This report analyses the organisational resources of easyJet in terms of its assets and capabilities.
Marketing Strategy and Planning
Part A
EasyJet is Europe's leading low cost airline. Since its first flight in 1995, the airline has grown from a Luton base offering two routes, to one that offers 148 routes from 44 European airports, operating 72 aircraft. During the financial year to 30th September 2003, the company reported pre-tax profits of £52 million on a turnover of £932 million and carried 20.3 million passengers (www.easyjet.com [a]).
This report analyses the organisational resources of easyJet in terms of its assets and capabilities.
Assets
* Physical Assets
For easyJet this would include their 72 aircraft, all of which upon purchase are brand new. This has given them a source of differentiation in comparison to other low cost operators, such as Ryanair, which operate a fleet of second hand, old aircraft. As a result the consumer benefits from superior aircraft at similar ticket prices. In addition, the purchase of new aircraft gives easyJet a long-term advantage, which will be explained later in the report.
* Financial Assets
easyJet are currently in a reasonably strong financial position. According to Stellios Haji-Ioannou, in April 2002, easyJet had sufficient cash in hand (tangible) to run for an entire year without revenue (Transcript from Harvard Business Interview). The Haji-Ioannou family also own 41% of the shares in easyJet. This stake, worth £524.4 million, could be sold and reinvested into easyJet if necessary and is therefore a source of extra funds (www.timesonline.co.uk). The intangible assets of easyJet can be assumed to be a high level of creditworthiness due to the strong financial position at which the company stands.
* Operations Assets
The operations assets of easyJet includes both tangibles and intangibles. In order for easyJet to provide their service efficiently they need an integrated network of aircraft, routes and airport slots. Recently easyJet has added an extra slot from Liverpool to Cologne, giving a total network of 148 routes. (www.iol.com) EasyJet have their slots at primary airports, which gives it a distinct advantage over other low cost operators such as Ryanair who operate at secondary airports (www.timesonline.co.uk). This allows them to be more accessible to consumers.
* Human Assets
The most important human asset easyJet possesses is Stellios himself. He is the founder of the organisation and initially acted as the face of easyJet. People easily identify with him and he is described by the Times as a bubbly, Greek entrepreneur following in Richard Branson's success. People see him as the plucky underdog pitching against big business on their behalf. (www.timesonline.co.uk )
easyJet employ 2870 members of staff (www.easyjet.com [b] and spend a large amount on training and developing their staff, especially their pilots who easyJet consider as their number one asset. (www.easyjet.com [c])
easyJet's human assets are used cleverly as a marketing tool and can also be classified in the next category of assets. This will be explained when looking at easyJet's organisational capabilities.
* Marketing Assets
The easyJet name is a major marketing asset. The easy brand is well known and directly associated with Stellios himself. It stands for low-cost, innovative and fun values and vows to fight for the benefit of 'the little guy' (www.easyjet.com). In essence, easyJet (and the other easyGroup companies) remain very true to those core values. The danger of having a renowned 'umbrella-brand' is the possibility of one easyGroup company tarnishing the reputation of easyJet. Conversely if an accident happened involving an easyJet aircraft, the repercussions for the brand would be unthinkable (www.channelnewsasia.com ).
* Legal Assets
As a service provider easyJet have no patents or copyrights on products or manufacturing processes. However, they are fighting to protect their trademark brand name from any misuse. easyJet cannot afford for the reputation of the 'easy' name to be tarnished by themselves or other companies. Unsurprisingly, easyGroup do not hesitate to instigate legal battles when there is any hint of confusion. Recently, easyGroup has won two separate court battles, regarding the use of the 'easy' name (www.easy.com).
Capabilities
Hooley et al (1998) proposed a generic framework for analysing organisational resources, which lists organisational capabilities, not all of which are applicable to easyJet.
The core competencies of easyJet will be discussed and any additional non-core capabilities will be outlined.
Core Competencies
* Cost Focus
EasyJet stands for low cost flights. A company can only charge low prices if they keep their costs low. easyJet have always used cost-saving techniques, unprecedented in the airline industry. Paperless bookings (no tickets), no complementary drinks or food and no enclosed ramps to take their passengers from the terminal to the aircraft are all examples of this. easyJet do this without compromising on their basic service. Other low-cost airlines such as Ryanair save money by flying to secondary airports (often not the desired destination of passengers) and by buying old second-hand planes. This is where easyJet refuse to follow suit and rightly so, according to aviation industry analysts, who suggest Ryanair's idea of further reducing their services is very risky. (www.dailynews.com)
Buying new planes reduces costs further as easyJet are able to fly more hours, before maintenance is due, resulting in a long-term cost advantage rather than Ryanair's short-term edge. (Transcript of Harvard Business Interview)
* Resource Utilisation
The second core competence of easyJet lies in the way they utilise their resources. easyJet realised the marginal cost of taking an extra passenger is virtually zero. Flights happen regardless of whether all seats are filled, which means the petrol, the pilots and cabin crew have to be paid for etc. Therefore, their costs are the same regardless of ...
