Business Model – Coe’s Globalization

Executive Summary

After conducting comprehensive analysis on the rent-to-own industry, I believe that expanding abroad will undoubtedly improve growth rate of Coe over the next four-year period. Mexico offers strategic advantage to Coe than UK, normalizing key risk faced by Coe in the US. Coe may employ a mix of aggregation, adaptation and arbitrage approaches when expanding to Mexico and franchise its business to local partners for rapid growth.

Business model – Coe’s Globalization

Customers and Demand: Rent-to-own industry is counter-cyclical -- it does well during economic downturns, since demand for its services are high. Many customers (college students, military personnel, people going through divorce, or businesspeople on short-term assignments) turn to rent-to-own stores because of a temporary need for household merchandise. Other customers, however, are simply strapped for cash and have poor credit ratings and turn to rent-to-own stores as a way to finance purchase of necessities or luxury items they cannot afford. Although customers enter into a contract with lessor for a specific lease period, they may terminate contract on short notice or gain ownership of merchandise after reaching a stipulated rental period

From value chain analysis of the industry, I recognize that the primary activities are inbound logistics, which involve securing rental assets, such as chairs, sickroom gear, party equipment and residential furniture from suppliers; Operations, which involve customer approval and rental collections; Marketing & Sales; and Services, which involve free replacement, repair and delivery services. As for global strategy, Coe can use a mix of approaches, depending on the activity in value chain. In particular, Coe may use aggregation (centralization) when it comes to using same computer programming in international markets that allows rental stores to monitor rental payments on a nightly basis. Coe may continue to employ its differentiating aspect of business aboard – emphasis on ownership, with shorter contract period, ensuring affordable path to ownership. As for tailoring services to needs of customers overseas, Coe is better off employing adaptation (decentralization) – specifically, employing sales people who can speak regional language, understand local culture and build effective relationships with customers to obtain repeat business from existing customers. Also, launching marketing campaigns targeting low-income customers overseas would boost store sales. The key market condition that is unfavorable to the industry is its approval by Consumer Protection Board. It has gained reputation for price gouging and taking advantage of poor because final cost of merchandise is far higher than its retail price. Coe should therefore use regulatory arbitrage (exploitation) when expanding abroad and locate its stores in a region where favorable regulatory environment exists. Additionally, cost arbitrage can be leveraged by locating to a region that has low real estate and supplier related costs.