Car.com Case Analysis Questions There

¶ … Car.com Case Analysis Questions

There is a clear segmentation of the rental car industry that has focused on the need of the business traveler over the leisure or vacation traveler as the former often can expense car rental costs, even if they include additional fees. This reliance on the business traveler has allowed significant process inefficiencies to become engrained into the rental car industry. As a result, car rental companies globally are often criticized for the lack of focus on pricing consistency, clarity and how all of these factors relate to the customer experience (Garrow, Ferguson, Keskinocak, Swann, 2006). The paradox of how wide and varied a car rental company's selection can be vs. how much a company needs to focus on customer experiences to be successful is central to the problem of how to manage car rental services processes (Fink, Reiners, 2006). The confusion over pricing and the often-opportunistic approaches companies take in defining are more attributable to a lack of customer focus mindset and less on logistics or operational complexity (Thompson, Strickland, Gamble, 2007). Arguably, the logistics, operations and pricing strategies, systems and approaches car rental companies use are much more precisely tuned for inward convenience and less about how to make the customer have an excellent experience (Fink, Reiners, 2006). What appears to be a highly inefficient series of processes is actually very efficient. The upfront charges and costs and the many add-on costs are meant as profit accelerators more than a signal of process inefficiency. Despite the often exceptionally high prices from additional charges, many car rental companies who primarily serve the business traveler find that this segment of customer will not push back. This segment, which represents between 35% to 55% of total rentals, requires a reliability and availability, selection, service and a superior customer experience over price. The business traveler continues to be at the center of competitive strategies on the part of the majority of car rental companies as well. Strategies companies have relied on for enabling greater levels of customer loyalty include delivering outstanding and highly focused, responsive service, which seeks to deliver memorable customer experiences (Rao, Smith, 2006). The more challenging the global economy gets, the greater the reliance on customer service as a primary differentiator across car rental companies serving the business traveler. As recessions reduce the number of companies who are sending their employees on the road, each experience a business traveler has is critical for the long-term value of a car rental company's reputation. Because of this fact, many car rental companies are doing exactly the opposite of what easyCar.com is; they are concentrating on customer service over and above just price or availability. This strategy of concentrating on exceptional service over cost is one of the most differentiating factors between car rental companies globally (Lorenzo, Foley, Dipp, Lane, Le, 2010).

easyCar.com has taken a very contrarian view however and found a niche in the more price-sensitive tourist and leisure segment, which is between 45% to 65% of the total market. The start-up has also concentrated on price elasticity in the leisure market, even though the demand curve is essentially flat. When demand curves in industries with a high number of substitutes is relatively flat, price reductions have little net effect on demand (Berry, Shankar, Parish, Cadwallader, Dotzel, 2006).

Turning the Low Price Leader Position into a Unique Value Proposition

easyCar.com however is not so much relying on low-end pricing for its economic impact on the industry specifically to drive demand. It is relying on the low price leader position as a market positioning strategy relative to competitors and attempting to force comparison-shopping relative to alternatives (Lawrence, Solis, 2005). This is why Stelios sees easyCar.com as a viable competitor against public transportation, appoint discussed in a later question of this analysis (Kirsner, 2002). While easyCar.com will not find its place as a suitable substitute for public transportation, the direction is a viable one in the industry as is evidenced by Southwest Airlines (Garrow, Ferguson, Keskinocak, Swann, 2006). Southwest took the low price value proposition and created a market position as being cheaper to fly to another city hundreds of miles away vs. driving (Garrow, Ferguson, Keskinocak, Swann, 2006). This unique value proposition is supported by the operations and costing structure scalability of Southwest Airlines, yet does not apply well to casual or short-term auto rentals.

Because of the dominance of the business travel segment in the auto rental industry, easyCar.com faces formidable challenges in growing into this market, despite the price and convenience factors they mention as core to their unique value proposition. It is very contrary to the business traveler experience to require customers to wash their own rental cars and make sure the fuel light is not on. These two requirements alone are way outside the requirements of the comfort zone of most experienced renters. Yet making customers part of the service value chain is trimming a significant amount of costs out of the total operational costs of running a location and the entire company, and this is unusual in the global car rental industry (Kirsner, 2002). Not surprisingly, easyCar.com is getting pushback from regulators for their unorthodox and often nonconformist approaches to doing business, especially throughout Europe (Lawrence, Solis, 2005)

Analyzing the Global Car Rental Industry using the Five Forces Model

Porter's Five Forces Model provides insights into the structure, direction and dynamics of industries whether they are regional or global in scope (Porter, 2008). The Five Forces Model also provides useful analysis that can be used in defining the future strategy of easyCar.com as well. The following sections define the Porter Five Forces Model for the global auto industry, defining each component or factor and analyzing them from the standpoint of the auto rental industry and when applicable, how the factors will influence the operation and growth of easyCar.com.