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Buying new planes reduces costs further as easyJet are able to fly more hours, before maintenance is due, resulting in a long-term cost advantage rather than Ryanair's short-term edge. (Transcript of Harvard Business Interview)
* Resource Utilisation
The second core competence of easyJet lies in the way they utilise their resources. easyJet realised the marginal cost of taking an extra passenger is virtually zero. Flights happen regardless of whether all seats are filled, which means the petrol, the pilots and cabin crew have to be paid for etc. Therefore, their costs are the same regardless of the number of passengers, hence each extra ticket sold means more revenue for the company at no extra cost. easyJet achieve this effective use of their assets (referred to by Stelios as 'sweating the assets') through yield management, charging different prices at different times depending on demand. (www.timesonline.co.uk) When demand is low tickets will be even cheaper in order to encourage people to fly.
Another example of easyJet's innovative culture is their idea to remove one of the three toilets on the Boeing planes and replace it with a seat. Taking one extra passenger will bring in extra revenue at no extra cost and the basic service offered by easyJet has not been compromised (www.dailynews.com).
These two activities can be considered core competencies as they fulfil the three characteristics described by Hooley et al. (2004) Firstly; they both provide potential access to a wide variety of markets, shown by the large variety of activities undertaken by easyGroup. Secondly, they enable easyJet to give that low-price benefit to customers and finally, competitors are struggling to copy easyJet. Differences with Ryanair have already been highlighted and also British Airways have found they couldn't duplicate these competencies with their low-cost airline Go. In conclusion, these competencies are the basis for easyJet's mantra: low margins at high volume.
Additional Capabilities
* Openness to new market offerings
This is a strategic capability according to the framework by Hooley et al (1998). A clear sign that easyJet is open to new markets is in the addition of new routes to their network. Although the exact reason for additions is unknown, it can be assumed this was not simply to have more operational assets. It would be irrational for easyJet to add an arbitrary route, therefore it is likely this will have been a strategic decision to tap a particular customer segment. Monitoring new markets and entering them is not something that competitors can't copy but being first will give easyJet a competitive advantage.
* Market Orientation
Despite easyJet's priority of cost focus, they haven't disregarded customer needs and wants. For example, the decision not to serve food during the flights was quickly discarded in favour of selling food, upon realisation that customers wanted the option of food. This kind of marketing orientation is another strategic capability.
* Marketing
easyJet uses its human assets in marketing the company. Using Stellios and his positive image as the star of the initial easyJet television adverts did this successfully.
EasyJet worked together with ITV1 on a television program called 'Airline'. The program was set at Britain's Luton and Liverpool airports, both of which are dominated by easyJet. It showed the reality of working for easyJet by following members of staff during their intensive training as well as on the job. It created high awareness of the brand and the level of training the staff undergo, leading to a positive image. It showed any complaints by easyJet customers in a way that portrayed easyJet in a positive light. Viewers were encouraged to sympathise with the easyJet staff.
Part B
STARS
(High market share, high market growth rate)
EasyJet
EasyMusic
EasyHotel
PROBLEM CHILDREN
(Low market share, high market growth rate)
EasyMoney
EasyTelecom
EasyCinema
EasyValue
CASH COWS
(High market share, low market growth rate)
EasyBus
Stelmar Shipping Ltd
DOGS
(Low market share, low market growth rate)
EasyInternet Café
EasyCar
EasyCruise
EasyPizza
Figure 1 Growth Share Matrix for easyGroup
The Problem Children
* easyMoney
The credit card industry has experienced considerable growth recently as they have become more accessible to less affluent customers. New credit cards such as Egg and Mint have been introduced. EasyMoney differentiates itself by offering the option of 'selecting and combining the benefits most important to you' (www.easymoney.com). It is assumed the market share of easyMoney is low due to the prominence of its competitors, such as Visa and American Express. These companies have dominated this market for several years and invest considerable amounts in marketing their services by using extensive advertising and promotional campaigns. This will increase consumer interest and create top-of-the mind awareness, which will have an affect on the consumers' decision of which credit card company to choose. To find any information on easyMoney, however, the consumer must actively search the Internet to find the website. It is unlikely easyMoney will invest in similar marketing activities as its competitors due to its policy of keeping costs to a minimum. These factors imply the strategy for managing easyMoney should be to invest more in marketing activities, or if this is not viable, the easyGroup should consider divesting easyMoney and concentrate on other activities.
