When there are only a few players in the market and all are vying for the coveted position of market leadership, rivalry is at its most intense level. This is the case in the air line industry in the Middle East where a few major players exist in the market such as Etihad Airways, Emirates Air line and Qatar Airways. Etihad Airways has yet to report a profit in its short history and this is mainly because of the competition and also because of the huge amounts of investments being made for the future and the fast growth that it is experiencing (Anna Aero, 2008).
There is great scope for product differentiation in the air line industry. Etihad is already a low cost producer. Because of its governmental backing, it can afford losses in these initial years for the sake of gaining market share. To increase its margins, it needs to conduct more research in the market and analyze customer needs. The South West Air line business model is an excellent model. South West provides only basic services for business class domestic travelers and has stripped away all extra benefits and luxuries for these small distance travelers. Etihad should follow suit and offer basic services for such segments of consumers so that cheaper prices can be provided to them. Differentiation policy should be applied to more affluent and financially stronger travelers. High quality cuisine, liquor and service are some of the examples.
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