1.08.2008

The "easy" Business Model: EASYGROUP






“What we’re doing is taking away a consumer rip-off,”comments serial entrepreneur and CEO of easyGroup Stelios Haji about the ‘easy’ concept.

Stelios may have come from a wealthy background, but he understands the value of a pound. "The world's biggest companies, such as Wal-Mart and McDonald's, got that way because they sell low-cost products," he says. "The cheaper you can make something, the more people there are who can afford it."

His clever appreciation of low prices led him to examine the success of Southwest Airlines. The result was the start of the low cost airline company easyJet in 1995, based at Luton airport. It pitched itself as the low-cost, no frills option and quickly gained huge publicity.EasyJet follows the Southwest Airlines model of offering cut-price fares for bare-bones service, filled a void in a European industry trying to move beyond its high-regulation, high-cost roots, the case for the other businesses may be less clear. For marketers, Stelios is a flag-bearer for branding. EasyJet enjoys massive brand awareness and serves as an example of how the use of simple branding techniques can redefine markets.
From this airline business other have sprung up all sharing the same bright orange colour of the ‘easy’ logo yet it is not just the bright orange colour logo that the different business share they also share the same no frills cost minimizing approach with the added spice of a radical variable pricing policy

Specifically unlike its main competitors the easy company does not set single prices but rather adjust prices to match demand conditions. The principle is remarkably simple as demand goes up so do prices.
The easyGroup revenue sources and profits are either from selling shares in the businesses or by licensing or franchising the brand to reputable partners. The easy brand currently operates more than a dozen industries mainly in travel, leisure, telecoms and personal finance.
Besides the ticket sources esyJet venue from non-ticket sources (including in flight sales of food and beverages, excess baggage charges, change fees, credit card booking fees etc) was up 19.1% to £61.7m
Total revenue per seat grew 4% with passenger revenue up 2.3% per seat and ancillary revenues, which continue to grow significantly ahead of capacity, up 22% per seat versus Q1 last year. Car rental and insurance partner revenues were particularly strong.
‘More value for less’ is easyGroup’s motto it means bringing more value to consumers without compromising on the quality of the product. Customers who order in advance or at off-peak times are rewarded with an even better price. At easyJet for example people who book early or choose a slack time of day obtain better deals as charges rise as seats fill up.
The possibilities are limitless: low-cost car rentals, accommodation, coach travel, sea travel

Lastminute was a travel website where fares and hotel rooms were far cheaper if you booked them at the last minute. It was fact. Just ten years later, that ‘fact' has become history. Today we all know that if you book at the last minute you are far more likely to pay top dollar than the rock bottom price.
The intervening decade has seen a pricing revolution that has turned consumer behavior on its head and turbo-charged business profits.
The name of that revolution is yield management (YM).
Technically, YM is defined as "the process of understanding, anticipating and reacting to consumer behavior in order to maximize revenue”.

The internet has given many businesses direct access to their customers for the first time, allowing them to set their own prices, Without it, it is doubtful that the low-cost flight revolution could have occurred at all. "It has been an essential feature of the development of many of our companies," says James Rothnie, director of corporate affairs at easyGroup, which developed budget airline easyJet. "Without it we wouldn't have been able to offer such cheap fares and we would not have been able to compete so well.
"It's a powerful tool. But for it to work you have to understand your customers intimately." For instance, you don't want to set your early prices so low that you fill your plane with people paying peanuts. And when it comes to peak demand you don't want to set your prices so high that people refuse to travel. "Get it right and it can transform your business. Get it wrong and it could put you out of business," he warns.

EasyJet keeps costs low by eliminating the unnecessary costs and ‘frills’ which characterise ‘traditional’ airlines.
This is done in a number of ways:
- Use of the Internet to reduce distribution costs - approximately 95 % of all seats are sold over the Internet.
- Maximising utilisation of each aircraft significantly reduces the unit cost.
- Efficient use of airports - EasyJet flies to main destination airports throughout Europe, but gains efficiencies through rapid turnaround times, and progressive landing charges agreements with the airports.
-Ticketless travel
- and Eliminating free catering on-board

easyGroup is a business incubator with a business model based on the quick and cost effective launch of independently run easy-branded ventures. When easyGroup wanted to launch three new ventures in a very short time, a solution a Web-based booking and administration system was built on Microsoft Windows Server 2003 that can be quickly adapted for numerous online ventures. This new technology benefited the company with fast time to market of new business ventures, low-cost of ownership, easily replicated for many new ventures and highly secure and reliable
easyGroup saw a way to use technology to automate the process of serving customers, thereby reducing labor costs. All bookings made through the Internet.

This model seeks to link the demand curve to every penny possible and pocket the extra that the impatient and spendthrift are willing to pay to have just what they want when they want it.easy Group Yield management is combined with web booking
easyJet low cost airline model is a combinaton between aggressive yield management, web booking and radical simplification of the service process : ‘sell seats cheap to early bookers, expensively to late bookers’.In practice this means that people who buy early or choose a slack time of day obtain better deals charges rise as seats fill up.Similarly the more people who hire cars from easyCar the greater the cost to the remaining customers The first seats sold at easyJet are cheap, the last few the more expensive the same rule apply to other easy companies.
Although many businesses practice such yield management few do it as effectively as the easyGroup business

If applied correctly it can be very effective , means raising revenue when such services are popular.
Conventional fixed price operators by contrast simply turn customers away when the flight is full they may even loose money in peak times when they buy extra extra capacity, to provide customers with the service they want at the promised price.

The other key feature of easyGroup model is the emphasis of stripping out costs whenever possible and being able to offer publicity grabbing prices for example ₤1 airline seat. It is a robust business model with a low cost base.

EasyGroup has a similar business model to companies like FreshDirect and Dell. Both companies are using technology to eliminate the middlemen to deliver lower cost and higher value to customers. These companies are not internet companies per se, but they are examples of how internet technology and general information technology can become a competitive advantage, if applied correctly to support a rational business model.
Borrowing its business model from American air carrier Southwest, EasyJet and its Republic of Ireland-based rival Ryanair are two of the largest low cost airlines in Europe, and the rivalry between them is intense. The two companies have slightly different strategies. EasyJet flies mainly to leading airports while Ryanair uses far more secondary airports to reduce costs. EasyJet places more focus on attracting business travelers as well as leisure travelers, although all its aircraft have single-class cabins.

Another main competitor is Air Berlin Europe’s third-biggest low-cost airline after Ryanair and easyJet. It has an extensive network in Germany.
All three companies operate within the low-cost airline business model (also known as a no-frills or discount carrier / airline) is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States before spreading to Europe in the early referring to airlines with a lower operating cost structure than their competitors such as BA, Air France KLM or Lufthansa.

If I owned the company (easyJet) I would develop the idea of providing an alternative to the current air-traffic system, where “hurry up and wait” has become the grumbled mantra of millions of frazzled travellers. The driving to the airport to arrive 90 minutes before departure. The congestion at the terminal. The snail-paced search for a parking spot. The queue at the ticket counter, shuffle through security.
The concept will be Small planes, small airports. Then there’s the question of demand. With ticket prices expected to be higher than traditional coach fares, many members of the flying public may find the headaches of hub-based air travel a relative bargain. In the short term, most microjet seats will be filled by business travellers rather than vacationers.

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Michael said...
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