* easyTelecom
The mobile phone industry is considered to be high growth due to the number of competitors still entering the market, for example '3'. Even easyJet's competitors Ryanair are considering entry. Stellios believes the industry is ripe for new low-cost entrants and has differentiated easyTelecom from the big competing names, such as Orange and Vodafone, by not selling handsets and concentrating on selling SIM cards with cheap calls. Due to recent controversy over extortionate call costs charged by large phone companies (REF), there is a gap in the market for easyTelecom's low cost service. The strategic implication is to continue or increase their investment in the company to attempt to give easyTelecom star or cash cow status. The risk of entering this market is lowered due to the entry strategy being based upon the core competencies of the business (Jobber 2001).
* easyCinema
The cinema industry has recently re-emerged into a high growth industry (Jobber 2001). However, at present, easyCinema has very low market share due to its inability to attract blockbuster films. The strategic implication is that the easyGroup should invest more money into it, as the concept has huge potential. easyCinema has successfully differentiated its service offerings by using its core competency in order to offer low prices. At present, easyCinema is unable to attract blockbuster films due the ability of major film companies, such as Warner Brothers, being able to demand 70% of the cinemas takings. The top six film companies are refusing to supply easyCinema as the tickets are sold for 20p. However, easyCinema has the potential to fill all its seats as a result of the low price it offers, whereas competitors only fill one in five seats and are therefore not sweating their assets. (REF)
* easyValue
The shopping comparison website industry is considered to be a high growth market due to the increase in popularity of online shopping, plus the opportunity for anyone to set up a website. There is not much information currently available about easyValue but it is predicted it will currently have low market share due to the reputation of other online shopping comparison websites, such as Yahoo! Shopping Comparison. The marketing strategy implications are to invest in easyValue in order to attract interest and revenue from companies who wish to appear in easyValues search pages. It is likely shops will want to be associated with the value for money reputation of the easy brand. Due to this, it is possible easyValue can progress to become a star and maybe even a cash cow.
The Stars
* easyJet
The low cost airline industry is considered a high growth market due to the recent new entrants like BMI baby, plus the predicted new offerings of larger airlines, such as Virgin (www.virgin.com/news). easyJet claims to be 'Europe's leading low-cost airline' (www.easyjet.com) and therefore it is inferred they currently have the highest market share in the industry. Despite being second to market behind Ryanair, easyJet has successfully differentiated its services, therefore achieving market leader status. The strategic implication for easyJet is to continue its investments, as it is likely it will progress into a cash cow. Despite the large number of competitors entering the industry, easyJet has several sustainable differential advantages, including a reputable brand name. It is unlikely airlines such as British Airways will be able to compete with easyJet's cost focus core competence and they may not be able to break even whilst offering such low prices.
* easyHotel
The budget hotel sector is considered to be a high growth market as it is likely to appeal to a variety of market segments, from students to business people. It is predicted that once the easyHotel business opens, it will be met with a surge of competitors aiming to copy easyHotel's principles. The strategic implication of this is to invest into the company to turn it into a cash cow as it is also predicted easyHotel will gain high market share and become market leader due to being first to market and the reputation of the 'easy' brand.
* easyMusic
The music download industry is a high growth market, with many new recent entrants (www.guardian.co.uk). It is expected easyMusic will gain a high market share should it decide to enter this market. This is because the music on offer will have no copyright protection; unlike other free music download websites, such as Kazaa. This is a controversial issue to the extent where the largest site, Napster, was forced to close after being charged with copyright infringement. The strategic implications highlighted here suggest easyMusic should continue its investigations into what music they can offer on their site, and to research whether people would be willing to download the music. They should also investigate potential sponsors to advertise on the site in order to gain funding.
The Cash Cows
* easyBus
At present, the bus industry can be described as a low growth area. There are approximately 44 bus companies in operation in every region of the UK (www.uknetguide.co.uk), so opportunities presented to new competitors are minimal. If easyBus introduces a national launch, it is expected they will obtain high market share due to their differentiated service. easyBus propose to use minibuses to allow flexibility of making drop off points in more convenient locations. easyBus can capitalise on their core competencies of keeping costs down and resource utilisation, as minibuses are easier to fill than coaches. It is likely this new approach will revolutionise the bus industry and it is possible the market will experience high growth as new entrants become attracted to the easyBus' principles. Nevertheless, easyBus should still be able to maintain their market leadership, again due to being first to market. easyBus should continue its investment as it has a differentiated and first mover advantage in a potentially profitable market.
* Stelmar Shipping Ltd
Although Stelmar Shipping does not contain the 'easy' name, it is still considered part of the easyGroup (www.easy.com). The international product and crude oil transportation industry is considered low growth, as it is a mature market with four dominating competitors, including Stelmar Shipping, OMI Corporation, Frontline Limited and Teekay Shipping Corp (www.finance.yahoo.com). It is predicted that Stelmar Shipping Ltd will have a high market share due to having the highest gross margin (68.65%) and revenue growth (44.10%), plus major oil companies, such as ExxonMobil, Shell International Petroleum Company and Chevron Texaco, use its services. The strategic implication for Stelmar Shipping Ltd is to continue investment and re-invest the revenue generated into the problem children that will become the stars of the future.
