We are currently researching leading brands for our forthcoming book ‘Bold brands-how to be brave in business and win’. There are some obvious examples that we shall include but one brand that is causing us to pause for thought is Ryanair, the low cost airline.
Our research and experience of working with many leading brands suggests that those organizations that have a crystal clear view of their strategy and communicate their value proposition to target customers will outperform their sector. We also believe that the more focused organizations are in creating a customer experience that delivers their brand promise the more likely it is that they will win share of mind and ultimately, share of market.
Unbundling air travel
There is no doubt about the clarity and single-minded focus of Ryanair; their stated aim is to disaggregate air travel and reduce costs to the point that they are able to sell seats cheaper than any other competitor. By unbundling air travel and forcing customers to pay for each service they use; be that check-in at the airport, hold baggage – and even charging €1 for using the lavatories if plans floated in public to test reaction recently by CEO Michael O’Leary are put into practice – they have turned the airline business model on its head. That is certainly bold in my book.
Ryanair can push this strategy right to the extreme of offering some seats free of charge knowing that they will make good margin on the add-on services they sell and from those passengers who book late and are forced to pay a large premium.
So is their strategy working? In the six months to September 2009 Ryanair reported that profits soared by 80% to £347m after tax despite a 2% fall in revenues over the same period. However, a large part of this increase was due to a 42% fall in fuel costs and the prospects for the next six months are not quite so bullish.
The World’s Favourite Airline?
Never the less, Ryanair is growing at the expense of its competitors. The airline reported a 17% increase in passenger numbers for September 2009. The airline said it carried 6.12 million passengers in that month, up from 5.12 million the same time last year. Ryanair now claims to be the ‘World’s favourite airline’, a tag line it cheekily stole from British Airways on the basis that BA reported its passenger numbers falling 1.7% in the same period. BA carried only 2.92 million passengers in September compared with 2.97 million in September 2008. BA also posted a £401 million ($663 million) pre-tax loss for the year ending March 2009 and is now struggling with the possibility of strikes over the holiday period as its workforce rebels against cost cutting measures.
If these strikes go ahead they will lead to even greater losses as this is a peak earning season for airlines. No wonder then that BA fears that revenues could fall by a staggering £1 billion this year.
Shares in Ryanair gained 2.9 percent in the week ending December 11th buoyed by an upgrade rating by Cazenove and a prediction that the airline will “outperform” the market. It would seem that the juggernaut will keep on crushing all opposition.
But is Ryanair any good?
So much for financial results but what about operational performance? It is all very well being cheap but is Ryanair any good? Well it depends what you mean by ‘good’ of course. Will you have an enjoyable experience? Probably not. Will you be made to feel valued and well served? Highly unlikely. Will you arrive with your bags? Well according to Ryanair over 90 percent of its fights were on-time and less than one bag (0.67) per 1,000 passengers was misplaced between November and March while a report by the Association of European Airlines confirmed that 17 percent of British Airways’ flights were delayed and BA lost sixteen bags per 1,000 passengers, more than 20 times the number of bags lost by Ryanair. (I should point out that Ryanair does not report its performance to AEA and therefore whilst BA’s performance is verified, Ryanair’s is not)
What do customers think?
OK, so they are pretty successful financially and growing market share. Their operational performance would not seem to be a limiting factor but what do customers think of them? The online travel guide TripAdvisor recently polled 4000 of its members and the Irish discount carrier was singled out as the one that members liked the least. Probably most of us have experienced or know someone who has experienced, the cattle truck experience that is typical of Ryanair. But does that matter?
The ‘Pain-Pleasure’ Gap
My colleague Sampson Lee of G-CEM talks about the ‘Pain-Pleasure Gap’ and argues that the greater the contrast between the pleasure that a customer gets from using a product and the ‘pain’ required to do so, the more memorable the experience. So the long wait and anticipation at Disneyland merely serves to heighten the thrill of the ride when you eventually get it. The Ryanair travel experience reinforces the trade-off you make for the very low fares and therefore dramatises the value that it provides.