Constructing the Five Forces Model for the Global Care Rental Industry

When constructing the Five Forces Model based on easyCar.com, it is very important to focus on the dominant economic features as defined in the case study and research completed as part of this analysis. Of these factors, the scope of competitive rivalry, number of buyers, supply/demand conditions, economies of scale and learning/experience curve effects all contribute to an imbalanced Five Forces Model for the car rental industry in general and for easyCar.com specifically. This imbalance actually works in favor of low cost providers including easyCar.com as they are competing not only with more expensive car rental providers, but also with substitute forms of transportation to an extent. A case in point is how easyCar.com relies on their website to drive the majority if not all bookings and reservations. It is important to note that well over 90% of easyCar.com bookings are managed online, while competitors average just around 10%. This quick learning of how e-commerce works has been attributed to the lessons learned from easyJet and the more complex logistics and operations systems of running an airline vs. A car rental company (Clark, Yuk, 2010). Stelios has been praised in the media for making the operational move from airlines to car rentals, including recognition of his expertise in operations and logistics (Kirsner, 2002). easyCar.com however continues to suffer from a reputation of being difficult to appreciate from a customer experience standpoint, a point of contention with new-hires in key marketing and management roles (Bold, 2003).

Assessing the Threat of New Entry & Buyer Power, the Two Most Potent Forces

The most powerful forces during the time of the case study affecting car rental companies during the case study were the threat of new entry and the potential for buyer power to re-order the market. Rivalries that easyCar.com have started will continue in the global rental car market, transforming the fragmented industry into one that is eventually consolidated through mergers and acquisitions. Buyer Power is the most potent force in the Five Forces Model as the easyCar.com business model has shown. What easyCar.com's market growth in the case study specifically shows is that when changes to a service value chain take into account unmet needs of consumers, rapid and profitable growth can happen (Maniak, Midler, 2008). Supplier Power is relatively stagnant and unchanging as easyCar.com initially begins only with the Mercedes brand and in January 2003 adds the Ford Focus, Renault Clio, Toyota Yaris, and the Smart Car. There is also the threat of substitution, mostly from mass transit. The independence and scheduling of easyCar.com, which has become part of their website scheduling system, counters any potential substitution threats. easyCar.com has been able to accomplish this by concentrating on key success factors that are based on convenience and cost over customer experience. Technology-related key success factors include the reliance on the website as the primary means for booking and scheduling cars, the use of advanced planning and scheduling applications including inventory allocation software applications that give easyCar.com greater control and speed in meeting customer's requirements. The distribution-related key success factors that easyCar.com to quickly penetrate new markets is also evident in the low costs required to create new locations and staff them.

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 of the company and it intensive use of debt to finance expansion (Kirsner, 2002). The transaction velocity necessary to make EasyCar.com profitable is daunting enough, as are the controls necessary to maintain profitability, as the case shows. If easyCar.com chose to sell aggressively against taxis, buses and trains, it would need to eventually relax it rental rates, its credit terms, and increase the costs of logistics and inventory optimization planning. These three factors would drive the economics of the company in exactly the wrong direction compared to where they need to go. In conclusion, it is clear that easyCar.com's best possible growth trajectory is to concentrate on the low-end of the car rental market globally. As the logistics and operations, management systems that the company relies on can scale quickly across metro and urban areas, Stelios needs to look seriously at global expansion into larger markets, not focus on competing with mass transportation.

