Industry Analysis: Bargaining Power of Buyers
Industry Analysis
Bargaining power of Buyers
Buyer power is moderate.
The Buyers: Buyers here comprise of individuals (business as well as leisure travelers) and B2B buyers which comprise mainly of travel agents, travel companies, and charter companies. The airline industry typically has a large number of buyers – the Indian Airline Industry had 73.8 million passengers in 2009.
Inadequate differentiation: Even with the entry of low cost carriers, the sector lacks adequate product differentiation – almost all airlines tend to converge on similar competencies for differentiation. From time to time, airlines seek new competitive advantages, such as greater leg room, in-flight entertainment, on-ground services etc in order to differentiate themselves and ease price competition.
Low Switching Costs: Switching costs between various airlines remain low. Airlines have tried to mitigate this the threat of customer attrition by instituting various programmes such as Frequent-Flier-Miles, which allow frequent customers to redeem their travel miles for free flights. Should a buyer choose to travel with another airline, the air miles lost can be viewed as a switching cost. However this has not deterred customers from switching by a large extent – customers face negligible costs in choosing another airline which gives them higher value.
Price Sensitivity: The emergence of online travel companies have resulted in tremendous price sensitivity with each company claiming to offer the lowest rates.
Earlier, business travelers by large were not price sensitive - corporates making travel bookings for business travelers has pushed price sensitivity up even for this class of passengers.
Additionally, the luxury carriers face stiff price competition from the low priced, budget airlines. As a result of this they need to constantly deliver premium service in order to successfully compete against the low-cost airlines.
All these factors give buyers considerable power. Vertical
Bargaining power of Buyers
Buyer power is moderate.
The Buyers: Buyers here comprise of individuals (business as well as leisure travelers) and B2B buyers which comprise mainly of travel agents, travel companies, and charter companies. The airline industry typically has a large number of buyers – the Indian Airline Industry had 73.8 million passengers in 2009.
Inadequate differentiation: Even with the entry of low cost carriers, the sector lacks adequate product differentiation – almost all airlines tend to converge on similar competencies for differentiation. From time to time, airlines seek new competitive advantages, such as greater leg room, in-flight entertainment, on-ground services etc in order to differentiate themselves and ease price competition.
Low Switching Costs: Switching costs between various airlines remain low. Airlines have tried to mitigate this the threat of customer attrition by instituting various programmes such as Frequent-Flier-Miles, which allow frequent customers to redeem their travel miles for free flights. Should a buyer choose to travel with another airline, the air miles lost can be viewed as a switching cost. However this has not deterred customers from switching by a large extent – customers face negligible costs in choosing another airline which gives them higher value.
Price Sensitivity: The emergence of online travel companies have resulted in tremendous price sensitivity with each company claiming to offer the lowest rates.
Earlier, business travelers by large were not price sensitive - corporates making travel bookings for business travelers has pushed price sensitivity up even for this class of passengers.
Additionally, the luxury carriers face stiff price competition from the low priced, budget airlines. As a result of this they need to constantly deliver premium service in order to successfully compete against the low-cost airlines.
All these factors give buyers considerable power. Vertical