This case represents the situation experienced by easyCar. com at the start of 2003. EasyCar is the reduced priced Western european car lease business founded by easy Jet pioneer Stelios Haji-Ioannou. EasyCar possessed just reached breakeven in 2002 on sales of ¿½27 million, and possessed as its goals to attain sales of ¿½100 million and earnings of ¿½10 million by the finish of fiscal calendar year 2004 to be able to position itself for an initial public offering. To do this would require starting new locations at a rate of two per week and widening its fleet of local rental automobiles from 7000 to 24, 000. The truth describes the company's operations and facilities as well as its prices and promotional strategies. In addition, it describes lots of significant changes that the business has manufactured in the last year, including a proceed to allow renting for less than an hour that was designed to position easyCar as a competition to local taxis, buses, trains and even car possession. The situation also explores several legal issues the firm faced, including a ruling that threatened one of the central components of its business design. Students are asked to evaluate easyCar's procedures strategy and assess the likelihood that easyCar can achieve its ambitious goals.
INSTRUCTORS' NOTES
Recommendations for Teaching Approaches
The circumstance has been written mostly to illustrate principles relating to operations strategy and service process design. Specific ideas that the case may be used to illustrate include:
How to align a company's functions strategy with its business strategy (i. e. , good deal market strategy backed by processes, steps and systems totally focused on achieving low priced), and the way to use the concept of order winning requirements to accomplish linking process design decisions to the firm's procedures strategy (Hill, 1999).
How to apply production line approaches to something through standardization, the use of technology, and the reduced amount of the discretionary actions of employees (Levitt, 1972).
Why a low cost service does not necessarily imply a low 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 relating to customer perceptions in comparison to customer goals.
How services change from made products (i. e. , intangibility, perishability, heterogeneity and simultaneity), how services change from each other, and the way the characteristics of a given service influence the look of the service delivery process (i. e. , relative focus given to physical facilities and regulations, employee habits and employee common sense).
How the customer can be designed in to the service delivery process (i. e. , in order that they are performing a portion of the service delivery).
How valuable complex forecasting and demand management systems can be to a firm and how process details can be made to help forecasting and capacity planning attempts (e. g. , early on bookings, no cancellations).
The debate questions that follow were written so that the instructor can simply walk the school through the questions in collection. This requires the class basically through a debate of different order being successful criteria a rentals car company might choose to contend on (cost, quality, versatility) and looks at easyCar's processes, policies and procedures regarding these possible order being successful conditions. Questions 5 and 6 are made to either further reinforce the lessons of questions 1-4 or even to test students knowledge of the ideas reviewed in these earlier questions. Some trainers may wish to assign only questions 1 -4 and 7 and integrate the important debate items from questions 5 and 6 into questions 2 and 3. Question 7 is designed to help bring closure to the discussion and emphasize to students that the success of easyCar's procedures strategy will depend in part how well it can put into action the strategy during a period of speedy growth.
DISCUSSION QUESTIONS
1. What are the characteristics of the automobile rental industry? Just how do these characteristics influence the design of service delivery functions in this industry generally?
This first question is supposed to get students think about the character of the industry that easyCar competes in and the type of car rental services in general. This will help students better understand and identify between actions used by easyCar's that are related to the type of the industry and service and the ones related to easyCar's strategy. Perhaps the best way to start out the discourse is by looking at the overall characteristics of services and which of the characteristics are most crucial regarding car rentals. In general, services are seen as a their intangibility, perishability, heterogeneity and simultaneity. But different services differ significantly in the magnitude to which these characteristics hold.
Intangibility - While totally speaking, the "service" of car lease is intangible, given the physical aspect of the rented vehicle, it really is not as intangible as much other services in the sense that the buyer can see and touch the rented vehicle. For almost all the period where the client uses the service of car hire, the physical car is the service provided. For most services, intangibility makes it very difficult for the buyer to guage quality and then for the producer to control quality. This is not nearly as difficult a proposition regarding car rentals. The "convenience" factor (e. g. , location, acceleration of pick-up and drop-off, etc. ) associated with rental is the most important intangible associated with rentals cars.
