easyCar.com Strategy and Operations Case Analysis

Industry Segmentation and easyCar.com's Market Position

There is a clear segmentation of the rental car industry that has focused on the needs of the business traveler over the leisure or vacation traveler, as the former can often expense car rental costs even when they include additional fees. This reliance on the business traveler has allowed significant process inefficiencies to become entrenched in the rental car industry. As a result, car rental companies globally are often criticized for their lack of focus on pricing consistency, clarity, and how 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 versus how much a company needs to focus on customer experience to be successful is central to the problem of managing car rental service processes (Fink, Reiners, 2006).

The confusion over pricing and the often opportunistic approaches companies take in defining it are more attributable to a lack of customer-focus mindset than to logistics or operational complexity (Thompson, Strickland, Gamble, 2007). Arguably, the logistics, operations, and pricing strategies that car rental companies use are much more precisely tuned for inward convenience than for delivering an excellent customer experience (Fink, Reiners, 2006). What appears to be a highly inefficient series of processes is actually very efficient. The upfront charges and the many add-on costs are designed as profit accelerators rather than as signals of process inefficiency. Despite the often exceptionally high prices from additional charges, many car rental companies that primarily serve the business traveler find that this segment will not push back. This segment, which represents between 35% and 55% of total rentals, prioritizes reliability, availability, selection, service, and a superior customer experience over price.

The business traveler continues to be at the center of competitive strategies for the majority of car rental companies. Strategies that companies have relied on to enable greater customer loyalty include delivering outstanding, highly focused, and responsive service that seeks to create memorable customer experiences (Rao, Smith, 2006). The more challenging the global economy becomes, 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 sending employees on the road, each experience a business traveler has becomes critical to the long-term value of a car rental company's reputation. Because of this, many car rental companies are doing exactly the opposite of what easyCar.com does — they concentrate on customer service above price or availability. This strategy of prioritizing exceptional service over cost is one of the most differentiating factors among car rental companies globally (Lorenzo, Foley, Dipp, Lane, Le, 2010).

easyCar.com has taken a very contrarian view and found a niche in the more price-sensitive tourist and leisure segment, which represents between 45% and 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 are 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 is not so much relying on low-end pricing for its direct economic impact on demand. Rather, it is relying on the low price leader position as a market positioning strategy relative to competitors and attempting to force comparison shopping against alternatives (Lawrence, Solis, 2005). This is why Stelios views easyCar.com as a viable competitor against public transportation — a point discussed further in a later section of this analysis (Kirsner, 2002). While easyCar.com will not ultimately establish itself as a suitable substitute for public transportation, the direction is viable, as evidenced by Southwest Airlines (Garrow, Ferguson, Keskinocak, Swann, 2006). Southwest took the low-price value proposition and created a market position by making it cheaper to fly to another city hundreds of miles away than to drive. This unique value proposition is supported by the operational and cost-structure scalability of Southwest Airlines, yet it does not translate 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 that market, despite the price and convenience factors it cites as core to its unique value proposition. It runs very much against the grain of the business traveler experience to require customers to wash their own rental cars and ensure the fuel warning light is not on. These two requirements alone are well outside the comfort zone of most experienced renters. Yet making customers part of the service value chain does trim significant costs from total operational expenses — something highly unusual in the global car rental industry (Kirsner, 2002). Not surprisingly, easyCar.com has faced pushback from regulators for its unorthodox and often nonconformist approaches to doing business, especially throughout Europe (Lawrence, Solis, 2005).