Strategic Options

Lucky Air, as mentioned in the case study, have to face several low cost competitors, which is
obviously a threat for the company. More specifically, by the entrance of these competitors
Lucky Air is threatening as competitors could easily imitate its strategy. Therefore, Lucky Air
should consider some strategic options in order to sustain its competitive advantage. According
to Porter, a firm can choose among 5 generic strategies which are cost leadership, differentiation,
focused cost leadership, focused differentiation and hybrid. The mentioned strategies are
discussed following extensively.
Cost Leadership
It is an action plan the firm develops to produce goods or services at the lowest cost. Producing
at the lowest cost enables the firm to price its product lower than competitors can and therefore
gain a larger share of its target market. Such firms typically sell standardized products to the
industry’s “average” customers because they are usually the largest target segment. Such
examples of companies that have applied this strategy are Cooper Tire, Rubber and Easy Jet.
Differentiation
It is an action plan the firm develops to produce goods or services that customers perceive as
being unique in ways that are important to them. The uniqueness may be physical or
psychological and it serves customers who want to buy a good or service that is different from
the ones bought by the average customer. Such examples of companies that have applied this
strategy are Ralph Lauren, British Airways.
Focus Strategy
A focus strategy is an action plan the firm develops to produce goods and services that serve the
needs of a specific market segment. Firms using the focus strategy intend to serve the needs of a
narrow customer segment better than their needs can be met by the firm targeting its products to
the broad market. The focus strategies have two dimensions: focused cost leadership and focused
differentiation.
Focused Cost leadership
It is an action plan the firm develops to produce goods and services for a narrow target segment
at the lowest cost. An example of such firm is IKEA, which it targets younger customers desiring
style at a low cost and who want to shop at hours beyond those typically available from other
firms.
Focused Differentiation
It is an action plan the firm develops to produce goods and services that a narrow group of
customers perceive as being unique in ways that are important to them. Examples of such
organizations are: Thomas Pink is a business unit of LVMH Moet Hennessy Louis Vuitton,
which produces clothing and apparel and which follows such a strategy.
Hybrid (Integrated Cost Leadership/Differentiation)
It is an action plan the firm develops to produce goods and services with strong emphasis on both
differentiation and low cost. With this strategy, firms produce products that have some
differentiated features (but not as many as those offered by firms using differentiation strategy)
and that are produced at low cost (but not at a cost as low as those using cost leadership). This
strategy can be used to serve the needs of a broad target market (McDonald’s) or the needs of a
narrow target market (Anon that makes semi-customized rooftop air-conditioning systems).
From the case study we can observe that Lucky Air model is low-cost and high efficiency
strategy, based on the Southwest Airlines in the US strategy. This strategy has proven to be an
effective one, considering the significant revenues of the company. Furthermore, as a new airline
company implement a cost leadership strategy, this could be the way to enter into a market and
in the case of Lucky Air, a company may use this strategy in order to empower its presence and
market share before moving to other strategies. However, Lucky Air is not the only airline that
offers services at these prices. As we can see in the case study, the low-cost airlines are
blossoming and many yet wait for approval to enter the market. Therefore, Lucky Air in order to
sustain its competitive advantage should review some other strategic options that could maintain
the company’s success.
The Changing of the current strategy in this particular context could be a risk for Lucky Air.
There are several reasons that Lucky Air have to sustain its strategy. Firstly, the existing strategy
has proven to be an effective strategy for Lucky Air because of the revenues which have gained
in recent years and secondly a potential change could harm the company’s perceived image
among Chinese consumers. Finally, a possible change of strategy could create a significant
confusion among the internal environment of the company (stakeholders).
However, in order to maintain this strategy several cost reduction must be done. Firstly, Lucky
Air could take the opportunity of growth of the Internet and to conduct its operations online.
More specifically all seats to be sold online. Furthermore, Lucky Air could focus on using the
Airbus 319 which has less maintenance costs, thus reducing its current maintenance costs which
are 5% of its total costs. Additionally, as it is presented in Exhibit 3 that in flight food has 1.5%
cost from its total costs Lucky Air could not provide free lunch during the flight but only charged
meals. In addition, Lucky Air could have ticket less travels and passengers have the ability to
receive booking details via email rather than paper. Finally, another cost reduction consists of
creating call centers to handle booking so that they could avoid paying travel agent commissions
which are 2% of its total costs.
Although, Lucky Air in order to sustain its competitive advantage could exploit emphasize on
the firm’s core competences. Core competences are capabilities the firm emphasizes and
performs especially well while pursuing its vision. In addition, when core competences allow the
firm to create value for customers by performing a key activity better than competitors, it has a
competitive advantage. In the majority of cases, capabilities do not spring to life on their own
rather capabilities result when people (employees) think carefully about which combination of
resources will allow the firm to create a capability with a potential to become a core competence.
In Lucky Air’s case, the capability managed by the employees that could become a core
competence is the IT operation which is backed by Hainan Airlines which had one of the most
advanced web portals in the Chinese airline industry. In other words, Lucky Air could exploit
this capability in order to gain more development to the Chinese e-commerce and to position
itself at the cutting edge of technology and reap the same rewards as Southwest Airlines and the
US competitors. This spesific capability if exploited, I strongly believe that it could become a
core competence which can sustain competitive advantage.