Consulting in e-business

Segmentation, marketing and channel mix

In this area, the Internet excels in delivering new value to innovative and rulebreaking organizations. The low cost of delivery, scalability and potential to segment markets in a fine-grained way offer great opportunities. The example in box 16.3 illustrates the point.

Box 16.3 EasyRentaCar.com breaks the industry rules

EasyRentaCar.com was started by Stelios Haji-Iaonnou in March 2000. Using Internet technology, it fundamentally challenges the traditional business model of car rental. Rather than fixed list pricing, EasyRentaCar uses the airline model of dynamic load pricing, e.g. if you book in advance the price is low, starting at £9 per day (Feb 2001); for a next-day booking on a popular weekend the price goes up to £27. The price changes as more cars are booked. This is to be compared with fixed prices of around £30–40 from the traditional rental companies.

All bookings take place via the Internet and the paperwork is kept to a minimum. EasyRentaCar is established in regional airports in the United Kingdom and major European cities. Cars must be returned to the same rental point. Collection is further away than the normal rental car pick-up point to reduce costs and is therefore less convenient.

There is no choice of car, as EasyRentaCar offers only Mercedes A-class. This is a trade-off for the customer, but substantially reduces the maintenance and running cost for EasyRentaCar. The fact that Stelios has committed to buy 9000 A-class cars (approx. 4% of the total production) has given him good bargaining power in the price negotiation.

To maximize utilization, the car has to be returned before the agreed time and any extension of the return is heavily penalized (£50). The insurance cost is dependent on the driver’s past driving record, e.g. a middle-aged driver with no points on the driving licence has a lower cost than a 20 year old with speeding tickets.

The business model uses Internet technology extensively and it forces decisions on clear trade-offs by the customer in return for very low prices.

Source: www.EasyRentaCar.com (11 March 2001).

Besides challenging the traditional rental car industry, the EasyRentaCar case demonstrates the possibility of segmenting markets in new ways:

●By offering a different level of service such as depots away from the airport, in regional rather than main airports, offering one type of car only, charging preparation fees separately and insurance based on actual driving records etc., EasyRentaCar is reducing running costs substantially.

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●By using Internet bookings, administration costs are kept low.

●Because the company uses dynamic pricing to maximize utilization of vehicles, early bookers can get very low prices.

Points 2 and 3 are only practical and cost-effective through the use of the Internet. Taking all three points into account, EasyRentaCar has created a new segment of car rental customers: the cost-sensitive, time-rich and flexible customer segment, which would be unlikely to hire a car from the traditional car rental companies.

Purchasing organization

Purchasing systems are important, but traditionally paper-based, systems in organizations. Internet technology is about to transform drastically this part of the business process. Non-production resources will be purchased online via new intermediaries or through marketplaces. Decision-making for purchases will be devolved within the organization rather than centralized in the procurement department.

Online exchanges will increasingly be used to make purchases of strategic supplies through auction and bidding processes. Price transparency and higher price volatility will require new skills and internal processes to deliver effective purchasing processes.

Consulting opportunities in this area of business will continue to be plentiful in the coming years.

HRM processes online

This is another important part of business but often with a low profile in organizations. There are two important trends for the consulting professional to consider:

●A traditional paper-based process offers opportunities for automation and distribution within the organization through the intranet or Internet.

●The increasing emphasis on a knowledge-based organization makes recruiting, developing and retaining talented staff a high priority for the human resource department.

The first point is a classic automation opportunity. The second implies combined use of Internet technologies to attract applicants and to deliver training cost-effectively, and systems to provide a flexible and attractive working environment, such as occasional home working, easy and efficient communication when travelling, etc.

With the increased speed of change the HR function must be able to contribute at the strategic level, to understand the new competencies the organization requires, and to fulfil those requirements.

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Box 16.4 The ThomasCook.com story

When Thomas Cook, a travel company based in the United Kingdom, launched its online travel booking site, ThomasCook.com, in 1999, it sent two strong messages to the travel market and its competitors. First, it set up a dot.com as a separate business from its existing retail and call-centre-based direct sales models, and second, it chose to use its highly valued offline brand for the online business. This contrasted with most of its competitors, which were either new start-ups or financially backed by existing travel businesses, and had fancy new dot.com names.

The decision to use the Thomas Cook brand has clearly been beneficial, as ThomasCook.com has among the strongest brand recognition of online travel sites and very high visitor ratings. ThomasCook.com offers over 2 million package holidays, a wealth of destination information, weather reports, etc. plus a very strong flight-only booking engine. One of the early lessons learned by the dot.com team was how to design a site that would offer a returning visitor a very different experience depending on the purpose of the visit. They found that they had to design the site to offer:

●Inspiration – helping you to dream up where you want to go.

●Information – all you need to make up your mind.

●Transaction – the quickest way of getting what you want.

The site design has three different pathways with clear links to other parts of the site. This is a complex process and the key skill is to be able to “walk in the customers’ shoes”.

The decision to set up the dot.com as a separate business was crucial for its development. Thomas Cook is a relatively large company and had been doing the same type of business for 150 years. To make the dot.com business successful, they had to move fast, break a few internal rules, and create a new culture different from that of Thomas Cook. Many discussions were held and battles fought in the early days of development, but shared learning also took place.

The next step in the development is to integrate the online business with the high-street retail shops and call-centre business. Thomas Cook, as other B2C businesses, has clearly concluded that B2C is a multichannel proposition and that customers want to interact with the travel agency in different ways.

Source: Discussions with Bill James: bill@billjames.com

Organization development

The impact in this area has yet to become visible in most organizations. New forms of organizational design and new relationships between employees, contractors, partners and customers are emerging; new leadership styles and roles are being debated and discussed. An increasing use of consulting support and advice is likely as senior executives grapple with the issues.

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