Enterprise Rent-A-Car
Selling the Dream
FEBRUARY 2008
Problem Statement
After competing successfully in the market for more than 35 years, Enterprise wishes to achieve similar rates of growth as it always has. The sheer growth rates have turned it into a mammoth of car rental services. Its “small-business” corporate culture has been a determinant to the company’s growth; a culture that is now being challenged by its very size of operations. How will the company continue to apply its successful business strategy in a dynamic and increasingly competitive market?
In order to resolve this issue two key problems must be addressed:
1 – How can Enterprise remain competitive while many competitors are beginning to cash-in on the “home-city” market opportunity.
2 – The company’s success is also largely dependent on the skillful employees it has always attracted. However, new graduates are finding the idea of working in the car rental industry less and less appealing.
Situation Analysis
After 5, 10, or maybe even 20 years of outperforming the market, one would expect Enterprise to ease from its growth stage into maturity. After 35 years, the company continues to grow, and it has great expectations for its future. Armed with a great track record, and powerful ambitions, the company faces a battle against competitors who are rapidly penetrating the “home-city” market. Also, the company faces its own internal battles, as attracting new quality employees is becoming more and more of an issue.
Strengths The company has already established a strong presence in communities it serves The Enterprise brand is becoming more and more recognizable and is on its way to becoming the default rental place Its percentage-of-profit compensation plan keep employees motivated as they deliver outstanding service The accelerated promotion-from-within opportunities attract top-notch employees, and managers
Weaknesses The company is under-diversified offering services only to “home-city” clients Inability to attract quality recruits Low emphasis on advertising compared to competitors
Opportunities Potential expansion into the “leisure” market Business rental is a growing segment for Enterprise Further diversification aside from picking clients up will help maintain and increase market-share Opening up branches near airports
Threats Other firms penetrating the “home-city” market Its main distribution channels (insurance companies and repair shops) switching over to competitors Enterprise will have low employee retention rates in a down market, since a large portion of the compensation is performance-based
Consumer Analysis
As most success stories, Enterprise Rent-a-Car has successfully grown since 1962 by closely following the philosophies of the founder. Jack Taylor believed that being consumer oriented was of great importance to success. As opposed to most of its competitors, Enterprise sells more than just a service, it brings an experience.
So far the company has rigorously followed a Market Development strategy, as it has pushed for an existing product (car-rentals) in a new market (home-city). This strategy has allowed it to earn superior profits in this untapped market, at least until recently. Enterprises’ rapid growth did not remain unnoticed for long. Competitors are now beginning to realize the opportunities in this particular market segment and are well on their way to building branches in those areas.
As new entrants have begun to compete in the same market segment, it slowly becomes saturated and Enterprises’ Market Development strategy becomes obsolete. Soon enough the “home-city” market will have no more room for development, and the “leisure” and “business” segments have already been fully tapped into. Enterprise now needs to switch over to a Market Penetration strategy and attempt to gain market share not only in its veteran “home-
Ansoff Matrix
Products
Current
New Markets
Current
Market Penetration
Product Development
New
Market Development
Diversification
city” segment, but also in the other available ones. However, different segments have different characteristics and behave differently. Enterprise will have to recognize this fact and tailor its business strategy accordingly.
Following is a segmentation of the Rent-A-Car Market by types of clientele:
Business Rentals: These customers are looking for reliable and efficient service. They are generally loyal and regular clients as business needs often tend to be re-occurring. What is most important to them is that the cars always be available when they need it and at the requested times. Reliable and often luxury automobiles are demanded by these clients.
Home-City Rentals: These are people who need rental cars as replacements when their cars are wrecked or in the body shop being repaired. The pickup service is key, as they are often stranded far from home. Small economy cars are usually sufficient for this type of segment.
Leisure/Discretionary Rentals: This segment is arguably the most price-conscious one. As customers plan vacations well ahead, they have time to look for the best deals while always keeping an eye on the reliability of the automobile. This type of travel often requires quality cars with more storage space.
