To what extent did easyInternetCafe extend the easyJet model?
easyInternetcafe was based on yield management. Unlike easyJet, which was based on Southwest Airlines, easyGroup was more of a pioneer in Internet cafes. This is reflected in the evolution of the café concept through at least three generations – from the very large stores in the beginning with assistance to the smaller no-frills stores, to something more like a kiosk concept. Cafes differed dramatically from airlines in how flexible and re-deployable the assets are. Thus, while an airline can shift planes away from bad routes and toward goods ones, a café is stuck with the location that it has either leased or bought.
There are other differences between the businesses, specifically in how the yield model works. Internet use is a low-cost item compared to an airline ticket. Thus, consumers are likely not as price sensitive. Tourists likely make their consumption decision differently as well. With an airline ticket, there is usually considerable planning and comparison involved in choosing a flight. In contrast, a tourist is likely to drop into the first available or most convenient Internet café without searching for the best deal.
What do you think of the easyCar concept? Will it make money for easyGroup?
easyCar looks much more like easyJet than easyInternetcafe. It uses Internet booking along with the yield management and dynamic pricing. The use of one model of Mercedes was similar to the airlines use of Boeing 737s. easyCar has also done some innovative things designed to both cut costs and increase utilization. Having customers provide their own fuel and clean their own cars were good ways to both cut costs and increase utilization. The alliance with car park owners was another innovative way to keep costs low.
What is easyGroup’s Core Competence?
In the opening quote Haji-Iannou states, “easyGroup is not about unrelated ventures, but about developing a formula for success that can be replicated across seemingly disparate businesses.” What is the easyGroup formula? Does it work as a core competence?
Helping students develop easyGroup’s formula will likely several follow-up questions.
- Pricing: The easyGroup model involves pricing that stimulates primary demand. Several conditions have to be present for the pricing to maximize yield system to work.
- Pricing must be demand elastic.
- Customers typically must be willing to buy in advance (i.e. over the Internet).
- It is also that the model works better with a mass market.
- No-frills value proposition: The easyGroup model generally focuses on price sensitive customers are willing to forego amenities in order to get a better price. For example, easyInternetcafe abandoned things such as printing and serving coffee in the interest of keeping things simple and lowering costs.
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Yield Management: This is tightly connected to the price elasticity point above, but it is a philosophy that depends on specific yield management skills.
- Low-cost service delivery: This involves a systematic effort to reduce costs through simplicity, a focus on no-frills service, labor reduction, and using technology.
- Learning and flexibility: In both the easyCar and easyInternetcafe, easyGroup’s was very fast to try different adaptations.
- Leveraging the easy brand
- Avoid powerful low-cost competitors: easyGroup made a concerted effort to enter businesses where the competition was committed to a business model different to the easy low-cost, no-frills model. In airlines, they faced European competitors that had traditionally focused on providing a high quality in-flight experience and a full array of services. In rental cars, the competition was complacent and not used to competing aggressively on price (and probably cost as well).
The question of how well this formula works as a core competence will usually lead to students’ concluding that the formula has the potential to work in certain areas. In some industries it is valuable and rare and easyGroup has some experience on the organizational side in implementing it. Imitability is likely problematic for most incumbents who likely depend on price premiums and high margins. Imitability for other new entrants likely hinges on the extent to which easyGroup is developing capabilities that are difficult to imitate. Pricing and the low-frills model can likely be easily imitated. Yield management skills are probably more difficult to replicate but probably not prohibitively so. easyGroup may be on the road to developing some cost-cutting skills in service delivery that are something like Emerson Electric’s skills at cutting manufacturing costs. If so, those skills could be an important source of advantage. Additionally, the “easy” brand is becoming associated with its particular business model and that could serve as a significant advantage over new entrants in various industries.
Should easyGroup Go Into Cinemas
The above discussion leads nicely into a discussion of the cinema opportunity. I begin by asking, How well do cinemas fit the “easy” formula?
- Price Elasticity: It is likely that there is some elasticity. Exhibit 7 shows that those in higher income brackets attend the cinema more, which suggests that lower prices might stimulate more attendance. There are some factors that suggest that cinemas may not fit the easy model, however. Cinema attendance may be based more on impulse than planning for many moviegoers. Many people are not going to switch from attending on weeknight evenings to get a better price given how relatively small the price of a movie ticket is compared to an airline ticket, for example. Thus, they may not be highly conscious of price when they choose a theatre or film. Another factor is that there is already some price variation that serves those who are price sensitive (e.g. matinees, second run movies, etc.).
- No frills value proposition / Low-cost service delivery: It is useful here to have students break down the major cost components in operating a cinema. easyCinema is not likely to influence film rental arrangements, at least not in the beginning. The easy model can reduce some of the labor costs involved in selling tickets for example. It may also save some labor costs on concessions, but it also foregoes a significant source of revenue (20%) for most theatres. Thus, it is not clear that there are large cost savings over the efficiently run multiplexes.
- Yield Management: There is uncertain potential here. As noted above, many consumers are likely to be inflexible in the times when they attend movies. Others are likely to attend the cinema on impulse. For those price-sensitive moviegoers that are flexible with respect to time and plan ahead yield management is likely to be a source of value.
- Learning and Flexibility: Because of the large, fixed commitment involved in leasing or obtaining theatres, easyCinema will not have the locational flexibility that easyInternetcafe and easyCar enjoy.
- Leveraging the easy Brand / Avoiding Low-cost Competitors: Both of these advantages do appear to transfer well to easyCinema. Some of the concerns above, however, suggest that this part of the formula may not be as valuable as in airlines or rental cars.
Recommendations and Conclusion
Would you invest in easyCinemas?
Students will probably conclude that cinemas are not an ideal fit for the easyGroup model although there may be a few that will argue to the contrary.
If not cinemas, then what should easyGroup try next? What fits the model?
I finish with some brainstorming on this point. Some possibilities are budget hotels, cruises, golf courses, etc. The key point here is to identify opportunities that fit the easy business model.
To conclude, I like to focus on the dangers of over-extending on how we define the scope of where our core competences will apply and the need to be rigorous in applying core competence logic. What looks good at a broad concept level (i.e. easyCinema) often is not as attractive once we specifically examine the value of the resources and capabilities in the new market.