Enterprise's Rental Rates In The Replacement Market example essay topic

IN THE FAST LANE On a bright January 1998 morning, Dean Pittman, Enterprise Rent-A-Car's area rental manager for Durham / Chapel Hill, North Carolina, got out of his Dodge Intrepid at Enterprise's new office in Durham. He admired the line of clean cars and the new office with its green and white Enterprise sign. To Dean, it seemed that dreams really did come true. A little over six years ago, Dean had graduated with a degree in industrial relations from the University of North Carolina at Chapel Hill.

When he'd first scheduled a job interview with Enterprise, Dean had been skeptical. Although he didn't know much about the company, he wasn't certain that he'd like renting cars for a living or working a retail job that included washing cars. But he'd seen the potential to advance quickly, to develop strong management skills, and to learn something about running a business. Once hired, Dean had been promoted quickly to management assistant, then to branch manager at Enterprise's new office in Rocky Mount, North Carolina. A year ago, Enterprise had made him an area manager, giving him responsibility for the Durham / Chapel Hill area-supervising three branch offices with 22 employees, 495 cars, and annual revenues of more than $3 million. Dean felt as though he was running his own business.

Enterprise gave its managers considerable autonomy and paid them based on a percentage of their branches' profits. Dean's starting salary had been in line with those of his classmates, but within three years his pay had doubled, and now it had tripled. There couldn't be many other companies, Dean thought, in which a person his age could have so much responsibility, and so much fun, and such high earnings. COMPANY BACKGROUND Dean's good fortune mirrored that of Enterprise itself.

The company's founder Jack Taylor started Enterprise in 1962 with a single location and 17 cars in St. Louis, Missouri. Since then, Enterprise had grown dramatically to become the nation's largest rental car company. In fact, Enterprise had grown at a compound annual rate of 25 percent for the past 11 years. By 1997, the company had more than 3,000 locations, 325,000 cars, $3.1 billion in sales, $5 billion in assets, and 30,000 employees. A WINNING STRATEGY Analysts attribute Enterprise's success to several factors. First, cars have become a more important part in people's lives.

They just can't do without their cars, even for a day or two. And, as more and more families have both adults working or are single-parent families, there is often no one else in the family who can pick up people when they have car problems. Tied in to this, the courts ruled in the 1970's that insurance companies had to offer coverage in their policies. Beyond these environmental factors, the company's success resulted from its single-minded focus on one segment of the rental car market. Instead of following Hertz, Avis, and other rental car companies by setting up branches at airports to serve national travelers, Enterprise built an extensive network of neighborhood locations serving the "home-city" market-people who needed rental cars as replacements when their cars were wrecked, stolen, or in the shop being repaired. Because these customers were often stranded at a body shop or repair garage and had no easy way to get to a rental office, Enterprise offered to pick them up.

However, Enterprise's first customer in the replacement market is often the referral source-the insurance agent or auto body shop employee who recommends Enterprise to the st 4 ranked customer. Few of Enterprise's customers get up in the morning thinking they " ll need to rent a car-but then they " re involved in a wreck. So, employees visit the referral sources frequently, often taking them donuts or pizza as a way of thanking them for their business. They call on referral sources that may not be doing business with Enterprise, and they keep insurance agents apprised of a car's repair status. Auto Rental News, an industry trade publication, estimates that the replacement market is growing at 10 to 15 percent per year (see Exhibit 1). The entire rental car market, including airport rentals and the travel segment is, about $14.6 billion.

Enterprise's rental rates in the replacement market tended to be lower than rates for comparable rentals at airport-based companies-some analysts estimated up to 30 percent lower. The company tended to locate its offices in city areas where the rent was much lower than at the airport. It also kept its cars a little longer than the typical airport-rental company. These two factors, and a focus on efficient operations, helped it keep rates lower. A second segment of the home-city market that Enterprise has begun to serve is the "discretionary" or "leisure / vacation " segment. Friends or relatives may visit and need a car, or the family may decide to take a vacation and feel that the family car is really not as dependable or comfortable as they would like.

More and more people are renting for trips just to keep the extra miles off the family car. Finally, Enterprise is also experiencing growth in the local corporate market. Many small businesses and some large ones have found that it's cheaper and easier for them to rent their fleets from enterprise than to try to maintain their own fleets. Colleges and universities have realized that it's cheaper to rent a 15-passenger van when the soccer team travels than to keep a van full time for only occasional use. Enterprise's success in the home-city market has attracted competition. Although Enterprise had the largest share of that market, a handful of major regional competitors, such as Spirit and Snappy, when combined, captured a large market share.

The airport rental companies such as Hertz, Avis, and Alamo, got only a small portion of the home-city business. Hertz is just starting a small operation that focuses on the home-city replacement market. Local "mom-and-pop" firms that often have just one office and a few cars serve the reminder of the market. Enterprise grew very quietly, depending on its referral sources and word-of-mouth promotion. It wasn't until 1989 that the company did its first national advertising. At that time, marketing research demonstrated that if you showed people a list of company names and asked them to identify the rental car companies, only about 20% knew Enterprise.