Decision Criteria
The alternatives, and there on the recommendation to follow, will be evaluated based on the following criteria: Contribution to growth in sales
To what degree will implementing the recommendation affect sales, and help achieve the desired rate of growth?
Maintain corporate culture/business model
How will implementing changes affect the current small-business culture they have at Enterprise? Will the employees be able to familiarize themselves with the clients and be able to deliver their service in the same warm and caring way?
Ability to attract new quality recruits
Will the changes (or lack thereof) help recruit top-notch graduates?
33%27%40%BusinessLeisureReplacement Source: Auto Rental News, 1996
Alternatives
1. Expand more into Business rentals
This area has proven to be profitable for Enterprise. With its large fleet of cars (315,000), the company can easily accommodate the needs of the local corporate market. Trying to arrange for corporate deals with large customers can prove to be a great means of attracting and maintaining long-term customers. Corporate sales would also help attract new employees as dealing with business clients is often preferred to washing cars at the branch. The company might need to purchase some higher end vehicles. The caring small-business approach is still applicable to business clients.
2. Expand into the Leisure/Discretionary rentals
Also in this area Enterprise has seen potential for growth. The clients in this category usually borrow for longer periods of time; helping the company cut costs on pickups and drop-offs. Since these customers are more often than not part of the communities Enterprise already serves, there will be no need for new branches. However, larger cars might be required for people traveling longer distances. The company can try to differentiate itself by offering GPS systems in these vehicles, and helping clients map out their trips. This will enhance the experience of the client, while at the same time making the employees part of the trip-planning process. It will make for a more attractive, and interesting job.
3. Build branches near airports
As most competitors have branches near airports, one must conclude that it is a profitable segment to target. Enterprise can attempt to penetrate the market, using its brand image to build a presence. Negotiations can be made with companies to offer corporate rates and other such benefits that can help build long-lasting relationships. However, this would mean that the company has to move away from the “close-to-the-community” feel, and will not be able to deliver the same small shop experience.
4. Continue serving only the “home-city” market
Since Enterprise has been able to achieve notable rates of growth serving the same market for 35 years, an option is to continue being a specialized Car Rental service, catering to this target market. This will allow for the company to focus on what it does best, improve, and make market penetration for new entrants very hard if not impossible.
Recommendation
Outlined to the left is a chart summarizing how the four alternatives satisfy the decision criteria. As we can observe the first two seem to have a satisfactory impact on all three criteria, making them equally preferred as opposed to the third and fourth one.
Expanding into both business and leisure markets seems like a logical extension of their current operations. Entering these new markets, will help boost sales and gain market share, without jeopardizing the general culture of Enterprise. The company will continue to have branches close to communities, and serve the new clients in the same manner as they serve the home-city ones: with great care and attention.
It is our understanding that the corporate culture is a key determinant to the success of Enterprise, and therefore is a model that should not be altered. Furthermore, this model relies heavily on a consumer oriented philosophy, which in turn demands quality employees to execute. Hence, the importance of quality recruits is an issue that arises and must be addressed. Serving business and leisure customers will add an extra layer of variation to the job of the average sales person; exposing them to more than just pickups and drop-offs. This way throughout their career with the firm, the employee will have the opportunity to interact with a wide caliber of clients, engaging in the decision-making process of corporate deals, setting up special offers, and helping clients plan their trips.
To conclude, expansion into Business and Leisure markets offers great growth opportunities, requires no change in corporate culture, and at the same time helps attract quality graduates as employees. Therefore we feel this expansion strategy will be of great benefit to Enterprise.
Decision Criteria
Sales Growth
Corporate Culture
Quality Recruits Alternatives
1. Business Rentals
Yes Yes Yes
2. Leisure Rentals Yes Yes Yes
3. Airport Branches
Yes
No
No
4. Status Quo
No
Yes
No