The Dogs
* easyInternet Café
The Internet café industry is assumed to be low growth due to the rapid increase in home Internet access. Presently, easyInternet Cafe is experiencing low market share and is classified as a dog. However, a franchise has recently opened up in the Kilburn McDonalds, North London. This suggests there could be an interest from McDonald's franchisees across the globe, which implies that their market share has enormous growth potential as there are 26,500 McDonald's restaurants around the world (www.mcdonalds.co.uk). Pursuing this could turn easyInternet Café into a cash cow, therefore continued investment is recommended. This recommendation is based on the information already given, plus the success of easyInternet Café in the USA, where it operates in the world's largest Internet café in Times Square.
* easyCar
The car rental market is considered to be low growth as large, well-established rental groups, such as Avis and Hertz, dominate it. easyCar's market share is therefore expected to be low. It seems unlikely easyCar will be able to compete with the well-established networks provided by these competitors and this implies the company should consider a harvesting or divesting strategic approach.
* easyCruise
There are currently 30 large cruise lines that provide holidays for the British market (www.cruiseinformationservice.co.uk), plus many smaller cruise operators. The cruise industry is considered to be low growth as there are already a large number of competitors. When easyCruise enters the market, it is predicted to have low market share due to easyGroup's core competency of being able to offer low costs. Cruises have a reputation of being luxurious and comfortable, but the reputation of the easy brand contradicts this, therefore it is doubted whether offering this service is credible. easyCruise do however state they 'will create a whole new cruise market among the 20, 30 and 40 year olds' (www.easyCruise.com). The strategic implication for the easyGroup is to carry out careful market research to ensure they can create this new market. Will potential customers be willing to spend six hours a day on a ship with the bare minimum in terms of facilities and comfort? Also, have other cruise companies considered entering this market and decided not to? easyCruise seem to have identified a large market segment that is not catered for, and it seems unlikely other cruise companies would not have researched targeting these consumers.
* easyPizza
The fast food delivery industry is considered to be low-growth due to the large amount of existing competitors in the market. In addition to the well-known pizza deliverers, such as Dominoes and Pizza Hut, easyPizza would also have to contend with smaller, independent companies. It is predicted easyPizza will have low market share due to the sheer size and reputation of its big name competitors. For example, Dominoes invests large amounts in marketing ventures, such as sponsoring 'The Simpsons' on Sky One, however such marketing would not allow easyPizza to operate at the low costs it proposes. easyPizza has differentiated its service by offering lower prices on pizzas delivered at an off-peak time. Further research would be required to investigate whether pizza is consumed at these times. However, despite this, it is possible easyPizza could gain relatively high market share if it finds a market that is not heavily saturated with independent pizzerias, plus its use of a celebrity chef (www.easypizza.com) may well differentiate them enough to provide a sustainable competitive advantage. It is therefore possible that easyPizza could be a problem child, rather than a dog, in which case consideration would need to be taken whether to further invest in easyPizza to make it a star, or whether to harvest or divest the company.
Balance of the portfolio
The portfolio isn't as balanced as it may seem. The amount of low market share projects is worrying given the number of them which are still in the pipeline and are due to be realised almost simultaneously. This will put a strain on the cash cows and it may be advisable to spread these over a longer period of time or divest some of the projects. Some of the existing businesses are rumoured to be struggling and it would be recommended to stabilise these before easyGroup ventures into new projects. Otherwise, they may be spreading themselves dangerously thin. (www.timesonline.co.uk)
References
* Books
Hooley, G., Piercy, N. and Saunders, J. (2004), Marketing Strategy and Competitive Positioning, 3rd Edition, Prentice Hall
Jobber, D. (2001), Principles and Practice of Marketing, 3rd Edition, McGraw-Hill, Maidenhead
* Websites
www.easyjet.com
[a] URL:
[b] URL:
[c] URL: http://www.easyjet.com/EN/jobs/pilotrecruitment.html [Accessed01/03/04]
www.timesonline.co.uk
URL:http://www.timesonline.co.uk/article/0,,2095-1019207,00.html
[Accessed 07/03/04]
www.iol.com
URL:http://212.2.162.45/news/story.asp?j=96100720&p=96yxy4z6&n=96101480
[Accessed 01/03/04]
www.channelnewsasia.com
URL:http://www.channelnewsasia.com/stories/afp_world_business/view/70134/1/.html [Accessed 07/3/03]
www.easy.com
URL:http://www.easy.com/thieves.html
[Accessed 28/02/04]
www.dailynews.com
URL: http://www.dailynews.com/Stories/0,1413,200~20954~2000850,00.html
[Accessed 02/03/04]