This case explains the situation confronted by easyCar. com at the start of 2003. EasyCar is the low priced Western car lease business founded by easy Jet pioneer Stelios Haji-Ioannou. EasyCar got just reached breakeven in 2002 on sales of ¿½27 million, and had as its goals to reach sales of ¿½100 million and earnings of ¿½10 million by the end of fiscal 12 months 2004 in order to position itself for a short public offering. To do this would require beginning new locations at a level of two weekly and growing its fleet of local rental cars from 7000 to 24, 000. The truth describes the company's functions and facilities as well as its rates and promotional strategies. In addition, it describes a number of significant changes that the business has manufactured in the this past year, including a proceed to allow renting for as little as an hour that was made to position easyCar as a competitor to local taxis, buses, trains and even car ownership. The case also explores several legal challenges the firm experienced, including a ruling that threatened one of the core components of its business design. Students are asked to judge easyCar's businesses strategy and determine the chance that easyCar can achieve its ambitious goals.
Why a low cost service will not necessarily imply a minimal quality service to the consumer. The case offers a good illustration of Parasuraman, Zeithaml and Berry's (1985) service quality model and the notion of service quality associated with customer perceptions in comparison to customer anticipations.
How services change from made products (i. e. , intangibility, perishability, heterogeneity and simultaneity), how services differ from each other, and the way the characteristics of confirmed service influence the design of the service delivery process (i. e. , comparative focus directed at physical facilities and regulations, employee behaviors and employee view).
How the client can be designed into the service delivery process (i. e. , in order that they are performing a portion of the service delivery).
How valuable sophisticated forecasting and demand management systems can be to a firm and exactly how process details can be designed to help forecasting and capacity planning initiatives (e. g. , early on bookings, no cancellations).
The discourse questions that follow were written so the instructor can simply walk the course through the questions in collection. This can take the class basically through a discussion of different order winning criteria a local rental car company might choose to remain competitive on (cost, quality, overall flexibility) and looks at easyCar's processes, guidelines and procedures regarding these possible order earning standards. Questions 5 and 6 are made to either further reinforce the lessons of questions 1-4 or to test students understanding of the ideas reviewed in these previous questions. Some trainers may wish to assign only questions 1 -4 and 7 and integrate the important debate tips from questions 5 and 6 into questions 2 and 3. Question 7 was created to help bring closure to the conversation and emphasize to students that the success of easyCar's procedures strategy will depend in part how well it can put into practice the strategy during a period of immediate growth.
1. What exactly are the characteristics of the car rental industry? How do these characteristics affect the look of service delivery procedures in this industry in general?
This first question is intended to acquire students think about the aspect of the industry that easyCar competes in and the nature of car rental services generally. This will help students better understand and recognize between actions taken by easyCar's that are related to the type of the industry and service and those related to easyCar's strategy. Possibly the best way to start out the conversation is by looking at the general characteristics of services and which of the characteristics are most significant in the case of car rentals. Generally, services are seen as a their intangibility, perishability, heterogeneity and simultaneity. But different services fluctuate significantly in the level to which these characteristics hold.
Intangibility - While strictly speaking, the "service" of car rental is intangible, given the physical mother nature of the rented vehicle, it really is much less intangible as much other services in the sense that the buyer can easily see and touch the rented vehicle. For almost all the period where the client uses the service of car rentals, the physical car is the service provided. For most services, intangibility makes it very hard for the buyer to judge quality and then for the producer to control quality. This isn't nearly as difficult a proposition regarding car rentals. The "convenience" factor (e. g. , location, speed of pick-up and drop-off, etc. ) associated with lease is the most significant intangible associated with local rental cars.
Perishability - Car rentals is clearly an extremely perishable service. In case a day goes by and a car is not rented, the opportunity to generate profits from that unrented time is lost permanently. Perishability is a critical factor in the local rental industry given the generally high preset cost associated with the service (i. e. , a fleet of vehicles). All industry players must cope with this perishability and different companies will have slightly different approaches for dealing with it. Heterogeneity - Car rentals is not really a particularly heterogeneous service, as compared, for example, to the assistance provided by a doctor, an architect, a attorney or a hairdresser. While customers may request different vehicles or different extras (e. g. , child seat, ski rack) or different rentals terms (come back with bare or full reservoir, unlimited mls, etc. ), nearly all customers will obtain a similar service - the use of a car for some given period of time. Further, the basic relationship or contact that employees of the rental car company have with customers is likely to be virtually identical.