Perishability - Car rentals is clearly a very perishable service. In case a day goes by and an automobile is not rented, the possibility to generate revenues from that unrented time is lost permanently. Perishability is a crucial factor in the rentals industry given the generally high resolved cost from the service (i. e. , a fleet of vehicles). All industry players must deal with this perishability and various companies will have slightly different strategies for coping with it. Heterogeneity - Car rental is not really a specifically heterogeneous service, as compared, for example, to the assistance provided by a doctor, an architect, a legal professional or a hairdresser. While customers may ask for different vehicles or different extras (e. g. , child couch, ski rack) or different local rental terms (return with vacant or full fish tank, unlimited miles, etc. ), nearly all customers will acquire a similar service - the utilization of a vehicle for some specified time frame. Further, the basic discussion or contact that employees of the rental car company have with customers is going to be very similar.
Simultaneity - The problem of simultaneity is not a major issue for the car rental industry. The service being provided by the automobile rentals industry is the use of a car in a spot where in fact the customer both needs one and does not have one (i. e. , typically when the client is going). Since there is simultaneity in the sense that the customer and the vehicle 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 be in the right place) is performed without the customer along the way. The client only interacts with the service group when booking the automobile and when picking right up and returning a car. While these relationships are important, they do not limit the ability to achieve economies of range on the market just how simultaneity does in a few other establishments.
Service design has been characterized as having three basic components - (i) physical facilities, steps & procedures, (ii) employee's behaviors, and (iii) employee's professional judgement. Considering that car local rental service is a relatively tangible, homogenous service with quite low degrees of customer contact (i. e. , simultaneity), rental companies tend to focus their service design on the physical facilities, procedures and techniques. While employees' behaviors aren't unimportant, they are really of extra importance to facilities, processes and procedures in service design in the car rental industry. This can be seen industry big.
2. EasyCar naturally competes based on low price. Exactly what does it do in businesses to support this plan?
Once the scholar recognizes the characteristics of the car hire industry from something design point of view, the debate can proceed to how easyCar's operational design allows it to contend on the basis of price. Given the level 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 lower price. The key point to drive home is the extent that easyCar has gone to align its operations strategy and process design with its business strategy. Clearly the order receiving criteria in cases like this is low price, (see Terry Hill's Processing Strategy textbook for more on the concept of the order being successful criteria in operations strategy). Possibly the best way to get this to point is to explicitly compare easyCar's operations with the businesses of a traditional car hire company. Display TN-I shows this comparison. After having gone through this contrast, the trainer can ask students why all local rental car companies don't follow easyCar's business lead and reduce their costs in this manner. Carrying out this drives home the link between the procedures design and the business enterprise strategy - that is, the original car rentals companies have strategies centered more on versatility and service, and as such have different order winning criteria and various operational designs to aid these requirements. (An alternate way to ask this is to ask what easyCar provides up to achieve this low priced, although discussion questions 3 & 4 are actually designed in part to get at this issue).
Finally, after the the different parts of the easyCar functions systems have been presented, they can be used to help make the point that many of the techniques that easyCar uses can be thought about as applications of creation line approaches applied to a service framework. This point is particularly worthy of making if students have been allocated to read Levitt's (1 972) "Production-line method of service". The easyCar situation clearly illustrates the ideas of service standardization, lowering the discretionary action of employees and using technology to aid or substitute for individuals in the process.
3. How might 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. Speaking about quality is important so students note that low cost does not necessarily imply low quality in the heads of the customer. The discussion can also be used to demonstrate several important service quality principles. One way to begin this dialogue is to ask what's quality in this case in the mind of the buyer. Plainly easyCar is concentrating on a particular section of the marketplace that is very price mindful, however the students should know that "quality" in the consumers' thoughts is more than merely a low price (or additionally, the needs of this segment is more than simply low price). The thought of value as a concept relating both quality and price can be created here, with value equating to the benefit of the service provided relative to the price paid. This debate can even be used to add Garvin's eight sizes of quality as a way to better understand the multidimensional aspect of quality. Garvin's proportions are: performance, features, trustworthiness, conformance, longevity, serviceability, appearance, and recognized quality. EasyCar's customers may likely specify quality in conditions of the essential operation (i. e. , center performance profit) of the vehicle rented, the reliablity of the automobile rented, and the conformance of easyCar techniques to the technical specs provided on the easyCar web site (across all locations).
