Read the “Delta Airlines (B)” case which is now available in your HBSP course-back.
Answer the questions listed below. Submit your answers in a double-spaced Word document, clearly separating out each question and answer.
- What is Song’s strategy?
Identification & discussion of Song's generic competitive strategy |
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Identification & discussion of the activities/decisions chosen to create the advantage |
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Identify/discuss 4-6 activities/decisions |
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- What is Song’s generic competitive strategy (i.e. source of competitive advantage and the scope)
- What is the mix of activities that delivers the advantage?
- Does the launch of Song by Delta meet the tests of an effective strategy?
- Does the strategy meet the external consistency test? Discuss why or why not?
- Does the strategy meet the internal consistency test? Discuss why or why not?
- Does the strategy meet the dynamic consistency test? Discuss why or why not?
Sheet1 BUS 675 Delta (B) Grading rubric 1. Generic competitive strategy of Song Identification & discussion of Song's generic competitive strategy10 pts Identification & discussion of the activities/decisions chosen to create the advantage15 pts Identify/discuss 4-6 activities/decisions 2. Discussing the effectiveness of Song's strategy Does the strategy of Song have external consistency? 25 pts Yes/no Discuss why or why not Does the strategy of Song have internal consistency?25 pts Yes/no Discuss why or why not Does the strategy of Song have dynamic consistency?25 pts Yes/no Discuss why or why not Sheet2 Sheet3 9-704-439 R E V : J A N U A R Y 2 4 , 2 0 0 5 ________________________________________________________________________________________________________________ Professor Jan W. Rivkin and Research Associate Laurent Therivel prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2004 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School. J A N W . R I V K I N L A U R E N T T H E R I V E L Delta Air Lines (B): The Launch of Song By the July 2002 board meeting, Delta’s LCC task force had reached a recommendation: Delta should launch a new “airline within the airline” to help meet the threat of low-cost competition. The board agreed, and just eight months later, the first flight of the new subsidiary—now named Song— lifted off from New York’s Kennedy Airport bound for West Palm Beach, Florida. Making the Decision For four months leading up to the board meeting, the LCC task force had worked feverishly. Staff members seconded from network and revenue management, marketing, finance, and strategic planning had relocated from their usual desks to an isolated den of cubicles near the offices of Delta’s top executives. McKinsey consultants further cramped the space. White boards filled with tree diagrams charted Delta’s options. A “hypothesis-driven approach” led the team to undertake an array of analyses: a market research study, a very thorough review of failed low-cost subsidiaries, analyses of Delta’s route network and cost structure, and so forth. Gradually, options dropped from consideration. A “do nothing” scenario, which charted the financial consequences of inaction, reinforced the team’s belief that the status quo was unacceptable. Tweaking Delta Express would also fail, the task force believed: Express would never be cost- competitive, it lacked a distinctive brand, and—perhaps most important—it was too closely tied to “Mother Delta.” “Delta Express had no independent spirit,” CEO Mullin explained. “We needed an organization that ate, lived, and breathed low costs.”1 As it ruled out options, the task force also recognized some design principles. For instance, the decision to implement any new subsidiary should not depend on pilot wage concessions. The subsidiary must not operate in a way that jeopardized labor relations in mainline Delta. The subsidiary should meet and preferably surpass the service and entertainment standards established by JetBlue. “We realized that we needed a distinctive product and a lower cost,” said task force coleader Balloun. “Unlike Southwest, with JetBlue, you can’t just compete with cost. You also need to match the product, or else you’ll lose.”2 By July, the task force had developed a concrete proposal. On matters of route planning and aircraft usage, the proposal was quite specific. The new subsidiary would operate 36 757s, taken primarily from overgauged secondary hubs. It would focus on Northeast-to-Florida routes, with city pairs and flight frequencies already pinpointed. On other matters, however, the proposal was purposely left open. Decisions about customer targets, marketing, pricing, branding, and human For the exclusive use of Q. Morgan, 2022. This document is authorized for use only by Quita Morgan in Managing for Results SP 22 taught by ANNETTA FORTUNE, Widener University from Dec 2021 to Apr 2022. 