Eurostar’s awkward and fractious ownership arrangement, linking the French and Belgian governments with an array of public and private British interests, complicated these problems further: During 2003 alone, no fewer than fourteen different entities, each with its own agenda, claimed partial ownership of Eurostar.
This was the situation when a new executive named Richard Brown took the helm in August 2002. Thirty years earlier, straight from university, Brown had turned down more lucrative offers from Shell and Mobil to join British Rail—a career move his father had warned him against. Even then, railroading was seen as a dying business. (“People were talking about ‘The Rail Problem,’ ” Brown recalls. “There was even a book with that name.”) But Brown found rail travel “interesting” and ended up sticking with it.
Highly regarded in the industry, Brown was widely seen as the ideal person to bring sound, savvy leadership to the struggling Eurostar. A profile in the London Times described him this way: “Short, balding, courteous, with a great slab of a face and a Desperate Dan chin, Brown is by reputation one of the best man-managers and strategists left in the rail business.” Desperate Dan is a wildwest character from an old British comic strip, known for both his oversize chin and his extraordinary toughness—he can lift a cow with one hand and shaves his beard with a blowtorch. Brown would need a bit of that same toughness in his new assignment at Eurostar.
Corporate change is rarely easy. In an organization as complex as Eurostar, it’s especially challenging. “We’ve got three nationalities in the work force, three main operating bases in Brussels, Paris, and London, and four hundred staff who deliver the service onboard,” Brown notes. “So redesigning even the smallest process means getting a substantial number of people to change their behavior. Something like changing the rolls on the breakfast tray—finding a new supplier, retraining staff—can be surprisingly complicated.”
Brown rolled up his sleeves. He started by dropping the defensive rhetoric of his predecessors. He acknowledged the desperate need for service improvements and promised that these would be a top priority for his new administration. Brown also admitted that demand creation was his other major challenge. “We are working in a very competitive consumer market,” he declared, using customer-oriented language that previous Eurostar chiefs had rarely employed.
Most important, Brown set about courting business travelers, who were the single biggest key to Eurostar’s growth. This wasn’t just a matter of advertising or marketing. The existing Eurostar product did a relatively poor job of addressing the hassles that mattered to this crucial customer type. New product features had to be designed and implemented. In September 2002, just one month after his arrival, Brown launched a £35 million “Eurostar for Business” program, which included the creation of speedy fifteen-minute check-in lines exclusively for business travelers—a direct assault on his key customers’ hassle map.
To learn more about the needs and wishes of this customer type, Brown and his team employed traditional business tools, such as surveys and focus groups. But Brown also personally befriended the lawyers, bankers, and financial managers who traveled between London and Paris dozens of times a year. (Brown stresses that both formal and informal ways of talking with customers are critically important, “and either one is poorer without the other.”) A number of Eurostar regulars had banded together to form Club 180, named after the number of minutes it took to make the trip via Eurostar. Brown spent extra time learning from these club members, whom he described as “gold dust” because of the value of their feedback—especially their complaints about travel hassles, many of which ended up on Brown’s to-do list.
If Brown was particularly interested in listening to customer complaints, he would soon have all he could want.
Breakdowns continued to plague Eurostar. In October 2002, after Eurostar travel was canceled for a third straight day due to weather-related system malfunctions, fifty stranded customers—many of whom had spent the night sleeping in empty train cars or on the floors of terminals—gathered outside Eurostar’s offices at London’s Waterloo station. Police were called to control the stamping, clapping crowd as they chanted, “We want to see the manager!”
Displaying the courage to talk to customers that all great demand creators share, Brown soon emerged with several other Eurostar directors in tow. He spent an hour absorbing the blistering complaints. Then, as a goodwill gesture, Brown offered every stranded passenger a free trip on Eurostar’s new high-speed line.
Singed by the experience, Brown redoubled his efforts to better serve the all-important business travelers. In June 2003, he unveiled plans for new Premier First cars created by Philippe Starck, famous for designing interiors for Ian Schrager’s legendary boutique hotels and even for the private apartments of French president François Mitterrand. A conventional two-plus-one seating layout would be replaced with individual egg-shaped swivel seats. “Premium First will be better than a private jet,” Starck proclaimed. “There is no plane in the world that will have the same level of comfort.” Meanwhile, all seats in first and standard class would be upgraded to include headrests with wings for better comfort; power sockets for laptop computers would be provided; and the two bar cars in each train would be refitted.
By 2004, Brown’s efforts were finally beginning to pay off. Ridership increased for the first time in four years. And even as business travelers began to gravitate toward Eurostar, some of the other passenger types identified in the variation study began to yield increased demand as well.
Somewhat surprisingly, one of the best sources of sustained growth for Eurostar proved to be a customer type labeled VFR, which stands for “people visiting friends and relatives.” A significant number of Eurostar passengers were expats—Britishers who’d moved to Paris, or French men and women who’d moved to London. The VFR segment had been growing steadily, thanks in part to the increasing economic and cultural unification of Europe (one observer remarks that London is now “the sixth largest French city”).
