EasyGroup Business Model Analysis

The easyGroup is the owner of the easy brand and licenses it to all of the easy branded businesses, including easyJet plc, the airline Stelios started in 1995 and in which he remains the largest single shareholder. Easy Group brands include easy Car, easy Cinema, easy Hotel, easy Internet café, easy Pizza, and easy Value. Airline easyJet is now publicly traded, but easyGroup holds a stake in the company.

The easy formula requires consumer-oriented businesses that display significant price elasticity, require a high fixed-cost base and low marginal-cost to service additional customers. Industries with strong but complacent incumbents are particularly well-suited for the easyGroup approach. Easy Group is contemplating its entry into the cinema exhibition business in the UK through the launch of a no-frills cinema.

The company believes that it can redeploy the capabilities, such as yield management, that led to the success of easyJet, its low cost airline business, into this new venture. The case examines the market for cinema in the UK, as well as the evolution of Easy Group’s portfolio of companies, with a view to assessing the attractiveness of the company’s planned launch of easy Cinema.

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How would you characterise the easyGroup business model?

A business model describes the rationale of how an organization creates, delivers, and captures value and it captures economic and social factors. The process of business model design is part of business strategy. In theory and practice the term business model is used for a broad range of informal and formal descriptions to represent core aspects of a business, including purpose, offerings, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. (A. Osterwalder, Yves Pigneur, Alan Smith, 2010)

The easy business model has a key feature: clear value proposition – the “easy” concept is to bring cheap and efficient services to most customers. As a solution a Web-based booking and administration system was built on Microsoft Windows Server 2003 that can be quickly adapted for numerous online ventures. This benefited the company with fast time to market of new business ventures, low-cost of ownership, easily replicated for many new ventures and highly secure and reliable.

Easy Group has become an important incubator for new businesses which, while sharing the ‘easy’ brand, will each be stand-alone companies. Rather than building a conglomerate, Stelios is turning easyGroup into a network of organisations linked by brand and image rather than strategic intent or purpose. The creation of easyGroup in 1998 was a signal that Stelio’s intended to try out this concept. The name ‘easy’ itself explains much of easyGroup’s approach to new ventures, which one executive describes as ‘taking a complicated business and making it simple’.

Technology solutions play a major role in this, but central to the ‘easy’ philosophy is yield management. The group looks for businesses where there is high price elasticity, high fixed cost bases and low marginal costs and, especially, where incumbent firms have grown complacent and are not prepared for the arrival of dynamic new entrants. By launching and growing new businesses quickly, easyGroup aims to win market share from these incumbents through a combination of low cost and easy-to-access services.

The Easy model provides to the customer functional services at the lowest possible price, on the basis of the “real value” of the basics of the provided service, avoiding any superfluous frills. The Easy group breaks up a standard service, only keeps items that are absolutely required by the consumer and provide it to him at the lowest price taking into account the time they buy it. The time is one of the most present valuable item in nowadays services.

As Stelios Hajiloannou, Easy group CEO, said “Easy” is a functional brand. In any industry where consumers are being ripped off, if Stelios can find a way to give them real value, he states he will do it. On Easy group side, the model creates a huge turnover as it seduces a lot of consumers, due to the specificity of the model and the advertising of the brand. Direct margin are low as the model provides low prices but this is compensated by the optimization of the running fixed costs thank to the Yield management lever.

The model is comprised of variations of turnover by proposing attractive prices on openings where competitors use to be underperforming. As Stelios H. focuses on highly leveraged industries, the additional turnover generated on those unusual slots is almost a net benefit that compensates the lower margins on other sales. Our business model, based on low-cost and convenience, has shown its flexibility.

EasyGroup’s brand means low-cost products, no frills services, cost- and time-sensitive structures that offer value in exchange for some inconvenience. That’s the irony. The easyGroup brand is not necessarily an easy one to deal with. In short, the brand simply offers to make everyday things less expensive by varying the business models-not glamorous or innovative, but honest.

Easy Group model obviously reduces the operational complexity and maintenance cost, which allows them to undercut their competition. All of the easy group companies offer the same class of services using standardized components, whether it is one type of plane or one type of car model. Due to the advanced technology used that helped the easyGroup to lead to innovation, it helped advance the business models and the practices which had a real impact on the people’s life.

In my opinion without the web solution, the easy model wouldn’t be as successful as it is, and would completely lose its essential basis of functioning. Internet makes this business model a dynamic one, with a young and accessible image. The easy model is a based on a self-serving system, which is almost entirely provided by the web solution. The web system allows fix costs to be avoided by managing the scheduling, pricing, booking, payment and various other aspects of the business and outsourcing to the customer.

