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Enterprise Rent A Car Case Solution

Solution Id Length Case Author Case Publisher
678 3080 Words (10 Pages) Meghan Busse, Jeroen Swinkels, Greg Merkley Kellogg School of Management : KEL612
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Differences in a company's performance come from the industry structure. The level of competitiveness in the industry determines the position of each firm. There are different sets of challenges faced by different firms in different industries. It is important for companies to analyze these challenges and develop appropriate strategies for overcoming these challenges. Some challenges are more secondary in nature. These challenges may include some customer needs that may not add up to increase the overall satisfaction level. If the secondary challenges are considered, it will increase the costs for the company. The differences between the costs from the firm's end and the willingness to pay from the consumer's end should be wide in order to increase the profitability of the company (Ghemawat & Rivkin, 2006). The company 'Enterprise Rent a car' work on one basic principle of prioritizing the consumer interests. This principle has led the company to become the market leader in the local rental service companies. It has not only worked on it one function, but improved to add value to its offerings. This improvement has led Enterprise to create a sustainability factor in its competitive advantage. The company analyzed the costs and made efforts to reduce these costs through agreements with third parties. These efforts have reduced the costs, and thus, increased the profitability for the company.

There has been a significant increase in the firms with car rental services. Surviving such competition and becoming the leader of the industry despite the industry being so open to new entrants is a challenge in itself. This report will cover the company's overall assessment that will include the history of the firm's operations and the overview of the company's current strategies. It will assess the strategic challenges faced by the company and the recommendations for further strategic formulations for the company.

Following questions are answered in this case study solution:

  1. Introduction

  2. Company Assessment 

  3. Strategic Challenges Faced by Enterprise

  4. Strategic Recommendations

    i. Industry Structure.

    ii. Airport Competition.

    iii. Willingness to Pay

    iv. Type of Competitor

    v. Competitor Reactions

    vi. High turnover rates

  5. Conclusion

Enterprise Rent A Car Case Analysis

Company Assessment

Enterprise began with a blue-ocean strategy. While the other rental services focused on the travelers requiring a car, Enterprise judged the needs of the local consumers. It was assessed that the local consumers faced a lot of troubles when their cars were off for repairs. They resorted for public transportation in such cases that were not a viable option. The other target market was the people with no car facilities at all. Those who did not have any choice but to take the public transport for commute. The founder John's aim was always to focus on the consumer; the theory that has been emphasized in the competitive advantage topic. The company also had had an advantage because of its wide presence. It had 6000 rental points in the USA in 1994. The cars available for rent totaled 850,000 cars. With a steady increase in the growth, the company accounted for half of the share in the rental industry by 2010. The assessment on the basis of John's aim is that the company wanted to increase the availability for its customers and increase convenience for them(Busse & Swinkels, 2012).

The company lacked in its human resource function. Although the path to improvement was very clear, it was tied to the branch itself. If one person were performing very well in a particular branch of the company, his promotions would be quantified against the performance of the team of the branch. If others did not perform well, the person doing so would lose motivation since the chance to improve the position would not exist. Therefore, this explains the turnover rates being high in the company.

Furthermore, the company has a culture that promotes honesty and integrity in the employees. It also appreciates the employees who are hard working and carry out a 360 degree feedback approach to voting the best people. This appreciation is a highly motivational factor among the employees. They also strive to reduce the demotivating factors. However, there is no diversity among the hired employees. The people with similar sporty and competitive personalities are hired by the company that inflames a sense of competition in the company. Even though the team based promotions exist to enhance the team work factor within the company, the culture is very competitive.

Enterprise also expanded into the airport market to increase its profitability. However, the regular way of the customer service is not to suited to the airport market. Therefore, the success of the local market could not be replicated for the airport market. The business had a chance to explore other areas by assessing the opportunities available to the company. Since the company's motto was to keep the customer central to all decisions, the company expanded to cater to people's needs and requirements. The people with broken down cars brought their cars to the rental point and left it there in urgent times. This activity was the cause of two ideas that could be included in the company. First, the insurance services, and secondly, the repair services. The rental points were opened up near to the repair shops. The cars coming to repair shops to get their cars fixed recommended by the owners of repair shops to rent a car in the mean time. The insurance companies paid for the rental service while the damaged car was being repaired. This additional service accounted for more than one third or half of Enterprise's revenues. The business also evolved to include in car sharing services. The target audience of mainly students, or those who had to cover small distances. This expansion to other target markets increased the revenues for the company. Also, the company invested in technological advancements and the fleet of cars.

The statement of these facts about the business can be used to assess the strategic direction of the company. Enterprise did not restrict its functions to what the usual car rental companies offered. It consistently invested in new opportunities available to it. The company therefore was highly adaptable to the changing market conditions. It consistently added value to its offerings that resulted in an increase in the willingness of the consumer to pay for the service.