As soon as this customer type appeared on the radar screen, Brown and his Eurostar team began experimenting with offer variations to make it grow, including low-fare midweek tickets and specially tailored frequent-traveler reward programs. Based on interviews, the VFR set was further broken down, identifying, for example, one subgroup of retirees and another made up of young people who had moved for school or work, each with distinctive hassle maps and travel preferences. Magnetic product add-ons were devised for these groups. Retirees often have children and grandchildren in tow, so Eurostar packaged tickets with discount deals on kid-friendly activities like trips to Disneyland Paris. Students and young professionals were offered discount tickets to cultural activities like concerts. Eurostar ridership continued to grow.
BUT THE BIGGEST LEAP forward for Eurostar was just around the corner—a demand creation breakthrough that harked back to the company’s origin in a remarkable feat of infrastructure engineering.
Eurostar’s tenacious and meticulous customer research had shown that seemingly small improvements in service—especially reduction in travel times—could have a huge impact on demand, in particular among business travelers. Fast as Eurostar was, an almost three-hour one-way trip still took a significant chunk out of a traveler’s day.
With its famous TGV (for “Train à grande vitesse,” or very high speed train), France had long experience with building and maintaining tracks for superfast rail travel. Not so Britain. When Eurostar was launched, the slowest link was the trip from London through the county of Kent to the British end of the Chunnel. Upgrading this section of rail to improve the overall travel time would be a huge hassle reducer for the business traveler. Add an extra forty minutes to your workday in Paris and suddenly a leisurely lunch becomes a possibility; if the afternoon meeting runs a little late, you can still get home in time to tuck the kids into bed and have dinner with your spouse.
A major investment in the track upgrade was made by Eurostar’s U.K. shareho
lders. The first stage of the project was completed in 2003, but its impact on service was modest. In November 2007, the rest of the project was finally completed. The new High Speed 1 (HS1) line brought the entire British portion of the trip up to the standard of the existing French and Belgian lines, reducing the one-way trip from London to Paris from three hours to just two hours and fifteen minutes.
The psychological jolt for travelers was enormous. Journalist Andrew Martin experienced the first celebratory run and exulted, “We were at the Channel Tunnel within half an hour. It was like being teleported.… This is the most civilised form of transport available.”
Perhaps even more remarkable, given Eurostar’s checkered history of service problems, the transition was virtually trouble-free. “It all went so smoothly, that a couple of weeks after the opening, one of the staff said: ‘Is that it?’ ” Richard Brown recalls with a smile.
Shaving forty minutes off the trans-Channel journey provided business travelers with the benefit they considered most precious—time. Brown proudly declared, “A few years ago, you wouldn’t have thought about going to Paris on a day trip.… We’re expanding people’s horizons about what they can use Eurostar for.”
The advent of HS1 boosted the magnetism quotient of Eurostar more significantly than any other development in its history. It also marked a major shift in the corporate culture within Eurostar—from pessimistic and defensive to confident and proud. This notable technical achievement gave the Eurostar team members an enormous energy boost, helping them to see future challenges, as Brown says, “less as threats than as opportunities.”
The infrastructure upgrade produced an important secondary benefit. At the same time that the HS1 line was put into service, the main London terminal for Eurostar service was shifted from Waterloo station in the city’s southwest corner to a refurbished St. Pancras International station in northern London. A small difference, seemingly—but a potentially enormous one, for reasons the managers at Eurostar were just beginning to sort out.
Yet another discovery from the customer variation study had been the realization that rail transport was “microgeographic” in its reach. British travelers who selected Eurostar for trips to France were overwhelmingly from London rather than from outlying cities; in fact, specific London neighborhoods close to the Waterloo International train terminal drew far better numbers than London suburbs that might require a thirty- to sixty-minute commute.
Recall the problem Zipcar faced early in its history, when customers shied away from Zipcar’s product because of the lengthy walks that were often required to reach the nearest available car. Zipcar addressed the problem by increasing its density in specific urban neighborhoods, reducing access time to its cars from twenty minutes to ten and ultimately to five.
The 2007 shift from Waterloo to St. Pancras had a similar impact on Eurostar. Located at the intersection of six underground lines and seven domestic rail lines, the St. Pancras terminal expanded the “catchment area” from which Eurostar attracted customers, making the train to Paris a more attractive option for residents of London’s suburbs as well as northern counties like Hertfordshire, Bedfordshire, and Buckinghamshire.
The move to St. Pancras had redefined, and vastly enlarged, Eurostar’s potential customer base. And demand continued to grow.
IN THE YEARS SINCE the HS1 breakthrough, Eurostar has maintained its primary focus on the business traveler. One of the most successful strategies has been offering tickets with “optionality”—that is, refundability of ticket purchases and flexibility of travel times. It’s another illustration of the power of a carefully tailored product to attract demand among a specific customer type.
Unrestricted ticket changing is especially important to business travelers, who often have to change their plans at the last minute. And since the tickets purchased by business travelers are paid for by their companies (and are a tax-deductible business expense as well), they’ll pay a significant premium for that flexibility. Leisure travelers, by contrast, have much more control over their own itineraries and therefore are much less likely to need optionality—or to want to pay for it.