Design of Operations That Support Not Competing With Mass Transit

First, the capital structure of easyCar.com does not provide for the economies of scale necessary to compete against mass transit systems and operations. The financial structure, inventory management, logistics, maintenance, repair and overhaul aspects of the easyCar.com value chain are better suited for car rentals lasting at least two days or more to cover the costs of processing the rental agreement and also the costs associated with qualifying a customer (Hall, 2007). The case makes the point of how mobile and agile the creation of a new location is through the use of vans and quick set-up processes, yet the underlying cost per order is still very high, as each driver must first be qualified to rent and have sufficient credit to pay in advance for the rental via making a deposit. The bottom line is that from an economic standpoint, competing with mass transit systems is tertiary to global build-out of the easyCar.com brand (Lawrence, Solis, 2005). A far more effective strategy for example would be concentrating on the world's most prestigious universities that are in heavily congested areas, including Harvard, MIT, and Stanford in the U.S., all of which have very little parking and very well-known thought leaders in their fields. Insead in France, the London School of Economics in London, Cambridge University, and Oxford University all are in areas where parking is also at a premium and bringing rental cars to campus is discouraged. Concentrating on these markets for their prestige and the potential of having world-known thought leaders in key areas of business endorse the easyCar.com brand would be a far better strategy. The global market for on-demand auto rental is untapped and is a far more attractive market than competing with mass transit, which is in many nations subsidized by the governments.

Design of Operations That Support Competing With Mass Transit

easyCar.com Founder and CEO Stelios believes that his company can effectively compete with taxis, buses and trains due to the vision he has of the company's services being available quickly and easily throughout urban areas (Kirsner, 2002). The design of operations systems and the inventory optimization that his company's business model has forced the discipline of could be optimized even more to support greater transaction velocities (Lawrence, Solis, 2005). Second, the credit approval process could also be useful in getting a monthly or yearly pass for customers who choose to standardize on easyCar.com for the long-term. The internal systems in the company are well attuned to providing for credit-based transactions. To make their cars a suitable alternative to taxis, buses and trains, easyCar.com will have to make the experience of renting from them for an extended period with "anytime, anywhere" pick-up service a reality. This could be the highest level of service the company delivers at a higher corresponding price for the convenience of getting a car whenever it needed. From this standpoint, easyCar.com does have the ability to compete with mass transit competitors, yet it pushes the company into an area of the market that is focused on customer experience. For a customer to sign up for a monthly pass, the experience of renting from easyCar.com will have to be painless, efficient, trusted, and above all, hassle-free. The company is just not engineered at that level of customer engagement to make that type of experience realistic however.

4. How significant are the legal challenges that easyCar is facing? (5 Marks) (450words)

There are very significant challenges that easyCar.com is facing from a legal standpoint in the timeframes of the case study. First, the resistance of the company to the Office of Fair Trading (OFT) ruling that gave customers seven days to refuse a rental they had made previously posed significant logistics challenges to the company (Kirsner, 2002). The logistics and operations systems are designed for quick response to market demand, and the seven-day cooling off period and full refund forced easyCar.com to completely redesign their systems and processes (Lawrence, Solis, 2005). Founder and CEO Stelios claimed that in complying with the requirement their utilization rate would drop from 90% to 65% and increase the costs of rentals by as much as three times or more. The OFT escalated easyCar.com's violation of the seven day right of refusal to the UK High Court and pressed for an injunction to force easyCar.com to either comply or cease operations. This would have been a devastating blow to easyCar.com's initial operations in the UK. Stelios unsuccessfully argued that his company was a transportation provider, not a rental car provider. The UK High Court disagreed, and forced the seven day right of refusal on the company. This significantly re-ordered the company's operations.

easyCar.com too easily discounts the connection between their business models and go-to-market strategies and the legal implications of them. The seven-day right of refusal on the part of customers is just one instance of this. The second and potentially far more costly is posting the pictures of customers who fail to return their rental cars. In many nations throughout the world this would be consider libelous and if an error were made, the implications would be extremely costly for easyCar.com, far outstripping the costs of writing off the cars. easyCar. com needs to redefine its business strategy to authorize a credit card for the costs of the rental and also get the renter to approve of all legal costs for recovering the car in the event it is not returned. This is a common practice in the U.S. market for example. Having customers approve of paying for all legal costs of retrieval of the car, including attorney fees on both sides and court costs is far more effective. When a car is not returned a customer, easyCar.com could prosecute and easily win, as the car is their property. Posting the results of the deadbeat customer who did not pay would be far more effective. This would force the issue of returning cars with fear instead of opening up the potential for lawsuits from posting the wrong customers' picture.

In conclusion, easyCar.com needs to rethink its legal exposure from the standpoint of its go-to-market strategies and be more consistent from a legal standpoint. Stelios does not consider the legal ramifications of his business model and attempts to gain advantage by labeling it a transportation or car rental company depending on the legal circumstances and potential advantage. He cannot play both sides of the fence so to speak and will have to stay in one industry and be more transparent to alleviate potential legal battles in the future, especially throughout the European Union.

