How FlixBus uses AI to make bus travel sexy

With my latest relocation to Munich, Germany, I have discovered a new way to explore all the exciting destinations across Europe for no more than a few euros in the form of FlixBus, a long distance bus service.Typically, there is nothing sexy about buses, but FlixBus has reinvented this traditional business model and this is certainly making ripples in the travel industry.

FlixBus is the leading long distance bus service company in Germany and has acquired 90% market share in just about 5 years. The market for long distance bus services was liberated in Germany in 2013, and as co-founder Jochen Engert commented in an interview with CleverIsm: “How often is it that a market is liberated? This was just an opportunity too good to miss.”

FlixBus’ Business Model

Germany’s largest bus company only owns one bus and employs no bus drivers. That might seem a little odd, but that is what makes FlixBus’ business model so interesting. FlixBus is structured similar to a franchise, where FlixBus takes care of Marketing, Branding, Sales and Route-Planning, but relies on 3rd party contractors for operations.

FlixBus sees itself as a technology platform that offers services to transportation companies. The typical contractor is family-owned businesses that knows a lot about driving and operating vehicles, but very little about acquiring customers, via web, mobile and other platforms. FlixBus has a revenue split with its contractors and one will argue that it is a mutually beneficial partnership, as both parties brings unique competencies to the table.

The technology platform

FlixBus is creating a competitive advantage with branding, but the true competitive advantage is their technological platform. With Artificial Intelligence (AI), FlixBus can plan future routes and through large-scale data collection FlixBus can accurately forecast demand. The ambition of FlixBus’ CIO, Daniel Krauss is to offer on-demand bus services, similar to the  Uber concept. This would allow FlixBus to instantly offer a new route to meet demand. However, with the current regulatory body, where every bus route must be approved, this innovation is yet to be realised.

Consolidating a fragmented market

One of the things that FlixBus has done really well is to consolidate a fragmented market and make the bus booking system convenient for the customer. With hundreds of smaller bus service companies it used to be both expensive and inconvenient to take the bus, but with FlixBus it has become just as easy as booking a flight.

Consolidating a market has different operational benefits. When you control 90% of the market you can optimize for efficiency and you are not forced to operate half empty buses. Contrary to the general theory that competition is beneficial for the customer, the customer is actually benefiting from FlixBus having something close to a monopoly. The theory is that Flixbus has an incentive in keeping prices low to keep its competitors out of the market. The breakeven point for a bus route is something like 70% to 80% passenger capacity. If a competitor starts operating a competitive bus route he is expected to have 40% to 50% passenger capacity making the route unfeasible. Eventually it will be a matter of who has the deepest pockets.  

Rapid market expansion

FlixBus is already targeting markets outside of Germany and in 2015 they moved into France. In the first half of 2017 FlixBus has transported 3.3 million passengers in France, an increase of 70% compared to 2016. It is currently 30% cheaper to ride FlixBus than to go carpooling. Today the network spans all across Europe from London to Rome, From Paris to Prague.  

The biggest threat

All over, the business model of FlixBus appears bulletproof to the naked eye. However, even FlixBus is not immune to accidents and when a bus crashed into a car on the Autobahn on Sunday 17th September 2017, it was FlixBus in the headline, despite the bus not being operated by FlixMobility GmbH and the responsible driver not employed by FlixBus. The lack of control of the fleet and the inability to enforce control of the drivers might be FlixBus´s biggest threat, just as we have seen with Uber hitting the headlines in the past for similar reasons.

Why is FlixBus so fascinating

Just like AirBnB and Uber, FlixBus is a great example of how data has become the most valuable asset in the modern internet driven economy. In record time, FlixBus has become the dominating mobility company in Europe without operating its own fleet. Because of FlixBus’ market position and its intelligent technology platform, the company has successfully created a competitive advantage that is hard for its competitors to copy. When you know where the customers want to travel, it is easy to effectively meet demand and design or adjust your network accordingly.

FlixBus is such an interesting case study because it exemplifies how no industry is immune to disruption. Nobody thought bus travel could be sexy but FlixBus has proved everyone wrong. If you are a leader of a traditional business it is just a matter of time, before someone will make your industry sexy and potentially take you out of business. The takeaway is to stay nimble and constantly keep adapting to the ever evolving market forces.

Why Sales Love Yes (And You Should, Too!)

Relationship Building Sales

All of us have been approached at least once on the street by a volunteer from an NGO or some other organization trying to grab our attention. Often, the volunteers are collecting money to do some good for the environment, animals or refugees.  All powerful messages that deserve our attention.

The other day I was shopping at my local grocery store and stopped by a volunteer from an NGO. Now, I cannot recall the name of the NGO, but I do remember the volunteer did a good job pitching the mission “to protect the rainforests in Africa” and why I should donate an amount of my choice every month to the NGO. I liked the mission, but I ended up not donating in that moment. This made me think, was this interaction a fail? How could the NGO have benefited from the 5 minutes the volunteer invested in building awareness for the mission, and the 5 minutes I invested as a customer in getting to know the NGO.

Lesson 1: Never leave without a next step

The first thing I have learned in my sales career is to never leave the client without a next step. If you have invested in educating or informing a client you have the opportunity to demand something in return. In the case of the NGO, the volunteer spent 5 minutes pitching, and received nothing in turn from me.