At Smith+co we define a branded customer experience as one that is Consistent, Intentional, Differentiated and Valuable. Let’s take each in turn and apply these criteria to Ryanair to see if in fact, the airline does provide a branded customer experience.
So, is it a branded customer experience?
Consistent. Ryanair certainly demonstrates consistency. This is not an organization that wobbles between one strategy and another.
Intentional. Anyone that proposes to charge for using the lavatory and is willing to face the ensuing public outcry has though very carefully about the intended action and its consequences. The rudeness of Ryanair staff is only exceeded by the rudeness of Michael O’Leary himself. We always suggest to our clients that leaders must epitomize the culture and DNA of the brand in their own behaviour. Michael O’Leary understands this and demonstrates his disdain for customers just as much as Richard Branson demonstrates his own passion for innovation.
Differentiated. There is only one Ryanair. The airline has set its stall out on the basis of a totally frills-free experience at the very lowest cost. It has opened up the market for many people who could not have afforded to have flown but, unlike other low cost airlines, it doesn’t even pretend to care about service.
Valuable. Value is defined as what you get for what you pay. With Ryanair you don’t get much but you don’t pay much either and to that extent their proposition is very valuable for those customers for whom low price is everything. Let’s face it, you can put up with quite a lot for a short flight if you can get there for less than the price of a McDonald’s.
So according to our definition does Ryanair offers a Branded Customer Experience then? Well no, not quite.
In order for a customer experience to be branded the organization must have intended to differentiate primarily on the basis of the customer experience and designed this to deliver value in and of itself. Whilst the Ryanair experience is distinctive, it has not been designed to differentiate the airline in a positive way from other airlines. It is more a by-product of Ryanair’s chosen strategy of price leadership.
Is this strategy sustainable? Here comes the crunch. I believe that in order for a brand to continue to grow it has to have a loyal following of customers. There has to be a positive emotional connection between the customer and the brand in order for there to be an enduring relationship. We are much more likely to remain loyal to the brands that we love.
“Nobody could accuse Ryanair of being lovable“
Nobody could accuse Ryanair of being lovable and Michael O’Leary might argue that that is not possible or desirable given his business model but I would point to John Lewis and Southwest Airlines, two brands that compete on price but who also have a following of affectionate fans.
Ryanair will eventually run out of new short-haul routes and, in order to continue to grow at the same pace, it will need to consider longer flights and perhaps, even business class cabins. Whilst Ryanair’s business model might still work for longer flights will passengers be willing to accept the same level of experience?
As we emerge from this recession and the doom and gloom associated with the past two years, businesses and consumers will start to feel less strapped for cash. In this post-recessionary environment the appeal of the very low fares will start to be overshadowed by the pain that the Ryanair experience represents. The low morale and unpredictability of British Airways will make them unattractive because, let’s face it, who wants to pay a lot more for a mediocre experience?
My prediction for 2010? Customers will slowly start drifting back to those airlines that make them feel good again and who can put the fun back in flying. Airlines like Virgin Atlantic for example.
Of course Ryanair’s response may be to try to upgrade its service on the basis that it cannot drop its fares any lower, but the problem is that when you have spent so long forging a strategy and culture that places cost reduction way above customer service that avenue is essentially denied to you. As the old saying has it, ‘You can’t make a silk purse from a sow’s ear. Cazenove may be saying ‘Buy Ryanair’. My advice, for what it’s worth, is ‘Sell Ryanair’.
Write a comment and tell me what you think. You may have a totally different view and I should love to hear it.
Shaun Smith speaks and consults internationally on the subject of the customer experience. His first book ‘Uncommon Practice- people who deliver a great brand experience’ investigates how leading brands differentiate, his second book ‘Managing the Customer Experience- turning customers into advocates’ is considered to be a landmark text book on how to create branded customer experiences. His latest book ‘See, Feel, Think, Do – the power of instinct in business’ investigates the role of instinct and innovation in customer experience. For more information check his web site or you can follow Shaun on Twitter.
©Shaun Smith 2009