5 force model explanation

5 force model explanation - Threat of new entrants The...

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Threat of new entrants : The extent of threat due to new entrants is determined by how high or low are the barriers to entry into an industry. In the airline industry, deregulation and availability of alternate sources of funding reduced the barriers to entry. Economies of scale did not work out well for the players in the airline industry. The hub-and- spoke model developed by the major players, led to more of diseconomies of scale than economies. However, the large investments already made by the major airlines, and their established networks do pose a significant threat to new entrants unless they counter it with highly efficient operations. Product differentiation . Airlines try to create strong brand identification and customer loyalty by using the frequent flyer programs. When there is strong brand identification, it forces the new entrants to spend heavily on weaning away customers from the existing players, thus discouraging their entry. However, in the airline industry the brand identification has not proved to be so strong as to prevent people from switching to other airlines. Some low-cost players are trying to achieve some product differentiation (e.g., JetBlue providing more legroom, directTV at
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5 force model explanation - Threat of new entrants The...

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