Stelios Haji And Him Air Carrier Easyjet.com and Easycar.com - Essay Example

A Case Study Report: easyCar. com Background The famous Greek entrepreneur Stelios Haji –Ioannou, the founder of low cost air carrier easyjet.com (1995), in the same line, founded easyCar.com (2000). The start up capital for easyjet.com was 5 million pound and its success after its initiation as point-to-point flight provider within Europe, offering only Internet flight reservation led Stelios to diversify his business almost in the same line and set up easyCar.com (Lawrence and Solis, 2004). Introduction EasyCar.com was founded in 2000 with a start up capital of 10 million pounds. Only 2 years later the company was experiencing high growth in revenue which stood at 27million pounds. Another year after easyCar was the fastest growing car Rental Company in Europe. Pleased with the exceptional performance of the company, Stelios resorted to an expansion mode. Two new sites each week in 2003-04 were targeted as the goal and to allow fresh inflow of capital, an IPO (Initial Public Offering) policy worth 250 million pound was planned. At the beginning of the year 2003, easyCar already opened its outlets in 17 cities across five European countries (Lawrence and Solis, 2004). A well-structured plan Stelios being one of the most flamboyant entrepreneurs of Europe picked up the pulse of the European consumers rightly. With the presence of car rental companies like Avis, Europcar and Hertz, launching a rental car company and making profit was not an easy task. Stelios realized the necessity of pulling something exceptional out of the scratches. From the very beginning the emphasis of easyCar.com was to cut operating cost and provide its customers a unique price band in terms of its low level and unmatchable by any other organization operating in the market. Stelios also concentrated on product differentiation, as he understood that a perfect blend of lower price with higher luxury (Dudik, 2000) could only make easyCar survive in the market. Moreover the cost cut need to be done in every aspects. Towards a lower operating cost As mentioned earlier that cost cut and thereby providing the customers a cheaper price is the main business strategy of easyCar.com. This cost cut has been achieved through a combination of four strategies, namely, locational strategy, operational strategy, and informational strategy. Location strategy At the beginning of the year 2003 among the 55 sites spread in 17 cities across 5 European countries, only 9 were near the airport. The rest were either a railway station or a bus stop. Leasing land to open a site is far costlier near an airport than near a railway station or a bus stop. A larger payment to lease a piece of land will result in larger per unit cost of providing the service, which will reflect in the price band for that particular service (Mintzberg and Lampel, 1998). This goes against the motto of easyCar.com (the company intends to offer the lowest possible price for its service). Therefore in most of the cases opening a site near an airport was rejected. Whenever a site was actually opened near an airport, the organization tried the level best to ensure that this piece of land must be within the airport where land leasing is a bit cheaper. On the other hand opening a site near the railway station would be far cheaper and again a continuous supply of customers will be ensured. An area near a bus stop was chosen as a preferred region to open a site only because Stelios thought that then with its cheap rate easyCar.com could put a competition to the bus and taxi service and thereby put a bite on their part of burger. Sites near airports however kept open for longer hours as plane are expected to come all over the 24 hours. (Lawrence and Solis, 2004) Advantages: Discarding airports from the potential list of client catching spot has reduced the leasing cost of land and thereby has not left any negative influence on price. General customers have been benefited from this policy. Keeping open the airport sites 24 hours proved to be very convenient for the passengers arriving at night, good impression on the customer that may lead to repeated use of the same service. Opening sites in the nearby locations at railway stations and bus stops made the organization a very strong contender for fetching clients. Disadvantages: Sites near the bus stop and railway stations kept open from 7 a.m. to 11p.m. have not considered that some trains may arrive late. With global business at a boom, day-by-day flight passengers are increasing (Jarillo, 1993). In this situation having less sites near the airport may proof costly and result in loss of market share. Recommendations: Opening up of an increased number of sites near the airport. Reorientation of the working hours at sites near the railway stations. If cost of leasing is high near the airport, two different price bands may be followed – one is for sites near railway stations and bus stop and the other for the airport. Operational strategy Framing a unique operating strategy is perhaps the key to success for easyCar.com. Stelios, a truly visionary person, realized that unless the operating cost can be kept at a minimum, customers couldn’t be provided a cheap alternative. Furthermore, Stelios also realized that his organization is at a nascent stage and in order to expand with ease, he has to keep the operational cost and the set up cost of new branches at a minimum. This concept gets well portrayed into the sites of the organization. The so called office of easyCar.com at almost all the sites, is set up within a small garage with some cubicles where easyCar.com staffs can sit and operate, some telephones and computers for booking purposes and on an average 1-2 staffs to carry on business. As the utilization rate of the easyCar.com vehicles is at a staggering 90 percent. So, a garage with an accommodation of 15-20 cars would be sufficient for a single site. These characteristics of an easyCar.com site have made it possible that within 2003-04, a target of opening two sites per week could be set (Lawrence and