The mission of elc was to provide consumers with access to the Internet at the lowest cost. Despite the excellent support and recognition from the public, elc was experiencing adversity of keeping their business profitable after the Internet Investment bubble burst. The original concept of owning many of the large stand-alone cafes with 250-500 PC terminals at each cafe was not working well. elc undertook a dramatic restructuring of the company by downsizing the cafes.
Many of the large, original stand-alone elc stores will be run by franchisees. These franchised stores will become smaller stores which have 20 to 30 PCs terminals at each cafe and with no staff required except for regular maintenance. Less involvement with store operations allows elc to concentrate on activities of their core competence and outsource all the non-core activities. Their core competence was to continue building their ‘easy’ brand and applying the yield management model to the Internet cafe business. Their business goal was to open 4 new franchises per week over the next 3 years.
In order to achieve the goal of growing their franchised Internet cafes business, an efficient, flexible and cost-effective logistics system is what they need for the provision of equipment to the franchisee. Since logistics is one of the non-core activities that is perceived as a bottleneck for scalability, the present logistics system of elc will be reviewed and findings of whether to outsource the logistics system will be presented to the management team. Background of easyGroup Stelios Haji-loannou, the founder of easyGroup, is the renowned Greek entrepreneur who utilized his family money to launch a serial of ventures.
His first venture, Stelmar Tankers was found in 1992. The company very soon went into the public sector and was listed on New York Stock Exchange. In 1995, he found easyJet. easyJet was a no-frills, low cost airline company and later grew to become the largest no-frill airline in Europe and was listed on the London stock exchange in 2000. Building on the success of easyJet and to extend the ‘easy’ brand further, he formed the holding company easyGroup in 1998. easyInternetcafe was his first venture under the umbrella of the easyGroup.
Other companies in the group included easyJet, easyCar, easyCinema, easy. com, easyMoney and easyValue, easyBus, easyPizza, easyCruise, and easyDorm. Low price and no-frill is the key elements of the ‘easy’ brand. Yield Management Model Stelios is an enthusiast of Yield Management Model and he applies the model to his business. According to Wikipedia, yield management is the process of understanding, anticipating and influencing consumer behavior in order to maximize revenue or profits from a fixed, perishable resource (such as airline seats or hotel room reservations).
Stelios believes that lowering the price will increase the demands of the customers significantly. By locating all the large internet cafes in high traffic areas, elc aimed to capture the maximum revenue by providing internet services with a variety of price points at different points in time (peak hours or off peak hours). The price for Internet access varies based on demand, raising the price in dollar per hour in mid-afternoon, when stores are nearly full. That gives bargain hunters an incentive to visit in the non-peak hours, when price is dropping.
The model is well suited for business with high fixed cost and perishable supply. The large numbers of computer equipments inside the Internet cafes are capital intensive for elc. The empty seats inside the cafe in a certain time period cannot generate any revenue and thus can be said to have perished. elc uses one of their capital proprietary products, CVM, to monitor how seats are occupied and react accordingly, for example by adjusting the price to offer discounts when it appears that large amount of seats are remaining empty.
However, this model is not working for elc as it does for airline and hotel industries. The customers’ willingness to pay for using the internet access at theses internet cafe is impulsive and their demands are not easy to predict. The yield management model works well for airlines and hotels mainly because their customers usually plan ahead of time on their journey. Therefore, airlines and hotels are more likely to predict their customer demands and adjust the prices accordingly. They still have time to attract customers by offering last minute deals.
But for internet cafes, customers do not make reservation for their usage of Internet in advance. Customer demands are thus very hard to predict. Even though the CVM can adjust the pricing based on the vacancy of the cafe, it is difficult to attract enough customers in a short period of time to fill up the empty usage of the internet access. Since Internet was still a new technology at that time, Internet access was not yet considered to be an essential product. Customers were likely to learn when to visit the cafes so that they can pay less compared to other time period.