It is the only way the company is able to apply its concept “for more people”. Internet makes the offer available to almost everyone everywhere, in any moment. True to its low-cost, no-frills business model, easyCinema does not sell popcorn and drinks to movie-goers. For those who wish to treat themselves in such pleasures, they have to bring their own food along. Trailers and ads are cut back to lower the costs of operating the cinema.

How would you characterise easyGroup’s growth strategies in terms of the Ansoff matrix?

According to the Ansoff’s Matrix there are four growth strategies that a company could expand. These growth strategies are Market penetration, Product development, market development and Diversification. Looking at easyGroup case it shows that the company was following a diversification strategy but that it uses the other growth strategies as well and this will be discussed further below.

ANSOFF MATRIX

Existing Products

New Products

Existing Markets

Market penetration

Product Development

New Markets

Market Development

Diversification

(Johnson et al page 258)

The Ansoff Matrix is used to focus on the easyGroup present status, products and markets (customers).

Market Penetration: Easy group continues to achieve growth with its existing products i.e providing services at rock bottom prices. By following this business strategy the market share continues to grow. Market Development: Easy group is seeking growth by targeting its existing products to new market segments. (Mintzberg H, Quinn J.B, Ghoshal S, 1998)

For example Easyjet is targeting business travellers with its low cost airfares and frequent flights to popular destinations. The best way to achieve this is by gaining competitors’ customers. Other ways include attracting non-users of your product or convincing current clients to use more of your product/service, with advertising or other promotions. Market penetration is the least risky way for a company to grow.

Product Development: Easy group, particularly Easyjet has grown by introducing new flight routes thereby further developing its product range. Diversification: Easy group is bringing forward new business ideas for its existing market segment such as easy Internetcafe, and the latest venture easy money. The Ansoff Product-Market Growth Matrix is a marketing tool created by Igor Ansoff and first published in his article “Strategies for Diversification” in the Harvard Business Review (1957).

The matrix allows marketers to consider ways to grow the business via existing and/or new products, in existing and/or new markets – there are four possible product/market combinations. This matrix helps companies decide what course of action should be taken given current performance. The matrix illustrates, in particular, that the element of risk increases the further the strategy moves away from known quantities – the existing product and the existing market.

The Easy Group started off with the core activity of providing low-cost flights to Europe. This is therefore its core business, and with over 18 million passengers a year flying easyJet, the Easy Group needed to establish ways for the business to grow and expand. The Easy Group had continued to penetrate the existing air transport market at low-costs flights; it also developed the market potential to include a greater accessibility of easyJet flights by increasing the number of airports handling the passengers.

While the flights are the core business in Easy Group, a complementary diversification programme was entered in order for a ‘travel solution’ package is made available to meet the whole range of customers needs and expectations of both frequent and holiday travellers. This is aimed at both the corporate and the customer sectors in the business. By taking the key strengths and opportunities available to the Easy Group has established a further growth strategy which includes market penetration, market development and diversification into new compatible areas of business.

Market penetration their strategy of offering lower costs to the customers enable them to get access to most of the market share. Market development included the growth strategy to increase the number of handing airports by branching out into new markets and a wider customer base. Lastly with diversification Easy Groups strategy of hiring cars, the internet cafe and hotels is a way for the Easy Group to find ways and different markets that can be developed to provide the best prices for the customers. (Karen Beamish, Ruth Ashford, 2008)

Therefore product development and market extension typically involve a greater risk than market penetration (existing product and existing market); and diversification (new product and new market). Ansoff stressed that the diversification strategy stood apart from the other three. While the latter are usually followed with the same technical, financial, and merchandising resources which are used for the original product line, diversification usually requires new skills, new techniques, and new facilities. As a result it almost invariably leads to physical and organizational changes in the structure of the business which represent a distinct break with past business experience. (Karen Beamish et al 2008)

Most of the Easy Groups growth strategies involve three of the Ansoff matrix namely market penetration, diversification and market development. Ansoff pointed out that a diversification strategy stands apart from the other three strategies. The first three strategies are usually pursued with the same technical, financial, and merchandising resources used for the original product line, therefore diversification usually requires a company to acquire new skills, new techniques and new facilities, just like Easy Group did. The notion of diversification depends on the subjective interpretation of “new” market and “new” product, which should reflect the perceptions of customers rather than managers.

To what extent is easyGroup a conglomerate?