Simultaneity - The issue of simultaneity is not really a major issue for the car hire industry. The service being provided by the car local rental industry is the utilization of a vehicle in a spot where the customer both needs one and doesn't have one (i. e. , typically when the customer is traveling). While there is simultaneity in the sense that the customer and the automobile are together at that time that the service is consumed, most of the process of fabricating the service (e. g. , creating the facilities, planning for the right car to maintain the right place) is done without the client along the way. The client only interacts with the service corporation when booking the automobile and when picking right up and returning a car. While these connections are important, they don't limit the ability to achieve economies of level in the industry just how simultaneity does in a few other market sectors.
Service design has been characterized as having three basic components - (i) physical facilities, steps & procedures, (ii) employee's manners, and (iii) employee's professional judgement. Considering that car rental service is a comparatively tangible, homogenous service with rather low degrees of customer contact (i. e. , simultaneity), local rental companies have a tendency to target their service design on the physical facilities, operations and types of procedures. While employees' habits aren't unimportant, they may be of extra importance to facilities, techniques and procedures in service design in the automobile rental industry. This is seen industry wide.
2. EasyCar obviously competes on the basis of low price. What does it do in businesses to support this plan?
Once the university student understands the characteristics of the automobile rental industry from a service design perspective, the dialogue can proceed to how easyCar's operational design allows it to compete based on price. Given the degree to which easyCar has designed its process to lessen cost, students should not have a difficult time figuring out the top features of its process design that allow it to offer a cheap. The key point to drive home is the scope that easyCar has truly gone to align its procedures strategy and process design with its business strategy. Obviously the order earning criteria in cases like this is good deal, (see Terry Hill's Manufacturing Strategy textbook for more on the concept of the order being successful criteria in functions strategy). Perhaps the best way to make this point is to explicitly compare easyCar's functions with the businesses of a traditional car rentals company. Show TN-I shows this comparability. After having been through this evaluation, the trainer can ask students why all rentals car companies don't follow easyCar's business lead and reduce their costs this way. Carrying this out drives home the hyperlink between the procedures design and the business strategy - that is, the traditional car rentals companies have strategies centered more on flexibility and service, and therefore have different order receiving criteria and different operational designs to support these requirements. (Another way to ask this is to ask what easyCar gives up to achieve this low cost, although discussion questions 3 & 4 are really designed partly to access this problem).
Finally, once the components of the easyCar functions systems have been brought out, they could be used to make the point that many of the techniques that easyCar uses can be thought about as applications of production line approaches put on a service context. This point is particularly worthwhile making if students have been designated to learn Levitt's (1 972) "Production-line approach to service". The easyCar situation plainly illustrates the ideas of service standardization, reducing the discretionary action of employees and using technology to support or substitute for individuals along the way.
3. How would you characterize the amount of quality that easyCar provides?
Asking students about quality is a rational follow-up to the previous question focused on cost. Talking about quality is important so students notice that low cost does not necessarily imply poor in the imagination of the client. The discussion can be used to illustrate several important service quality concepts. One way to begin this debate is to ask what is quality in this case in your brain of the consumer. Evidently easyCar is targeting a particular section of the marketplace that is very price conscious, but the students should know that "quality" in the consumers' thoughts is more than merely a low price (or on the other hand, the needs of this segment is more than merely good deal). The thought of value as a thought relating both quality and price can be created here, with value equating to the benefit for the service provided relative to the purchase price paid. This debate can also be used to expose Garvin's eight measurements of quality in an effort to better understand the multidimensional nature of quality. Garvin's measurements are: performance, features, stability, conformance, toughness, serviceability, appearance, and recognized quality. EasyCar's customers would likely identify quality in conditions of the essential features (i. e. , center performance gain) of the vehicle rented, the reliablity of the automobile rented, and the conformance of easyCar techniques to the specs provided on the easyCar web site (across all locations).
