Easy Group Business model analysis
From the basis of a low cost airline company, the Easygroup became a low cost experience provider on a permanently growing number of diverse activities.
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 (Easygroup CEO) said “Easy is a functional brand […]. In any industry where consumers are being ripped off, if I can find a way to give them real value, I’m going to do it”
On Easygroup side, the model generates a huge turnover as it seduces a lot of consumers (due to the specificity of the model and the heavy advertising of the orange 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 slicks variations of turnover (seasonality, rush hours…) by proposing attractive prices on slots where competitors use to be underperforming. As Stelios H. focuses on highly leveraged industries (high fix costs), the additional turnover generated on those unusual slots is almost a net benefit that compensates the lower margins on other sales. For example for pizzas, costs generated by the cooker salary and facilities depreciation (such as the oven) during slack hours have no compensation in an usual business. The Yield Management helps to create demand on slack hours to at least compensate a little fix costs and raise prices for consumers when the demand is high and less dependent on elasticity rules. On Saturday evenings, the pizza can be more expensive as a lot of people will anyway order one even if it's 3 pounds more. So the global margins of the business can be generated on those rush hours. (See easy pizza website, and easypizza model description)
From the basis of a low cost airline company, the Easygroup became a low cost experience provider on a permanently growing number of diverse activities.
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 (Easygroup CEO) said “Easy is a functional brand […]. In any industry where consumers are being ripped off, if I can find a way to give them real value, I’m going to do it”
On Easygroup side, the model generates a huge turnover as it seduces a lot of consumers (due to the specificity of the model and the heavy advertising of the orange 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 slicks variations of turnover (seasonality, rush hours…) by proposing attractive prices on slots where competitors use to be underperforming. As Stelios H. focuses on highly leveraged industries (high fix costs), the additional turnover generated on those unusual slots is almost a net benefit that compensates the lower margins on other sales. For example for pizzas, costs generated by the cooker salary and facilities depreciation (such as the oven) during slack hours have no compensation in an usual business. The Yield Management helps to create demand on slack hours to at least compensate a little fix costs and raise prices for consumers when the demand is high and less dependent on elasticity rules. On Saturday evenings, the pizza can be more expensive as a lot of people will anyway order one even if it's 3 pounds more. So the global margins of the business can be generated on those rush hours. (See easy pizza website, and easypizza model description)
This is true for pizzas as for flights. On flights, selling secured bookings long time before the flight ensures to fill in flights that would generate high losses if they are not full.
Easy group partners are also gaining from the Easymodel. Burger King, Mac Donald's and Subway can now propose an additional value added service of web access for a low price compliant with their own low price policy.
Revenue sources come from many industries: flights, Internet cafes, pizzas delivery, hotels, car rental, wristwatch, cruises... But it mainly comes from the use of :
1/ Yield Management technique that helps doing a lot of money from low costs products.
2/ Simple proposal of very basic services: and the first illustration to this is the fact that distribution model has been reduced to Internet, phone is available at the minimum capacity but requires extra charges from the consumer.
There are not direct competitors on the all range of low cost services proposed by the Easy group but Virgin is often competing with Easyjet on some markets. (see the link to their website) and it has the similar strategy of a large range of business with a basic proposition of low prices (from phones connexions to travels...)
Many industries are highly leveraged, and on my mind, the Yield management model that have been built for the most highly leveraged ones (airlines and hotels) can be a magic key for other industries with similar constraints. The idea is very clever, but also risky: industries with high fix costs are by definition the most sensitive to market fluctuations: there are the first to fall in case of recession and the last to recover when the market grows. Higher the fix costs are, higher the industry is likely to be impacted by market recession. So I think that the model really sustainable, but it has to be really fine tuned according to the industry by watching carefully at consumers reactions (such as Stelios H. exactly did with Internet cafe: the very basic service had to include an access to the service on the daily road of the consumer, so the Easy group repositioned Internet Café in already popular café and fast foods chains).
I think that for the moment, hotel industry is underperformed. This is the closest business model from Airlines and I really believe that a precise work on the basic services required for an hotel and a fine tuned Yield management could end on a highly growing and profitable business.
But other businesses are possible for the Easy Group such as Internet access providing and all other highly leveraged industries that target mass consumers.
Easy group partners are also gaining from the Easymodel. Burger King, Mac Donald's and Subway can now propose an additional value added service of web access for a low price compliant with their own low price policy.
Revenue sources come from many industries: flights, Internet cafes, pizzas delivery, hotels, car rental, wristwatch, cruises... But it mainly comes from the use of :
1/ Yield Management technique that helps doing a lot of money from low costs products.
2/ Simple proposal of very basic services: and the first illustration to this is the fact that distribution model has been reduced to Internet, phone is available at the minimum capacity but requires extra charges from the consumer.
There are not direct competitors on the all range of low cost services proposed by the Easy group but Virgin is often competing with Easyjet on some markets. (see the link to their website) and it has the similar strategy of a large range of business with a basic proposition of low prices (from phones connexions to travels...)
Many industries are highly leveraged, and on my mind, the Yield management model that have been built for the most highly leveraged ones (airlines and hotels) can be a magic key for other industries with similar constraints. The idea is very clever, but also risky: industries with high fix costs are by definition the most sensitive to market fluctuations: there are the first to fall in case of recession and the last to recover when the market grows. Higher the fix costs are, higher the industry is likely to be impacted by market recession. So I think that the model really sustainable, but it has to be really fine tuned according to the industry by watching carefully at consumers reactions (such as Stelios H. exactly did with Internet cafe: the very basic service had to include an access to the service on the daily road of the consumer, so the Easy group repositioned Internet Café in already popular café and fast foods chains).
I think that for the moment, hotel industry is underperformed. This is the closest business model from Airlines and I really believe that a precise work on the basic services required for an hotel and a fine tuned Yield management could end on a highly growing and profitable business.
But other businesses are possible for the Easy Group such as Internet access providing and all other highly leveraged industries that target mass consumers.
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