The trainer can next ask students why easyCar began with a fleet of Mercedes A-class vehicles (or students may improve the issue in the context of aesthetics from the discussion of Garvin's sizes). This choice seems inconsistent with easyCar's placement as a low cost provider, and indeed the company has switched and is now using more Vauxhall Corsas and similar vehicles. The key to understanding the launch of easyCar with the more costly Mercedes is that easyCar did not desire to be perceived as a low quality service provider (this comes through in the quotation in the event from Stelios about not reducing on the hardware). The importance of the Mercedes ?-course is not merely for the existing customer. Since a significant advertising strategy of easyCar is to put its name in strong orange lettering on all its cars, the Mercedes A-class vehicles are likely to be more positively perceived by those who see the vehicle and the easyCar advertising. EasyCar wants to create an image of reliability a fleet of new Mercedes might imply (as opposed to being associated with other very low-price local rental car companies that often lease older vehicles). In addition to understanding meanings of quality, the truth provides an outstanding possibility to discuss the issues of working with service quality specifically. For many services, quality is specially difficult to deal with as a result of intangibility, heterogeneity, and simultaneity of the service. These features of something typically make it difficult to identify and keep maintaining quality specifications. Because car local rental is not as intangible or heterogeneous as much services, and the simultaneity is associated primarily with the facilitating good, quality criteria aren't as difficult to establish or maintain. Furthermore relevant to the easyCar circumstance is the research indicating that consumers measure the quality of a service largely by contrasting the perception they have after receiving the service with the anticipations they had beforehand for the service. Parasuraman, Zeithaml, and Berry's (1985) service quality model can be launched at this point to drive home this notion. EasyCar is good example of an application of the model. EasyCar now goes to great lengths on the website to converse precisely what customers will receive and what they'll not receive. The reason why that easyCar does this is to control its customers' objectives about the service (spaces 4 & 5 in the Parasuraman, Zeithaml and Berry model). When easyCar premiered, it experienced some bad press therefore of customers who did not fully understand the easyCar methodology. EasyCar does not want customers to be stunned by the top features of its service that are different than traditional car lease companies, therefore surprises could have a negative impact on the customer's perceptions of service quality.
4. Is easyCar a practical competitor to taxis, buses and trains as Stelios claims? How does the design of its procedures currently support this form of competition? How not?
EasyCar sees itself as a potential competitor to taxis and buses since it allows customers to lease a car for as little as 1 hour. From easyCar's position, this makes sense within their effort to accomplish maximum utilization of their fleet. If indeed they can rent out an automobile for even an extra one or two hours when the automobile would otherwise sit down in a garage area unused, then it adds to their important thing. Further, it's possible that such very short term rentals seem most likely to come through the work week, a typically slower period for easyCar given its key appeal is to leisure travelers who demand vehicles more on weekends than on weekdays. In this way, the very short-term rentals may help balance demand over a weekly basis.
EasyCar's change to allow rentals for less than one hour offers a good possibility to discuss the issue of the overall flexibility of EasyCar's processes. The easyCar process is flexible for the reason that it allows customers to choose exact pick-up and drop-off times and pay for only that time. Traditional rentals car companies fee by 24-hour durations and for a minimum of one day. Further, easyCar charges customers for each and every specific service that they use (e. g. , cleaning the car, extra kilometers), allowing customers to pay only for the assistance that they might need. This versatility really revolves around prices. In two towns, easyCar offers flexibility in conditions of location. Fully half easyCar's local rental sites are in either London or Paris.
The question is whether these forms of flexibility are sufficient to make rentals of a couple of hours attractive to customers. There are several significant limits from the customer's point of view that will probably limit easyCar's capacity to draw in these customers. First will be the planning fees or activities that the customer will have to pay and/or take part in to rent the car. There's a euro4 standard planning fee and a euro5 demand if the client uses a standard credit-based card to pay for the rental. Then your customer may need to wait once coming to the easyCar location to gather their car when there is a queue of other customers, which as the case indicates can occur, particularly during peak times, because of the least staffing levels retained at each location. Once the customer accumulates the car, he or she will have to put gas in the automobile before it is ready to go. When the client returns the car, he or she needs to wash the car or pay the euro16 cleaning charge, and must again possibly wait to return the automobile. This all sums to a significant investment with time or money to hire for two hours. The next limitation is the fact that easyCar's prices typically increase as enough time of the rentals period pulls near, specifically during peak intervals. While a few customers may know well in advance that they need a vehicle for only a couple of time on a given day, it could seem that market segment is likely to buy more at the last minute. This makes the purchase price somewhat less competitive. Clearly easyCar can factor this into their prices model, so that if a person does want a car for a short term period on brief notice and the automobile is available and may likely go unrented, then the system can price the customer a reasonable price. However, this increases a third restriction, which is that frequently easyCar will not have a vehicle on such short notice, as they presently achieve 90% usage of their fleet. If a person frequently detects no vehicles available, at some point he or she will stop bothering to check on and use the alternatives. The idea to make is the fact almost all of easyCar's techniques are tailored a lot more to the client who knows his / her travel plans well in advance and has the extra time to visit a second location and perform some of the traditional service themselves. This does not seem compatible with the renter who might want to use the easyCar for a couple of hours on brief notice instead of taking one or several taxi rides. For easyCar to successfully compete for such customers may require changes to its service process. Such changes might include, for example, a rest of cleaning plans (e. g. , the exterior is free from dirt, grime, etc. rather than proof that the automobile has been cleaned) and some type of programmed fall off system to reduce enough time factor for customers.
