Key Success Factors in the Global Auto Rental Industry
Pursuing increasingly higher levels of inventory optimization and logistics performance will continue to reduce operations costs for low-cost car rental providers globally (Fink, Reiners, 2006). Operational efficiency that can reduce the cost per hour rental can be so significant it offsets the costs of gasoline over time as well.
Second, for any company to succeed in the global auto rental market, the focus on how to continually improve and growth the effectiveness of online ordering systems (Reinhardt, 2002) and the continual focus on innovating the customer-facing purchase or rental process (Maniak, Midler, 2008) are critical. While Stelios repeatedly throughout the case discounts the need for managing customer experience, it is a critical aspect of any growth strategy the company has over time (Rao, Smith, 2006). The company will never reach its goals without at least a focus on the process of delivering exceptional customer references as well.
The pricing strategies relied on in the industry need much greater clarity and transparency, from the most expensive and customer experience-centric providers to the lowest-end providers including easyCar.com. Despite what Stelios says about easyCar.com customers looking for price above all else, customer experience is still critical for the creation of long-term loyalty. Customers do not separate or hold pricing away from customer experience; they are linked from the memory of the rental alone.
Finally, the key success factor of how the industry manages operations and logistics, fulfillment and replenishment process workflows will need constant focus and improvement if it is to remain profitable. In conjunction with this focus on operations, there needs to be a corresponding focus on how effectively contract management and compliance management can also be integrated into the overall operations of a rental care company if it is to scale globally (Hall, 2007). The companies who will dominate the car rental industry over time are those that will take these critical business process areas and create sustainable differentiation at the brand, pricing and even the experience level, despite what the founders of easyCars.com believe.
2. easyCar obviously competes on the basis of low price. What does the company do in operations to support this strategy? (5 Marks) (450 words)
During the timeframe of the case study the easyCar.com business model and strategy is working well. There are several factors contributing to this initial success the company is experiencing. First, their approach to optimizing rental car yield (Fink, Reiners, 2006) while at the same time standardizing the fleet of initial rentals on the Mercedes A Series sedans. Standardization as a means to gaining operating efficiencies has proven to be an accelerator of operational excellence in the airline industry (Berry, Shankar, Parish, Cadwallader, Dotzel, 2006) proven by the standardization of Southwest Airlines on the Boeing 737. Secondly, easyCar.com enjoys a significant cost advantage over its competitors by obtaining nearly all of its reservations online. This is in comparison to 10% of bookings from competitors coming from their respective websites. With the Cost per reservation being so much lower and reduced through automation easyCar.com has the potential to generate greater operating income and more liquidity to invest in future expansion. Third, easyCar.com is taking a regional and conservative approach to expansion, aligning their expansion strategies to cities and countries already learned about from expansion by easyJet into these regions. Fourth, easyCar.com continues to invest in their website and its integration to pricing and operations systems (Tiger Telematics, 2003), a decision which turns into the competitive advantage of scalability for them in the future as expansion continues. Fifth, the time and cost of replenishment and restocking of vehicles is shared with customers through fee incentives. This is considered to be completely out of the comfort zone of renters, yet easyCar.com continues to test the low price points leisure travelers require. The company gives renters at the beginning of the rental period car washes and gas stations in the area to help with this process. Sixth, the company also relies on advanced inventory optimization software and integrated IT systems to define the best possible pricing by time of day, by location. While in the case study Stelios sees this as an operational advantage, it in fact needs to be transformed into a positive customer experience (Rao, Smith, 2006). The pricing of the rentals quickly became secondary to inventory turns and optimization. Seventh, easyCar.com's greatest competitive advantage is its ability to optimize inventory levels by location and increase the speed of car rental turn-around and inventory optimization contributes to their significant revenue growth in the 2002 and 2003 timeframes. All of these factors are serving as the catalyst of significant revenue growth during the time period of the case study. With the goal of adding two new sites a week through 2003 and 2004 to reach the goal of 180 locations by the end of 2004 the company has major challenges ahead. The company is also planning to initiate an Initial Public Offering (IPO) in 2004. During the period of the case study, the financial condition of the company continues to strengthen and improve yet there are very significant challenges ahead.
3. Is easyCar a viable competitor to taxis, buses, and trains, as Stelios claims? How does the design of its operations currently support this form of competition? And how does the design of its operations currently not support this form of competition? (10 Marks) (900)
easyCar.com cannot move into a competitive position relative to taxis, buses and trains because of a variety of factors that inhibit the company from becoming a viable competitor to these other forms of mass transportation. These factors also contribute ironically more of their ability to compete in the low-end of the car rental industry and less as a substitute for mass transportation. The design of operations that limit the company's ability to be a viable competitor in the mass transportation market are analyzed. As easyCar.com's founder and CEO Stelios believe that the company is a viable alternative to mass transportation, the design of operations that support his position are also discussed (Kirsner, 2002).
Factors That Inhibit easyCar.com As a Viable Mass Transport Competitor
As intuitive as the founder and CEO Stelios wants to believe, easyCars.com are in fact not nearly as easy to use as an alternative to taxies, buses, trains or owning a car in a congested city.
First, easyCar.com requires that a person have a credit card or debit card, and that their credit is good enough to support insurance on their form of payment. Granted, easyCar.com later went to offering their own insurance initially at €6 per day, increasing it from €4 per day, or alternatively allowing customers to be responsible for their own, covering up to €800 in damages. It is not necessary to have a credit card or debit card, much less insurance, to ride on mass transit. Despite what founder and CEO Stelios believes, the requirement of credit worthiness and insurability negates easyCar.com from the mass transit marketplace (Lawrence, Solis, 2005).
Second, easyCar.com's customer onboarding process as defined in the case study is much more challenging for a consumer than getting a taxi, getting a bus or train ticket. EasyCar.com requires a credit card and drivers' license to be on file before any car can be rented from any location. Out of curiosity, an attempt was made after reading this case study to sign up as a customer. It takes, even today in 2010, from seven to ten days to get completely verified to use their service in any of the nations they operate in. Customers must then think ahead by at least a week and a half to make sure they can rent a car when they need it. A taxi, bus or train is instantaneous.
Third, the logistics and transaction velocities that mass transit alternatives are capable of is significantly faster and more accurate, due to smaller payments, than EasyCar.com. EasyCar.com's logistics network is designed to alleviate stock-outs by having the best possible selection and number of cars in a given location when they are needed the most urgently (Lawrence, Solis, 2005). In addition, easyCar.com treats the value of the car rental as a constraint to optimize on. The closer the time of the rental, the higher the price and the more inelastic the demand. This obviously does not happen when a person chooses to use a taxi, bus or train to get from one location to another. It is therefore a more complex decision if renting a car vs. taking mass transit is the best idea when it is urgent to get to a location. Urgency in fact works in favor of the mass transit secondary competitors while convenience, freedom and their relative costs work for low-end rental car companies like easyCar.com.
A third factor as to why easyCar.com is not a viable alternative to taxis, buses and trains is the capitalization structure…