How execution kills a good idea: easyCar

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:

  • All selling costs, by making it obligatory to buy exclusively over the internet.
  • All on-board service costs: there is very little available to eat or drink, and everything must be paid for. Consequently, customers consume very little on board, and use of the toilets is reduced. This makes it possible to remove one toilet and replace it with seats, which in turn bring in money and increase passenger numbers.
  • The cost of cleaning the plane during stopovers: the crew do the cleaning.
  • Parking costs during stopovers: every minute that a plane is on the ground costs money. This time was therefore reduced to a minimum by maximising flying time and rotations per day. RyanAir was also able to exploit small, unknown, empty airports (such as Amiens, which is 142 km from Paris, as opposed to Roissy-Charles de Gaulle, which is only 30 km away). These smaller airports charge airlines much less, and there are grants available from local chambers of commerce for these low-cost airlines, which bring hundreds of tourists and create a regional economic boom.
  • Plane maintenance costs, through a singlesupplier policy. By buying only the same plane, and only from Boeing, all processes and costs can be simplified.
  • Staff costs: these companies pay their staff much less than other airlines, and offer very few company benefits.
  • Advertising costs: the founding directors were able to create regular media events
  • through accusations against British Airways, for example, or fabulous offers (free flight for 10 people, etc). Anything became the pretext for staging an event.
  • Costs linked to the lack of service: these companies try to avoid paying any compensation for (frequent) delays, or for lost luggage and the like, arguing that people cannot expect the lowest prices and compensation. After-flight service is defective, often non-existent.

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.