Having many locations in the same city also evidently makes easyCar a far more viable competitor to taxis, buses and car ownership. It has significant implications to easyCar's growth strategy. If it truly wants to compete against taxis, buses and car possession, it will concentrate its enlargement on beginning multiple locations in the major European cities. If it recognizes itself more as contending for vacationer customer, it will start more locations in visitor destination locations, either near international airports or teach and bus channels.
5. What exactly are the operational implications of the changes made by EasyCar. com within the last year?
A total of five recent changes are discovered in the written text that easyCar has made in the this past year. Discussing some or many of these is designed to reinforce some of the proceeding lessons as well as further showcase some of the trade-offs that the company must deal with in its work to compete predicated on cost. The discourse can even be used to point out that all companies, whatever their competitive priorities are, must still seek continuous improvement in their methods. Local rental by the Hour - This would have been mentioned in detail in the preceding question. Advantages of vehicles apart from the Mercedes A-Class - Possibly the most interesting change that easyCar made, apart from allowing leases of only an hour, was to go from its one car model and give a amount of different, although generally similar, vehicles at its different locations. The case implies that the change was designed to keep pressure on suppliers (i. e. , the auto manufacturers) to lower costs and to in turn have the ability to lower the price tag on accommodations to customers. What is perhaps astonishing in the change is the fact easyCar gone from having one vehicle type to having five vehicle types. Part of the operational benefits associated with an individual fleet is site specific. Any car can go to any customer and significant economies of level would exist in the maintenance of the fleet. However, having different vehicles at different locations reduces easyCar's versatility to shift vehicles between locations easily if demand is better at one location than at another. This is particularly a concern in moving vehicles between Mercedes and non-Mercedes locations. Customers who've paid a few euros extra a day to rent from a location that offered the Mercedes vehicles may likely be disappointed if they showed up to pick up there vehicle and received a Renualt Clio or Ford Focus. So operationally, what easyCar did with this change is to lower its cost some, but at the expense of some functional flexibility. The permanent question related to the is whether customers will establish personal preferences for specific vehicles and exactly how easyCar will deal with this on the market side. This situation can be used to bring in extending procedures strategy issues to the supply function. Plainly the move by easyCar pushes their vehicle suppliers to provide competitive prices, although it moves easyCar away from a supplier relationship models intended specifically to improve quality and flexibility along the supply string. Clean Car Insurance plan - This changes is clearly very constant with easyCar's low cost strategy. In essence it represents a transfer of a task traditionally done by the business to the customer. Operationally, they have several implications. It reduces the necessity for personnel at the rentals site, helping easyCar reduce one of its costs. More significantly, perhaps, it also rates of speed the turnaround of a car. That's, this policy, combined the empty gasoline policy, means that a lot of vehicles are returned in a problem that allows them to be immediately rented to the next customer. This helps easyCar maintain an extremely high fleet utilization. But what is also interesting operationally is that it creates the employees' activity somewhat less predictable. Whereas with the old insurance plan employees knew they would have to clean each vehicle, and they knew just how many vehicles were returning each hour, with the new insurance policy there is an additional component of uncertainty in the process because an intermittent car should be cleaned. This may mean that one or more customers may have to hang on at the easyCar site as the employee cleans such a car. This is specifically an issue at sites that are staffed by a single employee. It is worth talking about that the change in insurance policy on the functional side has a real impact on the market area as well. The plan lowers the purchase price to customers prepared to take the time to wash the automobile by euro7 (i. e. , through reduced amount of the vehicle prep fee from euro11 to euro4) while increasing the price tag on the vehicle to customers not eager to wash the automobile by euro9 (i. e. , such customers now pay a euro4 planning payment a euro16 cleaning payment instead of the previous euro11 preparation price). EasyCar is likely to pick up some new, price hypersensitive customers by the euro7 reduction in price. However, for customers who don't want the hassle of cleaning the vehicle, the euro9 price increase may push some of them toward traditional rental car companies.
