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The Challenge Of Growth In Mature Markets
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Adapting To The Market: Identity And Change
Growth Through Brand Extensions
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Managing Global Brands
Financial Valuation And Accounting For Brands
EasyJet’s success is well known; the failure of its brand extensions is less so. We examine here how an ostensibly good extension idea (easyRent car hire) led to major financial losses.
EasyJet and RyanAir are the two best-known ‘low-cost’ companies in Europe. They have both picked up the clever idea of Herb Kelleher, the founder of the world’s first lowcost airline: Southwest Airlines, in the United States. The strategic idea is to aim at the market of all those people who have never flown before, rather than fight over those who take planes on a regular basis.
The first market is enormous, and has never been seriously explored, whereas the second is a sea of blood as a result of intense competition and high operational costs. It was therefore possible to speak metaphorically of a ‘blue ocean’. They needed to find a way to liberate this potential demand. The only brake was the price of an air ticket, and the opportunity existedprovided that it could fall below a psychological threshold, the cost of the taxi that takes you to the airport.
To achieve this price, they had to invent a new business model, a new economic equation, in order to offer a brand value proposition of a type never seen before, a type that would revolutionise demand. This was achieved first by suppressing all costs, other than safety, that inflated the price. Therefore they removed or reduced:
Flushed with this success, Stelios Haji- Ioannou, the founder of easyJet, decided to extend the business model to many other activities, thereby imitating the approach of Richard Branson with his Virgin brand. He created the easy group, and launched products such as easyMoney, easyValue, easyInternet Café and easyCar. It is true that the car rental market is an oligopoly, controlled worldwide by two giants, Hertz and Avis, whose margins and procedures showed that it should be easy to drastically reduce costs, and therefore prices.
Furthermore, what could be more natural than to take advantage of travellers disembarking the easyJet plane by offering them a similar type of service to reduce the prices of car rental? Having paid just s30 for their plane ticket with easyJet, these travellers would choke at the notion of paying s100 for a day’s car rental at Hertz or Avis. The idea was to offer managers travelling by plane an attractive car (Mercedes A-class) at s9 a day.
However, there are many differences between a plane and a car. On easyJet, the customer is required to have – non-negotiable – iron discipline from reservation to disembarkation. Moreover, the asset is not entrusted to the customer. The reverse is true for the car; customers refuse all constraints, and they are the ones entrusted with the asset (the car), the ones who manage it.
Furthermore, ustomers arriving late (as they often do, since air travel is rarely punctual) find a queue at the easyCar counter, which is understaffed, thereby extending their wait: recriminations break out on all sides. On their return, they are in a hurry to return the car, and therefore mess up the formalities. This only multiplies the problems when the bill is received, since rental customers take less care of a hire car than they do of their own. EasyCar quickly crumpled under the complaints of customers, furious at finding themselves charged for repair costs.
In order to grow, easyCar opened agencies in town centres, which attracted a clientele particularly eager to get a bargain and try a Mercedes for s9. This led to an abnormally high number of damaged or dirty cars. It is difficult to immediately hire out a dirty or damaged car. The company could ask its flight crew to clean the cabin, but not its car rental clients.
This therefore affected car rotation and created logistical complexities, leading to unforeseen costs that dragged the figures into the red, in addition to the ill will spread by aggravated customers. Finally, the Mercedes A-class was a brilliant choice of car, but an expensive one to maintain – and the buy-back price of the cars (in poor condition) was lower than anticipated.
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