What she should have done when she realized that I was unwilling to donate, was to change her objective. She should have made my commitment smaller. At the end of the pitch I had invested 5 minutes of my own time, so I was obviously interested in the topic, and she would most likely get me to give her something that was of less valuable to me.

What I recommend is that she should have asked for my e-mail and contact info allowing the NGO to target me through a different channel. Marketers agree that exposure to a message consecutive times builds awareness and drives sales. If the NGO had taken my e-mail address they could have kept the communication lines open and potentially I would have been ready to donate when they had established a stronger relationship with me.

Lesson 2: Plan Your ‘YES’ Approach

To elaborate on the “Yes” approach, let me give you an example of another business that does face to face sales extremely well. You have probably fallen victim to their clever selling ways at the mall. They are selling hand cream and different beauty products. Typically, you will be approached by a salesperson asking for just 2 minutes of your time. A request that 1 out of 10 will agree to. She will take your hand and ask if it is okay that she applies some hand cream. You will feel obliged to say YES. She will then take you through a 3 step process of beauty treatment and for each step she will seek your confirmation: Can you see how well it works? No matter whether you see the result or not, you will out of courtesy answer “YES”. What she is doing is known as the “Three YESes”. A sales technique that implies that you will be more likely to say YES after having said yes 3 times. When the question come: Do you want to buy a set of products? You will feel very tempted to say YES. Furthermore, her sales technique builds an instant relationship. She is holding your hand, she is applying cream, and she is caring for you. The physical touch creates a natural level of trust, that will make you more likely to buy.

To conclude, never think of selling as a one-time transaction. Think of selling as a relationship you are building. Showcase your personable side, after all, people buy from other people. Approach the customer with a proposition, gauge their interest levels, and then plan your approach to convert them. Remember, at the end of the transaction, you should be in a position to demand something in return, however small or big it might be.

Strategy served HOT by Nespresso!

Over Christmas I visited the Nespresso brand store at Aarhus, Denmark together with my girlfriend. She was very fond of the beautiful coffee machines, whereas I found them too expensive and unnecessary. However, it sparked an interesting discussion and a fascination about Nestlé’s successful journey in transforming a mere commodity into a premium product. Admirably, Nespresso contributes approximately 8% of Nestlé’s EUR83 billion in revenues 2015 and represent a 25% margin compared to Nestlés overall 15% margin. Furthermore, the single-serve cup segment is the fastest growing in the industry.

How did Nespresso do it?

Establish an ecosystem – The Capsule

It all started with the coffee capsule which was invented back in 1976. However, it wasn’t before the 1990s that the concept really caught on as it was introduced to the consumer market in Switzerland.

The capsule is a significant part of Nespresso’s success. One thing is that the capsule serves a modern demand of single servings, as people more than ever before are living alone and are craving individualized experiences. As my girlfriend argued that the capsule concept allows her to make a cup of cappuccino just for herself before she leaves for work, instead of making an entire pot of coffee that goes to waste. More so, the capsule is the core component of establishing an ecosystem where you as a customer are compelled to purchase Nespresso capsules to use your Nespresso coffee machine. If you take a step back, you realise that this strategic decision allows Nespresso to gain revenues from two successful avenues: the coffee machine and the coffee capsules

Pricing

This brings me to pricing. Pricing is absolutely vital for the ecosystem to exist and thrive, as the relatively high price of a Nespresso coffee machine creates high switching costs. Spending EUR150 on a coffee machine makes you vested in the ecosystem and you will be less likely to switch.

An example of another businesses that has created a similar ecosystem is Sony PlayStation, as games won’t work on competing consoles, forcing you to remain in the PlayStation universe. Similar to Nespresso the PlayStation console is relatively expensive starting at EUR299, enforcing high switching costs.

Branding

Another vital reason for Nespresso’s success has been investing in Marketing and in establishing brand awareness. George Clooney has been the brand ambassador of Nespresso since 2006 and has played a significant role in forming the brand values associated with Nespresso. Nespresso has also embraced Social Media and has shown excellent commitment to engage with its follow-base. If you study Nespresso’s Facebook page you will find that Nespresso is actively responding to both positive and negative comments made by customers.

What should be recognised is how consistent and aligned Nespresso’s communication is from its brand stores, its TV commercials, its social media activity, not to mention its e-commerce platform. No matter which channel you choose to communicate with Nespresso it will be consistent.

Creating a community

When you buy a Nespresso Coffee Machine you also buy the Nespresso Club Membership. The Club Membership gives you a range of benefits like: automatic order online, free delivery, special promotions, 24-hour coffee expert hotline and exclusive brand events in your local Nespresso store. Every activity is designed to create and maintain loyal customers, and furthermore, increases the switching cost.

Another industry that is very successful with loyalty programs are the Airline industry. Frequent fliers will confirm that the benefits related to their loyalty membership influences their choice of flight.

What can we learn from Nespresso?

What should be noticed is that Nespresso is selling coffee, which is a global commodity traded by the kilo. However, Nespresso is still charging about 3 times that of a regular cup of premium coffee, which means it is not competing on product, but rather on an experience. The Nespresso experience is the way it is served and the image it creates in the mind of the consumer.

Nespresso is a great case study for other companies. Creating an ecosystem around your product offerings can be a tremendous opportunity. However, an ecosystem must be guarded and requires extensive nurturing to flourish. Establishing brand loyalty is no easy job. However, by ensuring high switching costs you make it easier for your customer to remain loyal.

Photo of Nespresso Auckland by TheRegister.co.nz