Porter (1980) described three general types of
strategies that are commonly used by businesses
These three generic strategies
are defined along two
dimensions
strategic
Scope
Strategic
Strength
Strategic
Scope
is a demand side dimension and
looks at the size and composition
of the market you intend to target
Strategic
Strength
is a supply-side dimension and
looks at the strength or core
competency of the firm
Generic
Strategy
Low-cost
leadership
Differentiation
Focus
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Firstly, Cost Leadership. LCCs must maintain a sustainable low-cost
advantage over their full service competitors. LCCs must ensure that their
costs per passenger-km continue to be 50 per cent or more below those of
full-service airlines and continuing to reduce their own costs too
Cost category
Cost item
Aircraft
• Ownership
Ownership
Structure
Costs
• Fleet Structure
• Aircraft Utilisation
Fuel Costs
Levers for reducing costs
• Anti-cyclical purchasing
• Optimize owned / leased mix
• Fleet harmonization
• Optimise mix of older and new aircraft
• Reduce turnaround times
• Reduce maintenance downtime
• Route Efficiency
• Shorter enroute and approach times
• Purchasing Costs • Reduce delays, use smaller airports
• Weight Reduction • Reduction in service fees
• Use of fuel hedging strategy
• Calculation of “no show” passengers
• Through product innovation e.g. seats
Cost category Cost item
Maintenance • Fleet
Costs
• Service Costs
Crew Costs
Levers for reducing costs
• Fleet harmonisation
• Reduce average fleet age
• Optimise maintenance activities
• Joint purchasing of some work
• Productivity
• Improved planning of crew logistics
• Wage-related Costs • Lower block hour restrictions
• Crew Costs
• Fewer and/or less senior cabin crew
• Reduction of extra-wage allowances
• Reduce need for overnight stays
• Reduce allowances for overnight stays
Cost category
Cost item
Levers for reducing costs
Handling
Costs
• Service Level
• Insourcing
• Reduce Handling
Fees
Catering
Costs
• Reduce unit costs
• Reduce volumes
• Standardisation of SLAs (Service Level
Agreements)
• Revise SLA components
• Pre-cleaning activities by cabin crew
• Loading/unloading support from crew
• Global contracts with key suppliers
• Off-peak pricing
• Simplification of meal choice
• Reduce logistics costs for delivery
• Monitor passengers vs. available meals
• Improve waste management
Cost category
Distribution
Cost item
• Ticketing
• Sales Channels
• Sales Commissions
Levers for reducing costs
• Development of E-ticketing
• Self-service check-ins
• Divert customers to on-line channels
• Efficient customer service call centre
• Target-driven contracts with agents
• Reduce commissions
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
Generic
Strategy
Overall cost
leadership
Commodity Required
Skills and Resources
 Sustained capital investment
access to capital
 Process engineering skills
 Intense supervision of labour
 Products designed for ease
 Low-cost distribution system
Common Organizational
Requirements
 Tight cost control
 Frequent, detailed control
reports
 Structured organization
and responsibilities
 Incentives based on
meeting strict quantitative
targets in manufacture
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Secondly, Differentiation Strategy.
• LCCs must focus on differentiation of their product, that mean they must
also offer a product with some frills, which is very highly rated by passengers
in terms of value for money
• The strategies of most LCCs are twofold; to take on the legacy carriers and
attract higher-yield passengers, and to add points of difference from other
LCCs
REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
Generic
Strategy
Commodity Required
Skills and Resources
Common Organizational
Requirements
Differentiation
 Strong marketing abilities
 Product engineering
 Creative flare
 Strong coordination
among functions in R&D,
product development, and
marketing
 Subjective measurement and
incentives instead of
quantitative measures
 Amenities to attract highly
skilled labour, scientists, or
creative people
 Strong capability in basic
research
 Corporate reputation for
quality or technological
leadership
 Long tradition in the industry
or unique combination of skills
drawn from other businesses
 Strong cooperation from
channels
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Thirdly, Market Share /Market Segmentation/ Focus Strategy.
• The airline has to decide as to which marketing segment he is targeting and
what kind of focus it require.
Generic
Strategy
Focus
Commodity Required
Skills and Resources
 Combination of the above
policies directed at the
particular strategic target
Common Organizational
Requirements
 Combination of the above policies
directed at the regular strategic
target
RISKS OF THE GENERIC STRATEGIES
Risks of Cost Leadership
Risks of Differentiation
Risk of Focus
Cost of leadership is not
sustained
:
•
Competitors imitate:
Differentiation is not
sustained
 Competitors imitate
 Bases for differentiation
•
•
Technology changes
Other bases for cost
leadership erode
Proximity in differentiation
is lost
becomes less imported to
buyers
The focus strategy is
initiated
The target segment
becomes structurally
unattractive
 Structure erodes
 Demand disappears
Cost focusers achieve
even lower cost in segments
Differentiation focusers
achieve even greater
differentiation in segments
Cost proximity is lost
Broadly targeted
competitors overwhelm
the segment:
 The segment’s differences
from other segments narrow
 The advantages of a broad
line increase
New Focusers sub-segments
the industry
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