Solis, 2004). A set up that simple, has been a great help for easyCar.com to expand that rapidly over Europe. The car booking process also reduced the risk of booking cancellation or accumulation of inventory at a staggering number. Preferential rate to early birds and no refund in cancellation of booking were the two main policies that have been followed in order to reduce the risk. As it has been mentioned that any easyCar.com site has a quite sleek set up and an excellent ploy has been applied in order to overcome any sort of labor shortage that may come up with this sleek set up. Customers are provided with minimum amount of gas in the tank and given a sitemap specifying the nearest gas station (Lawrence and Solis, 2004). Without this strategy an easyCar.com staff may have to visit the nearest gas station to fill up the tank and then hand over the car to the customer. This process no doubt quite arduous would have resulted in the loss of valuable labor hour. To avoid any kind of damage to the car that may have resulted from running it at low fuel, a fine (16 euro) has been imposed on the client if the low fuel blinker blinks while returning the car. This strategy reduces the depreciation of the vehicle and thereby reduces the maintenance cost of the vehicle. Another policy followed by the organization to reduce the maintenance cost is to charge 16 euro to the client if it is found that while returning the car has not been properly cleaned up. These two policies combined with the 80-euro refundable security deposit have been of great help in avoiding long run replacement cost to the organization. Charging 120 euro as let fee per 24 hours after the stipulated date of return has given the organization a minimum risk of default on behalf of the clients and thereby ensured smooth functioning of the system with all its cars at its disposal when needed (Lawrence and Solis, 2004). Advantages: The sleek set ups ensured efficient operation. Resulted in lower cost due to lower set up and operational cost and thereby helping to keep the price of the service at a low level Made expansion easy Fine due to uncleanly ness, low fuel and late returning has created a stake of the clients into organizations well being Disadvantages: May run into labor shortage in a tight schedule resulting in hue and cry. Taking 30 minutes in busy hours to deliver a car may be a mark of it. Fine imposed on the client may make them reluctant to use the service again Lack of clarity in some issues like cleanliness, it is a relative concept can’t has any absolute definitions. Having a small garage may prove costly if some day the utilization rate of car falls. Recommendations: A stopgap worker may be present at the site to join at the busy hour. Fine imposed on the client must come only after a careful verification with proper explanation. Keeping an additional garage in possession such that when need arises, accommodation is already there for an extra number of cars. The strategic business units such as the head office at each 17 city over the five European countries should plan and implement their strategies by them selves. This will help in saving time and the growth strategy will then be a bottom up approach, more complete, with the added capability of catering the needs of the local customers at almost 100% level. Information strategy The whole set up of easyCar.com is based upon a well structure and informative website. Using information technology at an optimum level the organization has provided its customers an added advantage so that they can book their car while sitting back at their home and making payments through their credit cards. This strategy on one hand saves valuable time for the customers and also gives freedom to the organization from the paperwork (Evens and Wurster, 1997). Further, making payment through credit card readily verifies the identity of the client and reduces the risk of playing any tricks by the customer on the organization. The website provides almost all the information required to rent a car from easyCar.com and their employees sitting with a phone answers all the queries the customer may have regarding car booking (Lawrence and Solis, 2004). This process has created almost a complete information system and there by avoiding moral hazards (Shapiro and Varian, 1999). Advantages: Offers comfort to customers of hassle free booking facilities. The payment procedure readily verifies the identification of the customer. Disadvantages: Revealing credit card number on the Internet may create severe problem to the customer. Mechanical drawback may result in double payment on behalf of the customers. With the advent of virtual credit card the consumer may manage to rent a car for wrong reason. Recommendations: The information about the organization and the booking procedures given on the website have to be more complete. Regular maintenance of the computer server. Non-acceptance of virtual credit card. Easy Car pricing policy EasyCar enjoys a clear price advantage over its competitors. A vehicle could be rented at a price as low as 15 Euro a day along with a one-time fee of 8 Euro (at the beginning of the organization). The rental price drops to 5 Euro with a preparation fee of 4 Euro for advance booking. This ensures higher utility level for all vehicles as the customers allured by the low price would book a vehicle much earlier that the date when they need it. The payment is usually made through easymoney, a credit card of easy group and a true example of how one business of an entrepreneur can promote another business of the same. Use of easymoney is guaranteed by leaving and additional 5 Euro charge for booking with other credit cards. Pricing policy is strengthened with a per kilometer rate of 0.12 euro in excess of 100 km/day. 16 euro goes from those customers who have failed to return the vehicle properly clean and a late fee of 120 Euro per day. A charge of 16 Euro in case of any change in the settled date resulted in less cancellation of dates and thereby tension free higher utilization of the vehicles. The customers in large numbers also accept