The company started advertising nationally but kept its ads low key. By 1997, it had more than quadrupled its annual advertising and promotion spending, using the theme "Pick Enterprise. We " ll pick you up". However, although the company's research shows that about one-third of those surveyed are aware of the company's pick-up service, and only about one-third are aware that it has branches near by.

THE IMPORTANCE OF CULTURE Although the company's strategy worked well, that strategy was driven by Jack Taylor's philosophy. Taylor believed that the employees' and the company's first job was to serve the customer. From the beginning Taylor urged his employees to do whatever they had to do in order to make the customer happy. Sometimes it meant waiving charges.

Other times, it meant stopping everything and running out to pick up a stranded customer. Employees knew that they needed to do whatever it took to make customers happy. Further, Taylor believed that after customers came employees. He believed that to satisfy customers, a company had to have satisfied, challenged employees who worked as a team. All of Enterprise's branch employees, from assistant manager on up, earn a substantial portion of their pay based on branch profitability.

In addition, the company has a profit-sharing plan for all employees. Enterprise hired primarily college graduates and promoted from within. Ninety-nine percent of its managers started as management trainees at the branch level, so they understand the customer-oriented culture. As important, they understand their local markets and the needs of customers in those markets. Thus Enterprise is really a collection of small, independent businesses, with the corporation providing capital and logistical support. Finally, Taylor believed that if the company took care of its customers and employees, profits would follow.

Sure enough, Enterprise has consistently been profitable in an industry where many firms have not been. WHAT'S NEXT? The question is, how can Enterprise continue to grow and prosper in the face of growing competition? The company believes it can double its revenues by the year 2001, but to do so it must wrestle with a number of growth-related issues. First, it must continue to attract and retain college graduates. The company needed to hire over 5,000 management trainees in 1997 alone, and that number will increase.

Yet many college grads, like Dean Pittman, may know little or nothing about Enterprise and may have negative feelings about working for a rental car company. How can Enterprise do a better job of recruiting college students? Second Enterprise must exam its marketing strategy. Which market should it target?

How should it position itself in those markets? Are there new services it could offer that would make sense given its current strategy? How can it do a better job of increasing Enterprise's awareness among targeted customers? How should it respond as new competitors, including the airport-based firms such as Hertz, attack the home-city market? Perhaps the most important question is how can Enterprise continue to grow without losing its focus and without losing the corporate culture that has been so important in helping it and its employees, like Dean Pittman, realize their dreams? QUESTIONS 1.

How are the buyer decision processes different for someone renting a replacement car because of a wreck, for someone renting a car for leisure / vacation purposes, for a business renting a car, and for a college graduate looking for a job? 2. What are the bases for segmenting the rental car market? 3. What marketing recommendations would you make to Enterprise to help it improve recruiting?

4. What marketing recommendations would you make to Enterprise to improve its marketing strategy? 5. Will Enterprise's strategy work in international markets? Exhibit One: The Replacement Car Rental Market Competitors, Revenue Estimates, and Other Market Data I. Competitor Revenue %Replacement Cars In Services Enterprise Rent-A-Car 2.61 billion 78% 315,000 Ford and Chrysler Systems 490 million 92 82,250 Snappy Car Rental 100 million 100 15,500 U-Save Auto Rental 115 million 60 13,500 Rent-A-Wreck 85 million 35 10,942 Premier Car Rental 66 million 100 9,500 Advantage Rent-A-Car 76 million 33 9,000 Spirit Rent-A-Car 50 million 100 7,500 Super Star Rent-A-Car 43 million 100 5,250 Independent companies 750 million 53 Airport-based companies: Hertz, Avis, Budget, Dollar, National, Thrifty, Alamo 360 million 100 II.

Industry Average Pricing Estimated industry average price per day for replacement rentals, not including additional insurance coverages or other rentals, such as cellular phones: Industry average daily rental is $23. Industry average rental period for replacement rentals is 12 days. Additional insurance coverages produce about 5% of revenue, with other rental options producing about 2% of revenue. Per day rental rates are often established through rational contracts with insurance companies or automobile manufacturers' or dealers' warranty reimbursement programs.

There are approximately 150 major US airport rental markets. Airport-based rental rates vary widely depending on competition. Airport rental companies also negotiate corporate rates with individual companies.. Overall Rent-A-Car Market Overall 1996 US market estimated at $14.62 billion broken down as follows: Business Rentals-40%, Leisure / Discretionary rentals-33%, Replacement Rentals-27% IV. Advertising Advertising Age estimated that US car rental companies spent $384.4 million in measured advertising in 1994, about 2.8% of revenue. It estimated that Enterprise spent $22 million in 1994 up from $13 million in 1993.

Enterprise's 1994 spending compared with $47 million spent by Hertz, $31 million by Alamo, and $24 million by Avis.