The teacher can next ask students why easyCar started out with a fleet of Mercedes A-class vehicles (or students may improve the issue in the framework of appearance from the talk of Garvin's dimensions). This choice seems inconsistent with easyCar's positioning as an inexpensive provider, and even the company has switched and is now using more Vauxhall Corsas and similar vehicles. The main element to understanding the launch of easyCar with the more expensive Mercedes is the fact easyCar didn't want to be perceived as a low quality service agency (this comes through in the estimate in the event from Stelios about not compromising on the hardware). The importance of the Mercedes ?-school is not only for the existing customer. Since a significant advertising strategy of easyCar is to place its name in vibrant orange lettering on all its automobiles, the Mercedes A-class vehicles are likely to be more positively identified by those who see the vehicle and the easyCar advertising. EasyCar needs to create a graphic of reliability a fleet of new Mercedes might imply (instead of being associated with other very low-price local rental car companies that often lease older vehicles). In addition to understanding meanings of quality, the situation provides an outstanding possibility to discuss the issues of interacting with service quality specifically. For most services, quality is specially difficult to deal with due to intangibility, heterogeneity, and simultaneity of the service. These top features of a service typically make it difficult to designate and keep maintaining quality expectations. Because car hire is not as intangible or heterogeneous as many services, and the simultaneity is associated generally with the facilitating good, quality requirements aren't as difficult to determine or maintain. Furthermore highly relevant to the easyCar case is the research indicating that consumers measure the quality of something largely by evaluating the perception they have got after receiving the service with the goals they had in advance for the service. Parasuraman, Zeithaml, and Berry's (1985) service quality model can be created at this point to operate a vehicle home this notion. EasyCar is good exemplory case of an application of the model. EasyCar now goes to great lengths on the website to communicate precisely what customers will obtain and what they'll not receive. The reason that easyCar does indeed this is to control its customers' objectives about the service (gaps 4 & 5 in the Parasuraman, Zeithaml and Berry model). When easyCar was launched, it experienced some bad press therefore of customers who did not grasp the easyCar strategy. EasyCar will not want customers to be surprised by the features of its service that will vary than traditional car rentals companies, so surprises could have a negative impact on the customer's perceptions of service quality.
4. Is easyCar a practical competition to taxis, buses and trains as Stelios statements? How does the design of its procedures currently support this form of competition? How not?
EasyCar perceives itself as a potential competition to taxis and buses because it allows customers to hire a car for less than one hour. From easyCar's position, this is practical within their effort to achieve maximum utilization of their fleet. If they can rent out an automobile for even a supplementary one or two hours when the vehicle would otherwise sit down in a storage area unused, then it increases their bottom line. Further, it is possible that such very short-term rentals seem probably to come during the work week, a customarily slower period for easyCar given its major charm is to leisure travelers who demand vehicles more on weekends than on weekdays. In this way, the short-term rentals may help balance demand over a each week basis.
EasyCar's change to allow rentals for less than one hour provides a good possibility to discuss the problem of the overall flexibility of EasyCar's operations. The easyCar process is adaptable in that it allows customers to choose exact pick-up and drop-off times and pay for only that time. Traditional rental car companies ask for by 24-hour cycles and for at least one day. Further, easyCar charges customers for each and every individual service that they use (e. g. , cleaning the car, extra kilometers), allowing customers to pay only for the services that they might need. This versatility really revolves around prices. In two metropolitan areas, easyCar also offers flexibility in terms of location. Fully 50 % of easyCar's rentals sites are in either London or Paris.
The question is whether these forms of versatility are sufficient to make leases of a few hours attractive to customers. There are many significant constraints from the customer's point of view that will likely limit easyCar's capability to entice these customers. First are the prep fees or activities that the client will have to pay and/or engage in to rent the car. There is a euro4 standard prep fee and a euro5 demand if the client uses a standard visa or mastercard to pay for the rental. Then the customer may need to wait once arriving at the easyCar location to accumulate their car if there is a queue of other customers, which as the case indicates can occur, especially during peak times, as a result of minimum amount staffing levels retained at each location. Once the customer accumulates the car, he or she will have to place gas in the automobile before it is ready to go. When the customer returns the automobile, she or he needs to rinse the car or pay the euro16 cleaning charge, and must again possibly wait to return the automobile. This all amounts to a substantial investment in time or money to rent for a couple of hours. The second limitation is the fact easyCar's prices typically increase as the time of the local rental period pulls near, particularly during peak times. While a few customers may know well beforehand that they desire a vehicle for a couple of time on confirmed day, it would seem that this market segment will probably buy more at the last minute. This makes the purchase price somewhat less competitive. Definitely easyCar can factor this into their prices model, so that if a person does want an automobile for a short term period on brief notice and the automobile is available and would likely go unrented, then the system can offer the customer a reasonable price. However, this boosts a third limitation, which is that frequently easyCar won't have a car on such brief notice, as they presently achieve 90% usage of their fleet. If a person frequently locates no vehicles available, sooner or later he or she will minimize bothering to check on and simply use the alternatives. The point to make is the fact the majority of easyCar's functions are tailored much more to the customer who knows his / her travel blueprints well beforehand and has the extra time to go to a secondary location and perform a few of the original service themselves. This will not seem compatible with the renter who might want to use the easyCar for an hour or two on short notice instead of taking one or several taxi trips. For easyCar to effectively remain competitive for such customers may necessitate changes to its service process. Such changes might include, for example, a relaxation of cleaning procedures (e. g. , the surface is clear of dirt, grime, etc. alternatively than research that the car has been washed) and some type of computerized drop off system to reduce the time factor for customers.
