Mini Case #2 JetBlue: losing the Magic Touch? 1. What type of generic business strategy is JetBlue pursuing: cost leadership, differentiation, or integration?
A differentiation strategy seeks to create higher value for customers than the value that competitors create, by delivering products or services with unique features while keeping cost at the same or similar levels. A cost-leadership strategy, in contrast, seeks to create the same or similar value for customers by delivering products or services at a lower cost than competitors, enabling the firm to offer lower prices to its customers. And integration strategy is a combination of differentiation and cost-leadership strategy. In this case, JetBlue is pursuing integration strategy because JetBlue reproduced many of SWA’s cost-reducing activities such as flying point-to-point to directly connect city pairs. It also predominantly uses one type of airplane, the Airbus A320, to lower its maintenance costs. And in addition, it flies longer distances and transports more passengers per flight per than SWA, further driving down its costs. So far, all these strategies have to do with cost-leadership. JetBlue also incorporated the differentiation strategy in their model. They executed the differentiation strategy by offering value-enhancing features include high-end 100-seat Embraer regional jets with regional jets with leather seats, individual TV screen with movies, Live TV, Fox TV, and Direct TV programming, 100 channels of XM Satellite Radio, and free in-flight Wi-Fi capabilities. By offering these unique features, JetBlue made an attempt to enhance their differentiation appeal.
2. What challenges is JetBlue facing with its chosen business strategy? What is the cause of these challenges? How should they be addressed?
The challenges that JetBlue is facing not being able to create value anymore for the customers. As stated in the case, “Many wondered if JetBlue lost the magic”, that is because they weren’t able to offer product that exceeded customer’s expectations. By incorporating integration strategy into the business model doesn’t a firm is guaranteed to have competitive advantage or will sustain competitive advantage. Customer service is key issue that JetBlue is having. The cause of these challenges is trying to master two different things simultaneously (differential and cost-leadership strategy). An integration strategy is difficult to implement, though. It requires the reconciliation of fundamentally different strategic positions. They should be addressed by carefully redesigning their business strategy because a firm needs to adopt new strategies as the external environment changes. For instance, they could just focus on one-business level strategy.
3. What do you recommend JetBlue's top management should do to improve the airline's competitiveness?
Well in my opinion, the goal of the company is to reach the so-called productivity frontier, which is the value-cost relationship that captures the result of performing best practices at any given time. Firms that exhibit effectiveness and efficiency reach the productivity frontier and others are left behind. The challenged that JetBlue faced has to do with obtaining superior performance and enhancing their value creation service. The cost-leadership has caused them the damage on their reputation because only to save those costs they let the customers sit on the tarmac for countless hours. The top management will have to change their business strategy. They will need to choose between either cost-leadership or differentiation strategy. I recommend that they pursue differentiation strategy. They already have cool features on their aircraft, which sets them apart from other companies, but they will need to come up with better service. If they choose differentiation strategy, the threat of entry is reduced because competitors will find intangible advantages time-consuming and costly, and maybe impossible to imitate. This will increase the price, but a differentiator is likely to pass on price increases to its customers as long as its value creation exceeds the price changed.