an optional insurance policy of 6 Euro per day in case of any damage to the car. Occasionally there have been some allegations against the organizations for charging hidden price on its consumers. This resulted mainly from the information gap between consumers and the organization. This problem has later been addressed through the easyCar.com website (Lawrence and Solis, 2004). Promotional policy To advertise their service the organization has cleverly chosen nearby location of train stations/ platforms and bus stops where people can easily see these posters attached here and there. The total fleet of cars also used logos of the organization in different parts of their body. EasyCar.com has been severely criticized for its sarcastic advertisements often crossing the limits and indirect conflict with rival companies. If not changed, this tendency may draw easyCar.com into further complicacies in countries like Netherlands (Lawrence and Solis, 2004). For future expansion easyCar is hiring advanced professionals in managerial level and important strategic parts are receiving great importance from the management. Recommendations It is statistically proven that people get more motivated with a combination of audio visual than the still picture. Posturing is somehow obsolete nowadays. Proper advertisement through media like television and Internet is highly recommended (Hamel, 2002) for an organization life easyCar.com. Product differentiation If products can incorporated with something unique then its demand rises (Rehfeld, 1994). Off course this differentiation has to be a positive one. Customers are ready to pay a higher price for such a product (Lamb, 1984). If product differentiation can be combined with lower price then the effect on consumer preference is immense (McKenna, 1997). Even with the low price the vehicles offered by easyCar.com were initially Mercedes of A-Class. In the beginning only these cars were sold. It may be called a combination of cost advantage and product differentiation. It was only in 2003 that easyCar went on to take other kinds of cars like Ford Focuses, Renault Clios etc. Though to keep the product differentiation process simple easyCar.com offers a single type of vehicle at one place (Lawrence and Solis, 2004). Advantages: Customers will be definitely allured by the name Mercedes and even that at a low price. None of the existing car rental services provides such a costly car. The tie up with Mercedes with guaranteed buy that terms will prove beneficial for easyCar.com. Disadvantages: Providing some low cost car would have reduced the fixed capital for the company. Some fuel-efficient Japanese car may have been a better option for the customer. At larger level of product differentiation, an organization often goes baffled. Recommendations: A proper cost benefit analysis before engaging any further Mercedes-A class is highly recommended. Keeping parity between capability of managing and level of product differentiation is necessary. Legal Issues In recent times easyCar.com is subject to several legal complicacies. As per the company’s guidelines, no refund to customers is possible once booking is made but according to the OFT laws, from now on in easyCar has to give a full refund in case of a 7 days’ notice. The founder Stelios has expressed in doubt and concerns that it may pull down the utilization rate of easyCar.com’s car from 90 percent to 65 percent. Another policy that easyCar.com implemented recently pertains to maintaining the individual borrowers on its website. This is in case an individual who has not returned the vehicle even after 15 days from the date of actual return. This policy is facing severe criticism and at the verge of closer, the organization expresses concern that with this policy closed people may frequently default in returning the rented car within the due date and it will result in an increased cost of 5 million pound to the organization (Lawrence and Solis, 2004). Recommendation Different countries have different laws. The organization easyCar.com is now at an expansion mood while setting new set ups in different countries the organization always has to respect the laws of the nation, otherwise sooner or later it will drawn into legal troubles resulting in bad will and economic loss. Conclusion: EasyCar.com is one of the most expanding car rental companies. But it should be kept in mind that the lower price that easyCar offers, out of its cost advantage can be matched by its competitors as cost advantage as a strategic advantage does not last for long. As almost all the companies are using the same input so this cost advantage may be in the long run get imitated. However the mix policy of product differentiation and the lower price that easyCar follows cant be easily copied. Starting from a nascent period (introduction stage) it is now growing, but as usual a company stabilizes (maturity stage) after growth and then declines. Keeping that in mind the company should devote its resources in order to sustain the current growth rate or at least to avoid the declining phase. References Dudik, E. (2000). Strategic Renaissance, Amacon, New York. Evens, P. and Wurster, T. (1997) “Strategy and the New Economics of Information”, Harvard Business Review, Sept/Oct. Hamel, G. (2002), Leading the Revolution, Plume (Penguin Books), New York. Jarillo, J. C. (1993) Strategic Networks: Creating borderless organizations, Butterworth-Heinemann, Oxford. Lamb, R. B. (1984), Competitive strategic management, Englewood Cliffs, Prentice-Hall, NJ. Lawrence, J.J and Solis, L. (2004).easyCar.com. McKenna, R. (1997) Real time: Preparing for the age of the Never Satisfied Customer, Harvard Business School Press, Boston. Mintzberg, H. Ahlstrand, B. and Lampel, J. (1998). Strategy Safari : A Guided Tour Through the Wilds of Strategic Management, The Free Press, New York. Rehfeld, J.E. (1994). Alchemy of a Leader: Combining Western and Japanese Management skills to transform your company, John Whily & Sons, New York. Shapiro, C. and Varian, H. (1999) Information Rules, Harard Business School Press, Boston. Read More