Having many locations in the same city also evidently makes easyCar a more viable competition to taxis, buses and car ownership. This has significant implications to easyCar's expansion strategy. If it truly desires to compete keenly against taxis, buses and car possession, it will focus its growth on opening multiple locations in the major Western european towns. If it considers itself more as contending for visitor customer, it'll start more locations in visitor destination locations, either near international airports or coach and bus channels.
5. What are the functional implications of the changes made by EasyCar. com within the last year?
A total of five recent changes are discovered in the text that easyCar has made in the last year. Discussing some or most of these is designed to reinforce a few of the proceeding lessons as well as further point out some of the trade-offs that the business must offer with in its initiatives to compete predicated on cost. The talk can even be used to focus on that companies, whatever their competitive priorities are, must still seek continuous improvement in their methods. Lease per hour - This might have been reviewed in detail in the preceding question. Release of vehicles other than the Mercedes A-Class - Perhaps the most interesting change that easyCar made, apart from allowing leases of only an hour, was to move from its one car model and offer a number of different, although generally similar, vehicles at its different locations. The case suggests that the change was designed to keep pressure on suppliers (i. e. , the automobile manufacturers) to keep costs down and to subsequently be able to lower the price tag on a rental to customers. What is perhaps surprising in the change is the fact that easyCar gone from having one vehicle type to having five vehicle types. Part of the operational advantages of an individual fleet is site specific. Any car can go to any customer and significant economies of range would can be found in the maintenance of the fleet. However, having different vehicles at different locations reduces easyCar's flexibility to move vehicles between locations easily if demand is higher at one location than at another. That is particularly an issue in moving vehicles between Mercedes and non-Mercedes locations. Customers who have paid a few euros extra each day to rent from a location that offered the Mercedes vehicles may likely be disappointed if indeed they showed up to get there vehicle and received a Renualt Clio or Ford Concentration. So operationally, what easyCar did with this change is to lower its cost some, but at the trouble of some operational flexibility. The long-term question related to the is whether customers will establish personal preferences for specific vehicles and how easyCar will offer with this on the market side of things. This situation can also be used to bring in extending businesses strategy issues to the supply function. Clearly the move by easyCar pushes their vehicle suppliers to provide competitive prices, although it moves easyCar from a supplier relationship models intended particularly to improve quality and versatility along the resource chain. Clean Car Coverage - This changes is plainly very regular with easyCar's low priced strategy. Essentially it represents a copy of a task usually done by the company to the customer. Operationally, it includes several implications. It reduces the necessity for personnel at the rental site, supporting easyCar reduce one of its costs. More significantly, perhaps, it also speeds the turnaround of a car. That is, this policy, merged the empty energy policy, means that most vehicles are went back in a condition that allows these to be immediately rented to the next customer. This can help easyCar maintain an extremely high fleet utilization. But what is also interesting operationally is that it makes the employees' job relatively less predictable. Whereas with the old insurance policy employees knew they might have to completely clean each vehicle, and they knew how many vehicles were returning each hour, with the new plan there is an additional component of uncertainty along the way because an intermittent car will need to be cleaned. This might mean that one or more customers may have to wait around at the easyCar site as the worker cleans such a car. This is specifically a concern at sites which can be staffed by an individual employee. It is worth talking about that the change in coverage on the functional side has a genuine impact on the marketplace aspect as well. The insurance policy lowers the purchase price to customers inclined to take the time to wash the automobile by euro7 (i. e. , through reduction of the vehicle prep charge from euro11 to euro4) while increasing the price tag on the automobile to customers not eager to wash the vehicle by euro9 (i. e. , such customers now pay a euro4 prep payment a euro16 cleaning payment instead of the previous euro11 preparation price). EasyCar will probably grab some new, price hypersensitive customers by the euro7 decrease in price. However, for customers who don't want the trouble of cleaning the automobile, the euro9 price increase may motivate a few of them toward traditional local rental car companies.