5. What is your assessment of the likelihood that easyCar will be able to realise its goals? What can easyCar do to achieve its goals? (15 Marks) (1350 words)

The current go-to-market strategies supported by customer service, marketing, legal, logistics, operations and supply chain systems and processes will not scale quickly and reliably enough for easyCar.com to get to its goals as defined in the case. EasyCar.com's CEO Stelios has very ambitious plans for growth that culminate with an Initial Public offering (IPO) with the company attaining a valuation of £250M. His additional goals as stated in the case study include £100M in sales and £10M in profit, a very rapid two new sites a week from 2003 to 2004 and 180 sites by the end of 2004. Stelios also has ambitious goals with regard to growing the base of vehicles as well, from 7,000 to 24,000 across 180 rental sites by the end of 2004. All of this will be accomplished while the company intended to spend £3M in 2003, doubling the marketing budget. All of these factors add up to an extremely aggressive growth agenda that assumes that the customer buying behavior, marketing messaging, logistics, supply chain, pricing and services are all in synchronization with each other, delivering what the customer expects and more. Yet in fact, this is far from the truth. easyCar.com will not attain the growth they are projecting and will continue to struggle with legal issues, pricing, and at a more fundamental level, just what business they are in until Stelios and his team of managers get a clear definition of the company's value chain and direction (Kirsner, 2002). The following analysis by area of the company intends to provide prescriptive guidance to Stelios and his executive management team as to how they can better align their value chain and deliver the level of customer value that will propel them to the sales levels and eventually, market valuation levels they aspire to (Lorenzo, Foley, Dipp, Lane, Le, 2010).

Customer Service Strategies

Despite what CEO Stelios believes is his company's value proposition of price and availability of inexpensive car rentals that has the potential to compete with mass transit, in reality the company is in the car rental industry. His contention that customer experience is irrelevant to his business model is incorrect; it is core to any business model (Rao, Smith, 2006). It is an incorrect and dangerous assumption to believe that a customers' experience is not intertwined with the transaction of purchasing services or products. Even if the experience is one of the transactions, there is still a customer satisfaction level attained or not. It is doubtful that people will tolerate waiting for a car 30 minutes or longer in adverse weather conditions in cities that have exceptionally good mass transit systems for example. London, Paris, and many cities easyJet flies into all have excellent mass transit systems. Stelios needs to realize the competitor is not mass transit; the competitor is time and the perception of it by customers. Until he respects his customers' time more, his business will not grow beyond those whose occupations and lifestyles allow for 30-minute waits for a rental car. Stelios and his management team need to re-orient the customer experience while still focusing on price and availability. Streamlining the rental experience and using the Web for these transactions makes sense as the company already does bookings online. The paradox of how Stelios respects customers' time when it benefits him from a pricing standpoint needs to be balanced with respecting customer's time from a satisfaction standpoint as well.

Operations Strategies

The strength of the company is in this area of their business mode. Initially standardizing on the higher-end Mercedes brand and then adding in the Ford Focus, Renault Clio, Toyota Yaris, and the Smart Car, easyCar.com unnecessarily complicates their mix of cars. This deviates away from the easyJet model that had proven so successful from a standardization of parts, service and operations standpoint. This mix of cars also further complicates the logistics systems and forces the company into an exponentially larger number of contracts and commitments to support and service them. The lesson learned from easyJet and from observing the success of Southwest Airlines seems to be lost at this point in the company's history.

The company needs to take the bold step and streamline the variety of cars they offer and stay consistent with this strategy globally. The selection of a single model needs to be carefully considered from an international or global market standpoint as well. The focus on sustainability and carbon footprints of cars needs to also be a consideration in the selection ideally of a single vehicle or worst case, a variety of them that will be the basis of the global build-out of the business model. The Toyota Yaris or Toyota Prius globally would be the best selections to send a clear branding message of sustainability and support for green and eco-friendly initiatives (Sawyers, 2007). easyCar.com needs to either get rid of the other models or at least suspend their purchase and concentrate on two, eco-friendly; highly sustainably designed vehicle models that have high gas mileage and send the right branding message. This consolidation of models to one or at the very most two also sends a message to the target market for easyCar.com. It says that the company respects the fact that gas mileage is always a consideration, yet transportation can also be environmentally responsible at the same time. This is also a first step in creating a more scalable brand globally that gets beyond just price and availability. To succeed, easyCar.com needs to break out of just focusing on the economics of their business model and create more emotion behind it.