704-439 Delta Air Lines (B): The Launch of Song 2 resources, the task force felt, were better made by the team that would implement the proposal. “It was a business case, not an implementation plan,” Balloun explained. The task force made one final recommendation: the new subsidiary should be a separate organization with its own culture and a strong leader—“a bulldog.” Making the Airline John Selvaggio embraced the challenge of turning the proposal into a functioning airline. A veteran of American Airlines, Midway Airlines, and US Airways before joining Delta in 1998, Selvaggio knew the checkered history of low-cost subsidiaries. “Low cost is not enough,” he said. “The world is littered with the carcasses of low-cost subsidiaries of legacy carriers. The only thing lower than their costs was their revenue.”3 Delta’s new venture would have to do something different than those failed subsidiaries, which would require independent thinking. Selvaggio was, in the words of Mullin, “about as independent a thinker as you can get.”4 As president of Song, Selvaggio quickly recruited a leadership team (whose backgrounds are outlined in Exhibit 1). Coordinated by a 3,500-line Gantt chart,a the team began to piece together the airline. Finding the customer “You can’t do everything,” Selvaggio explained. “I like to be really focused and specific in my targets.”5 Accordingly, the construction of the airline began with a search for a target customer. The task force’s proposal had focused on Florida, and the 757s would be economical only at high load factors. As a result, the new subsidiary would certainly target leisure customers. Within the leisure market, Selvaggio saw opportunity for further segmentation: Leo [Mullin] didn’t want people to confuse us with mainline Delta. It was important that we be different than, but not less than, the mainline. Mainline Delta had the same target customer as just about every other major airline: the businessperson and, in particular, the businessman. We knew we would target leisure travelers, not business travelers. But then we said, “Let’s be really different and target women.” No airline had ever targeted women before. And as we did our research, we found that women booked 75% of all leisure trips and conducted 90% online travel research, and they had different needs than men. Selvaggio’s team dubbed their target the “Discount Diva” (Exhibit 2). The Diva was successful; was age 45; had household income of $75,000-plus; was interested in fashion, health, and design; and was eager to have choices. Designing the experience From a list of 600 candidates, the name “Song” was chosen for the new subsidiary. The name, Selvaggio explained, would appeal to the Diva and, since everyone has her own favorite song, it would be emblematic of choice. The Diva’s experience with Song would begin with booking a flight. She could call a dedicated Song reservation agent, working in a separate call center from Delta agents, or she could use the Web site flysong.com. Song executives hoped that over 70% of tickets would be booked online (vs. 45% for mainline Delta). Prices would have a simple structure, with an everyday-low-pricing policy. Once at the airport, the Diva would have a fairly conventional ground-service experience, though she might note that Song operated with one gate agent rather than Delta’s two. On board, the Diva would take a leather seat in the all-coach cabin and might notice the festive décor of the plane’s interior. As of late 2003, her seat would have a personal digital television a A Gantt chart is a project-planning tool. Each line represents a discrete task that must be performed before the project is complete. For the exclusive use of Q. Morgan, 2022. This document is authorized for use only by Quita Morgan in Managing for Results SP 22 taught by ANNETTA FORTUNE, Widener University from Dec 2021 to Apr 2022. Delta Air Lines (B): The Launch of Song 704-439 3 monitor with 24 channels and video games. Though superior to JetBlue’s analog television, the Song television service would have a cost comparable to JetBlue’s because of technological progress since JetBlue installed its system. The Diva’s seat would have 33 inches of legroom, one inch more than on JetBlue and other low-cost carriers. She would notice that Song flight attendants were less conservative and more outgoing than attendants on most legacy carriers—“high style, high fashion, frisky and fun, but not goofy” in the words of one Song flight attendant.6 In addition to complimentary beverage service, the Diva would have the option to buy food on board. Organic food, for instance, was being prepared under the guidance of gourmet chef Michel Nischan, and branded indulgences such as Snickers chocolate bars would be available. Food prices on board were comparable to airport prices, and gross margins were 25%. Joanne Smith, Song’s vice president of marketing, explained, “We want to be a lifestyle brand, not merely an airline brand.”7 Song’s credo echoed that sentiment, repeating the phrase “We are not an airline” (Exhibit 3). Marketing material consistent with the brand was being developed for Song’s first advertising campaign in September 2003. Staffing the airline Song staffed its flight decks with pilots from mainline Delta, working under the same