Strategic Brand Management Related Practice Tests

Strategic Management Practice Tests
Brand Equity In Question What Is A Brand? Differentiating Between Brandassets, Strength And Value Tracking Brand Equity Goodwill: The Convergence Of Finance And Marketing How Brands Create Value For The Customer How Brands Create Value For The Company Corporate Reputation And The Corporate Brand Strategic Implications Of Branding What Does Branding Really Mean? Permanently Nurturing The Difference Brands Act As A Genetic Programme Respect The Brand ‘contract’ The Product And The Brand Each Brand Needs A Flagship Product Advertising Products Through The Brand Prism Brands And Other Signs Of Quality Obstacles To The Implications Of Branding Brand And Business Building Are Brands For All Companies? Building A Market Leader Without Advertising Brand Building: From Product To Values, And Vice Versa Are Leading Brands The Best Products Or The Best Value? Understanding The Value Curve Of The Target Breaking The Rule And Acting Fast Comparing Brand And Business Models: Cola Drinks From Private Labels To Store Brands Evolution Of The Distributor’s Brand Are They Brands Like The Others? Why Have Distributor's Brands? The Financial Equation Of The Distributor’s Brand The Three Stages Of The Distributor’s Brand The Case Of Decathlon Factors In The Success Of Distributor's Brands Optimising The Dob Marketing Mix The Real Brand Issue For Distributors Competing Against Distributor's Brands Facing The Low-cost Revolution Should Manufacturers Produce Goods For Dob's? Brand Diversity: The Types Of Brands Luxury, Brand And Griffe Service Brands Brand And Nature: Fresh Produce Pharmaceutical Brands The Business-to-business Brand The Internet Brand Country Brands Thinking Of Towns As Brands Universities And Business Schools Are Brands Thinking Of Celebrities As Brands The New Rules Of Brand Management The Limits Of A Certain Type Of Marketing About Brand Equity The New Brand Realities We Have Entered The B To B To C Phase Brand Or Business Model Power? Building The Brand In Reverse? The Power Of Passions Beginning With The Strong 360° Experience Beginning With The Shop The Company Must Be More Human, More Open Experimenting For More Efficiency The Enlarged Scope Of Brand Management Licensing: A Strategic Lever How Co-branding Grows The Business Brand Identity And Positioning Brand Identity: A Necessary Concept Identity And Positioning Why Brands Need Identity And Positioning The Six Facets Of Brand Identity Sources Of Identity: Brand Dna Brand Essence Launching The Brand Launching A Brand And Launching A Product Are Not The Same Defining The Brand’s Platform The Process Of Brand Positioning Determining The Flagship Product Brand Campaign Or Product Campaign? Brand Language And Territory Of Communication Choosing A Name For A Strong Brand Making Creative 360° Communications Work For The Brand Building Brand Foundations Through Opinion Leaders And Communities The Challenge Of Growth In Mature Markets Growth Through Existing Customers Line Extensions: Necessity And Limits Growth Through Innovation Disrupting Markets Through Value Innovation Managing Fragmented Markets Growth Through Cross-selling Between Brands Growth Through Internationalisation Sustaining A Brand Long Term Is There A Brand Life Cycle? Nurturing A Perceived Difference Investing In Communication No One Is Free From Price Comparisons Branding Is An Art At Retail Creating Entry Barriers Defending Against Brand Counterfeiting Brand Equity Versus Customer Equity: One Needs The Other Sustaining Proximity With Influencers Should All Brands Follow Their Customers? Reinventing The Brand: Salomon Adapting To The Market: Identity And Change Bigger Or Better Brands? From Reassurance To Stimulation Consistency Is Not Mere Repetition Brand And Products: Integration And Differentiation Specialist Brands And Generalist Brands Building The Brand Through Coherence Defining The Core Identity Of The Brand Confirming The Presence Of Brand Core Facets In Each Product Identifying The Role Of Each Product Line In The Construction Of The Brand Graphically Representing The Overall System Of The Brand Checking The Coherence Worldwide The Three Layers Of A Brand: Kernel, Codes And Promises Respecting The Brand Dna Managing Two Levels Of Branding Growth Through Brand Extensions What Is New About Brand Extensions? Brand Or Line Extensions? The Limits Of The Classical Conception Of A Brand Why Are Brand Extensions Necessary? Building The Brand Through Systematic Extensions: Nivea Extending The Brand To Internationalize It Identifying Potential Extensions The Economics Of Brand Extension What Research Tells Us About Brand Extensions Avoiding The Risk Of Dilution Balancing Identity And Adaptation To The Extension Market Segments Assessing What Should Not Change: The Brand Kernel Preparing The Brand For Remote Extensions Keys To Successful Brand Extensions Is The Market Really Attractive? An Extension-based Business Model: Virgin How execution kills a good idea: easyCar Brand Architecture The Key Questions Of Brand Architecture Type And Role Of Brands The Main Types Of Brand Architecture The Flexible Umbrella Brand The Aligning Umbrella Brand (masterbrand) Choosing The Appropriate Branding Strategy New Trends In Branding Strategies Internationalising The Architecture Of The Brand Some Classic Dysfunctions What Name For New Products? Group And Corporate Brands Corporate Brands And Product Brands Multi-brand Portfolios Inherited Complex Portfolios From Single To Multiple Brands: Michelin The Benefits Of Multiple Entries Linking The Portfolio To Segmentation Global Portfolio Strategy The Case Of Industrial Brand Portfolios Linking The Brand Portfolio To The Corporate Strategy Key Rules To Manage A Multibrand Portfolio The Growing Role Of Design In Portfolio Management Does The Corporate Organization Match The Brand Portfolio? Auditing The Portfolio Strategically A Local And Global Portfolio – Nestlé Handling Name Changes And Brand Transfers Brand Transfers Are More Than A Name Change Reasons For Brand Transfers The Challenge Of Brand Transfers When One Should Not Switch Analysing Best Practices Transferring A Service Brand How Soon After An Acquisition Should Transfer Take Place? Managing Resistance To Change Factors Of Successful Brand Transfers Brand Turnaround And Rejuvenation The Decay Of Brand Equity The Factors Of Decline Distribution Factors When The Brand Becomes Generic Preventing The Brand From Ageing Rejuvenating A Brand Growing Older But Not Ageing Managing Global Brands The Latest On Globalisation Patterns Of Brand Globalisation Why Globalise? The Benefits Of A Global Image Conditions Favouring Global Brands The Excess Of Globalisation Barriers To Globalisation Coping With Local Diversity Building The Brand In Emerging Countries Naming Problems Achieving The Delicate Local–global Balance Being Perceived As Local: The New Ideal Of Global Brands? Local Brands Can Strike Back The Process Of Brand Globalisation Globalising Communications: Processes And Problems Making Local Brands Converge Financial Valuation And Accounting For Brands Accounting For Brands: The Debate What Is Financial Brand Equity? Evaluating Brand Valuation Methods Brand Valuation In Practice The Evaluation Of Complex Cases What About The Brand Values Published Annually In The Press? Strategic Brand Management Interview Questions