A conglomerate is a combination of two or more corporations engaged in entirely different businesses together into one corporate structure, usually involving a parent company and several (or many) subsidiaries. (Dearbail Jordan and Robin Pagnamenta, September 25, 2007) Often, a conglomerate is a multi-industry company. Conglomerates are often large and multinational. (Dearbail Jordan et al, 2007) In the case of the easyGroup they are conglomerate and the extent of it will be discussed below.

Fortune has an article on Stelios Haji-Ioannou and his various “Easy” companies that form the EasyGroup conglomerate. Stelio has started a number of companies that range from rental cars, airlines, to internet cafes, based on the idea of eliminating middlemen using technology. Apparently, his companies are all doing very well, including EasyJet which is a public company that generated $765M in revenue last year. (Wendy Walker, 2003)

I noticed that EasyGroup has a similar business model to companies like Fresh Direct and Dell. All of these companies are using technology to eliminate the middleman to deliver lower cost and higher value to customers. These companies are not internet companies as such, but they are examples of how internet technology and general information technology can become a competitive advantage, if applied correctly to support a rational business model.

All of these companies offer the same class of service, but with self-motivated pricing, using standardized components, whether it’s one type of plane or one type of car model. This model obviously reduces operational complexity and maintenance costs, which allows them to undercut their competition. It also reminded me of Dell in some ways because Dell is obsessed with maximizing their margins by minimizing their cost of inventory with just-in-time assembly of PC’s. These are all sensible business principles and practices that more companies should really adopt to stay competitive.

The interesting thought for me is that companies such as EasyGroup, FreshDirect, Dell, and even EBay could not exist and thrive to the same extent if there was no such thing as the Internet. However, the real focus shouldn’t be on the innovation in technology that enables such companies to exist and thrive. It really should be on how advances in technology lead to innovation in business models and practices that have real impact in people’s lives. The company stands tall when it comes to achieving higher standards of excellence. (Wendy Walker, 2003)

Over the years brands have been synonymous with quality & innovation in their respective domains. Easy Groups passion to excel has made us grow faster than most of our competitors. Easy Group strongly believes that success is a continuous phenomenon by benchmarking ourselves with the best Business practice followed globally; we look forward to a bright future, brought to life by growing possibilities. The easyGroup is rated as one of the fastest growing business conglomerates of India.

The easy group has been a front-runner in delivering innovative and customized solutions. By offering contemporary products, superior quality and assured availability. The group has gained an exceptional stronghold with an array of winning brands to its credit. Easy Solar Industries is constantly innovating to give you more value for the money. His high quality products are backed by excellent nationwide sales and service support.

Easy Group continues grow in terms of products benefits, market share and customer retention. Today Easy Group is Conglomerate consisting of diverse products such as Solar Thermal, Solar Photovoltaic & Power Products. Our products attained market reputation in very short span of time. Most of Easy Groups customers are mainly government and semi government organizations continuously supported us in span of last six years only because of our regular efforts in maintaining quality and adopting latest research and development.

Many of the companies follow the “easy” format of taking away the frills in something to make it cheaper overall, plus using the yield management system of supply and demand. In the last few years the company has started to franchise the businesses to expand, and cut down costs. Some EasyGroup subsidiaries have been more successful than others, the most successful division being EasyJet.

The extent of Easy group been conglomerate is large as they are operating with a number of different large businesses that fall under the main Easy Group corporation. There are up to fourteen businesses namely EasyJet, Easy Internet café,  EasyCar.com,  Easy Money,  Easy Cinema,  Easy Cinema DVD Rental,  Easy Bus,  Easy4Men, Easy Pizza, Easy Music,  Easy Cruise, Easy Mobile/Shimmer Bright,  Easy Hotel, Other businesses. (Wendy Walker, 2003)

Should easyGroup entre the cinema industry?

According to the Case, three factors made easyCinema an attractive expansion area. First, the yield management capabilities that were used for the airline business and did well running could be applied to easyCinema. For example, easyJet prices are linked to demand and advance purchase. Likewise, they would charge more for peak-time movie tickets.

Stelio’s always wondered why cinemas charged so much money when they are so empty. He then realised that by maximizing both capacity and the extent to which it was utilized, easyGroup could grow the cinema admissions well above current rates. Second, easyGroup can use the technology to automate the process of serving customers, thereby reducing labour costs. All bookings would be made through the Internet or kiosks in the foyer of the cinema. (Jackson Mahr, 2003)

Third, the no-frills concept will be applied and this could be an advantage. The cinema would now show any advertising or support promotional campaigns associated with films (activities that require significant time and organization). (Jackson Mahr, 2003)They would allow the audience to bring in their own food and drink, eliminating the traditional allowance stand. Therefore the customers will be interested in going to watch a movie knowing they do not have to spend more money on the food and drink than the actual movie they want to see.