The economic impact of this variation in what different customers want is striking. Whereas the lowest-priced round-trip ticket between London and Paris without optionality can be purchased for as little as 75 euros, Business Premier tickets for the same route with optionality start at 339 euros—and provide Eurostar with a much larger profit margin.
Optionality isn’t the only extra product feature that Eurostar is offering its prized business travelers. It is also promoting lounges and fully equipped meeting rooms in its terminals and working to make them easy to reserve online at the same time tickets are purchased. These facilities will shave more precious minutes off the in-city travel time of businesspeople. And Business Premier travelers can also enjoy an array of other amenities, including chauffeur service at either end of the trip, complimentary Wi-Fi access in the business lounges, power sockets for phones and laptops, and meals and drinks served at their seats. They can even book a cab ride while on board, thereby avoiding long queues at the taxi stand on arrival.
As a result of these type-driven product variations, Eurostar has decisively won the competitive battle with its chief rival—the airlines.‡ Three-quarters of the coveted business travelers now use Eurostar rather than flying between London and Paris—a marked improvement from 2003, when the majority still preferred the plane. (More than 90 percent of Eurostar trains arrive on time, compared to fewer than 70 percent of flights into Heathrow.) What’s more, the shift of demand to Eurostar has now begun to turn into a self-reinforcing spiral: As more business travelers shift to Eurostar, airlines are offering fewer business seats; the fewer business seats available, the more business passengers turn to Eurostar.
Even more remarkably, the laser focus on business travelers has also increased Eurostar’s appeal to other categories of travelers.
Customer surveys and Brown’s continual buttonholing of individual riders have long made it clear that businesspeople prefer having separate accommodations. People catching up on e-mails or trying to plan or rehearse a presentation while en route to a meeting don’t appreciate sitting cheek-by-jowl with toddlers en route to Disneyland or honeymoon couples behaving, well, like honeymooners.
But the less-obvious insight that Brown and his team have uncovered is that leisure travelers feel the same. They find their holiday mood gets spoiled when they have to sit next to a group of pinstriped businessmen and businesswomen clicking away on laptops or negotiating deals on their cell phones.
“It was a huge surprise,” Brown recalls, “yet so blindingly clear after the fact—one of those things that make you wonder, ‘Why on earth didn’t I think of that before?’ ”
Eurostar has enhanced the travel experience for both types of passengers by separating them and catering to both—for instance, by creating, in 2005, the Leisure Select ticket designed especially for well-heeled vacationers in a self-indulgent mood. Like business travelers, they get their own carriages and an attractive set of perks, including onboard newspapers and magazines, and drinks and meals served at their seats. “When we introduced that change,” Brown says, “ticket sales in both Business Premier and Leisure Select went up significantly.” Similar growth has been experienced in Eurostar’s other passenger segments. For example, fully 91 percent of cross-Channel travelers in the VFR (visiting friends and relatives) category now use Eurostar.
THERE’S A RANGE of techniques organizations can use to address demand variation. Eurostar uses at least two: product variation (with its special services tailored specifically to business travelers and other customer types) and product platforms that can be personalized (for example, with its tickets that provide “optionality,” allowing customers who value the right to make last-minute changes to purchase that right).
Like other great demand creators, Eurostar has also developed systems to address the needs of customer types beyond its own e
nd users. For example, it has a dedicated staff of about fifteen representatives who devote their time to meeting with corporate travel managers, a rarity in the industry. Eurostar has also enhanced its outreach to foreign travel agents, who play a big role in shaping demand among tourists visiting England and the Continent. For the first decade, those agents could book clients on Eurostar only through a multistep process that Richard Brown has described as “wading through treacle.” In 2004, Eurostar made its way into the same computerized Global Distribution Systems (GDS) that travel agents use to book airline tickets. Thanks to this hassle-reducing breakthrough, those Overseas Travelers that Eurostar found too difficult to reach directly are now being drawn into the web of demand, with annual growth rates exceeding 50 percent in Eurostar ridership among U.S. visitors to Britain.
Just as Brown stresses the importance of both formal and informal methods of talking with customers, he also emphasizes the need to harness both traditional marketing methods (advertising, promotions, public relations) and customer-driven word of mouth. “If you’ve only got the advertising without the word of mouth, or vice versa, you’re not going to achieve the breakthrough. There’s a lot of habit about the way people travel, and people don’t change quickly. It took us the best part of five years to move from a situation where most business travelers flew between Paris and London to a situation now where very few of them fly. It takes time and a lot of hard work to entice people to make that kind of change.”
Yet the change is happening. Overall annual passenger figures, which had risen from just 3 million in 1995 to 7.1 million in 2000, only to stagnate and drop below 7 million for three years thereafter, have now enjoyed six straight years of growth. In 2010, 9.5 million travelers rode Eurostar. By 2012, it’s likely the 10 million mark will finally be surpassed—and with it, the corporation is expected to attain overall profitability for the first time.
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