Empty-to-Empty Policy - This change, like the prior one, is evidently consistent with easyCar's low cost strategy. Operationally, the empty-to-empty coverage would seem to be to significantly reduce the chance that an easyCar employee would need to package with the gas level. Recently, customers needed to worry about taking the time to fill the container. Customers running past due might skip this task to save time, leaving the duty for an easyCar employee. While using new plan, the gas can be at any level so long as the low fuel indication light is not on. Since most individuals are unlikely to permit the gas level in their vehicles to drop this low in any case, the chance an easyCar employee would need to deal with placing gas in the automobile is small. Combined with the past change, this insurance policy basically means the vast majority of customers bring their car back a condition which allows it to be immediately re-rented.
Requiring Customers to Purchase Insurance - This insurance policy change probably has better implications on the marketing side than on the functions part. Operationally, however, it greatly reduces the likelihood of issue between customer and easyCar staff whenever a customer results a destroyed car. Recently customers who didn't purchase the optional insurance experienced some liability, and the employee on duty would have to form this out with the customer. This is often a timely process, and present issues particularly for a spot staffed by only one person. Such occurrences may likely cause delays for some other clients attempting to pick up or return cars at the same time.
6. How significant will be the legal issues 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. Talking about the OFT ruling against easyCar is designed primarily to bolster the cost benefits gained from easyCar's demand management system and its own high utilization rates it achieves. Based on the estimate by Stelios, allowing customers 7 days to improve or cancel reservations without charges would cause usage to fall season from 90% to 65% and prices to triple. While these estimations are in all likelihood an extremely pessimistic assessment of the impact, the impact none the less would be significant given the central role produce management takes on in easyCar's strategy. Further, it is worth using Stelios' estimates to provide students an improved feel for the importance of the high utilization rate that easyCar achieves. At a 90% usage rate, easyCar would have (0. 9)(24, 000) = 21, 600 vehicles rented out at any given time by the end of 2004 if its progress goals are came to the realization. To have the same quantity of vehicles on hire at the end of 2004 with a 65% utilization rate would need a total fleet of 33, 200 (21, 600/0. 65) or a 38% greater fleet than currently organized. Further, current easyCar facilities rent only 15-20 places in a auto parking garage to operate a fleet of 150 automobiles. To service the same volume of customers out of a location at a 65% usage rate would require a fleet of 208 (0. 9*150/0. 65) vehicles and a complete the least 72 (208*(l-0. 65)) places to park un-rented vehicles. Students could be asked what would eventually easyCar's wished for ¿½10 million income if it had to purchase yet another 9, 000 vehicles and quadruple how big is most of its facilities. Going through this analysis and requesting students to think about and calculate the effect on profits should drive home the cost savings achieved from the high utilization rate. The other legal challenge easyCar faces handles its publishing 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 value of including this in the case, 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 fundamentally a "zero faults" process must can be found for implementation of this policy to reduce the chance of any legal state against the firm.
7. What's your evaluation of the likelihood that easyCar will be able to realize its goals for 2004?
This question is very designed to bring closure to the discussions. The founded goals, a quadrupling of sales from ¿½27 million to ¿½ 1 00 million via the starting of 1 1 30 new locations in the next two years while knowing a ¿½ 1 0 million income are certainly ambitious. It is worth noting that easyCar's functional model certainly makes starting new locations easier than for traditional local rental car companies, given the minimum amount facilities required and the creation on the part of easyCar of vans with all the current equipment had a need to run a location. The bottlenecks for growth more likely slumber with employing and training every one of the employees to staff these locations, as well as providing sufficient marketing support to kick off 130 new locations on a minimum marketing budget. The higher challenge operationally is to continue steadily to find ways to drive costs down while retaining customer satisfaction so that it can realize gains at the same time.