Empty-to-Empty Policy - This change, like the prior one, is plainly regular with easyCar's low cost strategy. Operationally, the empty-to-empty policy would seem to significantly reduce the chance that an easyCar employee would have to deal with the gas level. Recently, customers needed to worry about making the effort to complete the tank. Customers working later might skip this step to save lots of time, leaving the task for an easyCar employee. Using the new insurance plan, the gas can be at any level so long as the low petrol indication light is not on. Since most motorists are unlikely to allow the gas level in their vehicles to drop this low anyhow, the chance an easyCar employee would need to deal with placing gas in the automobile is small. Combined with the previous change, this insurance policy basically means almost all customers bring their car back in a condition that allows it to be immediately re-rented.
Requiring Customers to Purchase Insurance - This insurance plan change probably has better implications on the marketing area than on the functions side. Operationally, however, it greatly reduces the likelihood of turmoil between customer and easyCar employee when a customer profits a broken car. Previously customers who didn't purchase the optional insurance experienced some responsibility, and the employee on duty would have to sort this out with the client. This is often a well-timed process, and present complications particularly for a spot staffed by only 1 person. Such happenings would likely cause delays for other customers attempting to pick up or return vehicles at the same time.
6. How significant are the legal obstacles that easyCar is facing?
Clearly the OFT ruling against easyCar is a lot more significant than is the publishing of the pictures of renters with overdue vehicles. Speaking about the OFT ruling against easyCar was created primarily to bolster the price benefits gained from easyCar's demand management system and its own high usage rates it achieves. According to the quote by Stelios, allowing customers seven days to improve or cancel reservations without charges would cause usage to land from 90% to 65% and prices to triple. While these quotes are in all probability an overly pessimistic examination of the impact, the impact none the less would be significant given the central role produce management plays in easyCar's approach. Further, it is worth using Stelios' quotes to give students an improved feel for the importance of the high utilization rate that easyCar achieves. At a 90% usage rate, easyCar could have (0. 9)(24, 000) = 21, 600 vehicles rented out at any given time by the finish of 2004 if its expansion goals are recognized. To really have the same variety of vehicles on lease by the end of 2004 with a 65% usage rate would require a total fleet of 33, 200 (21, 600/0. 65) or a 38% greater fleet than presently planned. Further, current easyCar facilities lease only 15-20 areas in a car parking garage to use a fleet of 150 autos. To service the same quantity of customers out of a location at a 65% usage rate would need a fleet of 208 (0. 9*150/0. 65) vehicles and an absolute minimum of 72 (208*(l-0. 65)) spaces to park un-rented vehicles. Students could be asked what would eventually easyCar's wished for ¿½10 million profit if it possessed to purchase an additional 9, 000 vehicles and quadruple the size of all of its facilities. Going right through this research and requesting students to take into account and determine the effect on income should drive home the cost personal savings achieved from the high usage rate. The other legal concern easyCar faces deals with its posting of the pictures of customers with overdue vehicles. This is not as significant, both because its impact is much less great and because no legal action has yet been considered. The worthiness of including this in the event, and perhaps in the discourse, is two-fold. First, this implies to students the significant cost of this problem to the rentals car industry. Second, it illustrates that basically a "zero faults" process must can be found for implementation of this policy to reduce the opportunity of any legal state against the organization.
7. What's your examination of the likelihood that easyCar can realize its goals for 2004?
This question is very intended to bring closure to the discussions. The proven goals, a quadrupling of sales from ¿½27 million to ¿½ 1 00 million via the beginning of 1 1 30 new locations in the next two years while noticing a ¿½ 1 0 million earnings are certainly ambitious. It really is worthy of noting that easyCar's functional model certainly makes beginning new locations easier than for traditional rentals car companies, given the least facilities required and the creation for easyCar of vans with all the current equipment needed to run a spot. The bottlenecks for extension more likely slumber with employing and training every one of the employees to staff these locations, as well as providing sufficient marketing support to unveiling 130 new locations on a minimum marketing budget. The higher challenge operationally will be to continue to find ways to drive costs down while keeping customer satisfaction such that it can realize gains at the same time.
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