Strategic Challenges Faced by Enterprise

The industry structure is a very important factor in the determination of the competitive advantage of a firm. It is also a determinant of the level of decisions that a company takes to overcome the threat of competition. For example the pharmaceutical industry has a consumer base that is reluctant to switch to other products. This is an added advantage for the company because the threat of competition is low for such industries. On the contrast, the sales of a company in the steel industry would be highly impacted by the competitor decisions. The consumers would be inclined towards the company that gives products at a lower cost as compared to other company's offerings. The car rental industry is also based on the steel industry's structure. The consumers would opt for that company that gives more value to them at a lesser price. This poses as a strategic challenge for Enterprise. The reason is that Enterprise would have to develop strategies to overcome these challenges. In order to overcome this strategic challenge, Enterprise has developed strategies to increase the consumer's willingness to pay. This willingness to pay was increased by offering value-added services to the basic rental service. Enterprise offers high value-added services, including the insurance and repair services at an ease. This increases the consumer's willingness to pay and makes loyal consumers.

One other strategic challenge is the competition from the airport rental services. Enterprise developed a strategy to launch its services for the airport. The target market would be the travelers. However, the challenges faced in this strategy was the high level of share that had had to be given to the airport. Furthermore, the differences in culture of the people coming from other countries. Since Enterprise had always had the motto of the consumer being central to the company’s decisions, this wide level of diversity did not help in attaining it. The customer services could not be altered for all cultural diversities. Some people who wanted things to be fast, were not satisfied by the courteous talk by the company’s representatives. Also, since the airport has seasonal variations, the opening up of the rental point was more profitable in some seasons, and less in others.

The willingness to pay increased for the customers because of the added value of the services. The rental points were convenient since they were located in various locations in the United States(Harvard Business School, 2011). Furthermore, it was convenient also, because the people who dropped off their cars for repair found a rental car nearby. This gave ease to the customers and they opted for the convenient Enterprise rent-a-car. Also, the insurance companies were directly connected with the company’s data base. This reduced the hassle faced by the customer to claim the insurance in case of car damage. This value addition also was one of the factors in increasing the willingness to pay. The relation with the car repairmen was a source of marketing for their services. The reason was the recommendations that the repairmen gave to the customers. Another value addition was the development of the ‘points’ from that the cars can be taken. These point cars were developed for monthly rental and per hour basis. This increased the regular customer base and generated a fix income flow for the company. This challenge of willingness to pay was therefore covered up with the launch of value-added services. These services had not been launched by other companies. Being the initiator, the challenge was overcome.

Being the right type of competitor was another strategic challenge. The type of competitor had to be in line with the industry dynamics to ensure that competitive advantage is created. Enterprise did have a strategic advantage over others because it was a competitor with dual advantage.  One advantage was the basic rental services and the other advantage was convenience factors integrated.

Costs were one other strategic challenge. Since the car rental companies have fixed costs for car replacement, the wedge between the costs and the willingness to pay is less. However, Enterprise overcame this challenge by contracting with car agents. Since these agents got orders in bulk from Enterprise, they agreed to sell the cars at a lesser price than what was in the market. Enterprise, being a powerful and large company has a dominant position in the market and the supplier (in this case the car dealers) are not in a strong position. Since getting a bulk order from the company is profitable in itself, the car dealers did not keep increased profits. Here, the competition between the car dealers was on the price basis. The further part of this agreement was the return of the cars after six months of usage. This got Enterprise a higher value for the used car than it would have gotten by taking the selling function in its operations. Another strategy that was implemented by Enterprise to reduce the cost of the cars was the six months. This time was longer than what most car rental companies practiced. Therefore, it reduced the replacement costs to a great extent.

The competitor reactions also posed as a strategic challenge. The reason was that the strategies of the company could be copied by the competitors, or it would be possible for them to compete on the price basis. In order to overcome this challenge, the inclusion of value-added services is a practice for the company. The company assesses the customer needs and requirements and develops new services to ease their daily commute activities. The assessment of the needs is a strategy to maintain its position as the market leader and make its consumer base loyal.

The last and major strategic challenge is that of the human resources. The case identified that the company had high turnover rates. The reason assessed for this strategic challenge was the grouping of the promotions to the team performance. The performance of the branch was prioritized in promotions rather than the performance of the individual. This turnover rate increases the costs for the company. In order to minimize costs and increase the gap between the costs and the willingness to pay, strategies must be formulated.

Therefore, the strategic challenges faced by the company are:

  1. The highly competitive industry structure. The car rental industry can have consumers switching to other companies

  2. Competition from Airport car rental companies

  3. Customer willingness to pay for a service

  4. Being the right type of competitor

  5. Competitor reactions and threat of competitor strategies

  6. High turnover rates

These challenges were faced by strategies such as value-added services, decrease in costs, and focus on the consumer for business decisions.

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