Large, seemingly fossilized industries with complacent incumbents are the kinds of industries that appeal to serial entrepreneur and CEO of easyGroup Stelios Haji-Ioannou. Having taken on the airline industry, followed by car rental and Internet cafes, easyGroup is hungry to expand. In fact, the company has six full-time employees the New Ventures Team devoted solely to identifying and developing new opportunities for the easy brand. One of the most promising in the pipeline is easyCinema, a multiplex that will take on established operators in the UK like Odeon, Warner Village and UGC Cinema.
Is this an industry that can embrace the easy concept of no-frills, low-cost? Yves Doz, the Timken Chaired Professor of Global Technology and Innovation and Anita Balchandani, Senior Consultant at Roland Berger Strategy Consultants, look into it in this Case Study.
According to the Case, three factors made easyCinema an attractive expansion area. First, the yield management capabilities that served the group so well running an airline 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 like Friday and Saturday nights and less at off-hours. While existing cinemas in the UK operated at 20% capacity, they never pursued a strategy of offering cheap seats for advanced booking or at off-peak times. Why are cinemas charging so much money when they are so empty, wondered Haji-Ioannou. Its like what airlines once were. By maximizing both capacity and the extent to which it was utilized, easyGroup hoped to grow cinema admissions well above current rates.
Second, easyGroup saw a way to use technology to automate the process of serving customers, thereby reducing labor costs. All bookings would be made through the Internet or kiosks in the foyer of the cinema.
Third, the no-frills concept could also be applied. The cinema would now show any advertising or support promotional campaigns associated with films (activities that require significant time and organization). They would allow film-goers to bring in their own food and drink, eliminating the traditional concession stand. What were doing is taking away a consumer rip-off, asserted Haji-Ioannou.
easyCinema is just one of many new ideas in the easyGroup pipeline. The New Ventures Team is also looking at the possibility of budget hotels and cruises, gyms, bus transportation and home catering. The criteria for a new business can be summed up in one word: simple. Can we engineer a complex business into a simple one? If the answer is Yes, the idea is well on its way. 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.
Having passed these prerequisites, easyCinema is well on its way to becoming the next brand extension for easyGroup, which must now answer a number a key questions:
<LI>How should they roll out the concept?
<LI>What should the payment structure look like? (both for ticket buyers and for easyCinemas rental of films)
<LI>Should they build new cinemas or acquire an existing chain?</LI></UL>
The Case Study highlights the challenges faced by a company in developing a coherent growth strategy and looks at the extent to which an organizations capabilities can be redeployed into new business ventures.