in the industry have created a strong relationship with their loyal customers based on safety records as well as the discount programs they offer (frequent flyer programs, business members) The Power of Suppliers within the airline industry is very low. The main factor relating to the bargaining power of suppliers is the supplier concentration (Ref 3). For example, Boeing and Airbus supply most commercial aircrafts. Limited competition makes it difficult to obtain lower prices and lower the costs. Airlines are also motivated to purchase the

same type of aircraft or the same brand to reduce the long term maintenance and service costs. The strong power of suppliers is the main factor which makes it very difficult for competitors to earn higher profits. The Power of Buyers is increasing within the airline industry. For the last decades, the Internet has created a system where there are many options for selecting a specific airline carrier. Customers go to numerous travel web sites (Travelocity, Expedia, Cheap Tickets, Kayak, etc.) to find and compare best prices and to choose usually the lowest airfare to travel. This trend coupled with the lack of differentiation by the consumer between air carriers has commoditized the industry and made price the most important factor impacting buyer behavior (Ref 2). The Threat of Substitute Products in the airline industry is very low. They include trains, buses, and automobiles. Since there is no high-speed train system built in United States, the alternative travel options for customers, especially in business environment, are very limited. Customers have practically no other travel choice for long distances or overseas destinations. In case of regional airlines they can be challenged by other types of transportations since driving short distances may be more affordable by train, bus, or car. And finally, the last factor in the Porters Five Forces Model is the Rivalry among Competitors. The airline industry is highly competitive. There are many airlines for regional and long-distance markets. According to the United States of Transportation, there were fifteen major carriers in USA in 2012 (Ref 4). Since airlines are competing for the same customers, it produces a highly completive environment. Airlines compete against each other in areas of pricing, technology, customer service and in-flight technology. With the high fixed costs, strict security and safety measures, and very high level of rivalry, the airline industry is forced to operate under the very low level of profit margins resulting in poor industry performance. Part B Discuss how online marketing could provide competitive advantages in the industry you analyzed in question A

The Internet has a great effect on a way the modern society works. It affects the way we communicate, share information, or purchase products or services. Since it is accessible virtually everywhere (home, school, work, stores, libraries, etc.), it represents an excellent opportunity for businesses to be in touch with existing or future customers anywhere they go. Due to its easy accessibility and global coverage, the Internet and online marketing can provide many competitive advantages in every industry. Online Marketing is especially important in the airline business. With over 1.5 billion Internet users, this form of marketing can reach out to many customers worldwide. According to Boone & Kurtz (p106), travel (with its 86 billion in sales) tops the list of products sold online during recent years. To have successful online sales, the company needs to provide a professional website with a good design and look. A well-designed website turns visitors into customers. It catches customers attention right from the beginning. It is simple and have consistent look across all pages. A good website provides a transparent message as well the options for search and comparison. Once search results are returned, users must feel that they found the best results for their flight requirements in order to proceed and turn their decision into a business transaction. The website needs to provide all necessary assistance by providing instructions and context sensitive help. Once the user makes a choice, the purchase process needs to be as simple as possible with minimum steps to complete the order. Payment process should be simple with most commonly accepted methods of payments. Payment transaction must be secure (https protocol) to protect users personal and financial information. The final confirmation needs to be presented to the user with ability to cancel the transaction before the order is placed. A printable transaction summary report should be generated and emailed (if available) to the customer at the end of the transaction. Another important factor in online marketing is the personalization. It is companys ability to improve the quality of the shopping experience by tailoring the online experience to its customers individual requirements or preferences. Web sites allow users to sign up and save their preferences, store personal, payment information for future transactions. Airline members can keep track of their reservations. Using email or mobile

notification services, users can track flight status, delays, cancelations, or other important events such as recent discounts, rewards, and important updates. Having the best web site design with the best personalization options and features is sometimes not sufficient to attract all potential customers. Many online users simply dont know anything about the web site or online services provided by the company. To solve this problem, companies often take proactive actions and place ads (banners, popups) on sites which prospective customers are likely to visit. Another way to increase the visibility on web is to pay search engines (search marketing) such as Google or Yahoo to appear to the top of the search results. Companies also more and more use social network sites for online advertising. These websites (LinkedIn, Facebook, etc.) have millions of visitors every day and represent an easy access to many prospective buyers, customers. Part C Do you think firms that market products for children have any special ethical responsibilities when they advertise? Why or why not? Give examples that support your position. Yes, I am absolutely convinced that firms that market products to children have special ethical responsibilities. The main reason children have not developed the skills to receive marketing message critically. They believe everything they see and hear (Boone & Kurtz, 83). In other words, kids are not capable to distinguish between claims that are realistic and truthful and those that are merely fantasy. They are easy to manipulate and vulnerable to any influence not necessary best for their healthy development. Todays children spend an average of 4 hours per day watching television and are exposed to about 5 hours of commercials per week, which amounts to 40,000 commercials in a single year. About 83% of commercials during the most popular shows for children ages 6 through 11 advertise snacks, fast food or sugary treats. Approximately 88% of children between the ages of 5 and 14 use computers, and 53% have access to the Internet. Studies of media usage indicate that new media, such as the

Internet, are not displacing television viewing but are rather supplementing it (Ref 7). Companies who advertise food to children are responsible to present healthy choices and focus on products that meet nutrition guidelines. If they fail to do so, they should be financially responsible in a form of special taxes of fines to cover the costs related to children obesity or other health issues caused by the junk food advertisement. Snack foods, candy, soft drinks, and other junk food should not be offered for sale in schools. School should not allow any food advertisement that emphasizes junk food or unhealthy habits. Promoting some products to college students can also raise ethical concerns. College students are a prime market for firms that sell everything from electronics to beer (Boone & Kurtz , 83). Since legal regulations do not allow selling alcohol under age 21, companies find innovative ways to propagate alcohol through other saleable items such as cloth, hats, or other products. This unethical marketing practices support underage drinking which is the cause of many tragic accidents and deaths among our college students. References: 1. Boone & Kurtz, Contemporary Marketing , 14th Edition, ISBN 10: 0-32458203-X 2. U.S. Airline Industry Case Study, July 17, 2007 3. Porter's Five Forces, 2010 4. Wikipedia, 21 August 2012 5. Children as Consumers, http://www.globalissues.org/article/237/childrenas-consumers