EasyCinema is just one of many new ideas in the easyGroup pipeline. (Jackson Mahr, 2003)The criteria for a new business can be summed up in one word, simple. The easy formula requires consumer-oriented businesses that display significant price elasticity, require a high fixed-cost base and low marginal-cost to service additional customers. Also, industries with strong but complacent incumbents are particularly well-suited for the easyGroup approach.

Although the above mentioned aspects are positive I would recommend that it should not enter the UK cinema business, the reasons are discussed below. The main question is how well do cinemas fit in with the “easy” formula? I would think that Cinemas do not fit well with their formula. Firstly the success of the actual cinema will depend on success of the movie which is considered to be very low. Therefore by going through with the cinema idea it is considered to be high risk business and there is a lot of instability in the cinema industry.

Secondly this product is considered to be giving entertainment to the consumer. Therefore having a low frill may not be enough to ensure the cinema’s success. Moreover the Cinema industry is not that attractive according to the case. The business environment is extremely competitive. Other factors to consider are the bargaining power of buyers. Here the consumers have the choice of movie but the success of the operator depends on the success of the movie. Therefore the bargaining power of consumer is very high.

With the Bargaining power of suppliers distribution of the movie is controlled by the big movie houses of Hollywood. Therefore they do have certain influence over the UK industry. They may not accept the yield management model of the Easy group. With regards to the entry barriers, it requires high capital investment. Another problem that might affect the success of the cinema is substitutes. (Jackson Mahr, 2003)There are substitutes in form of video rentals, video sales and DVD rentals which is increasing everyday and could affect the success of easyCinema.

This case study gives a fair idea about the industry in which a company operates in and the various external forces that influence it. However, it any industry is not static in nature. Going forward, we foresee increasing competition in the industry and these competitors will large players and it may be possible that some kind of oligopoly come into play. If oligopoly had to be the result it would result in the industry moving towards consolidation. The barriers to entry will increase going forward; therefore according to my opinion the industry is unattractive.

As discussed above the entry barriers are high capital investment, high brand loyalty, high competition, risky nature of business. They can enter by acquiring an existing cinema operator. This will help in gaining markets share in timely manner. Moreover here the strategy can be concentrating on online DVD sales and broadcasting instead of Cinema.

CONCLUSION:

The easyGroup profits by either selling shares in the businesses or by licensing or franchising the brand to reputable partners. The easy brand currently operates in more than a dozen industries mainly in travel, leisure, serviced office accommodation and other consumer facing sectors. Currently, only EasyJet plc, out of the easy group of companies is listed in the Stock exchange.

EasyJet has shown substantial organic growth since the day it came into being in 1995. Although easy group’s businesses are based on the low price model, they still face competition from established players, who emphasis on quality. Throughout the years, the easy Group strategy kept a clear readability built around some corner-stones principles: a low-cost approach, an identifiable and recognizable simple communication strategy mainly focused on price and entertainment, constant expansion, development of new strategic business units in close to the customers market, with a core focus on travellers.

In terms of management, the easy Group also adopted a consistent and durable stance in minimizing its operating administrative fees and in applying for the newly created Strategic Business Units the management framework that brought success to the previously settled business. All in all, the strategic consistency is to be found in a clear managerial desire to expand as far as possible the no-frills concept to every profitable market.

Harvard Referencing:

A. Osterwalder, Yves Pigneur, Alan Smith, Business Model Generation,, self published, 2010

Alan Clarke, Wei Chen, International hospitality management: concepts and cases, 2003, page 232

Jackson Mahr, easyGroup June 13, 2005

Jardine, Cassandra (2006-11-29). “They’d laugh if I called myself Sir…”. The Telegraph (London). Retrieved 2007-09-07.

Karen Beamish, Ruth Ashford, Marketing Planning 2007-2008, page 44-45

Mike W. Peng, Global Strategy 2009, page 279

Mintzberg H, Quinn J.B, Ghoshal S, (1998) The strategy Process. Revised European edition.PrenticeHall

Yves Doz and Mikko Kosonen, Harvard Business Review, Vol. 85, Issue 6, pp 98-104, June 2007.

Wendy Walker, Easy Jet Press Pack, February 21, 2003