Enterprise Rent-A-Car has started its operations in 1962 by establishing and successfully developing a new niche in the car renting industry. The business had strictly focused on replacing local citizens’ cars due to repairs. Later on Enterprise started to serve two additional segments, leisure & discretionally rentals and business rentals. Newly launched segments were successful; however the main focus of Enterprise continued to be the initial business stream – the Replacement Rentals.
This business section takes up 78% of Enterprise’s resources, which enables the company to capture approximately 55% of the US replacement rentals market share. Yet, the total replacement Rent-A-Car market accounts only for 27% of the entire US Rent-A-Car industry, whereas business rentals and leisure/discretionary rentals account for 40% and 33% of the market respectively. Thus, the Enterprise market share of the entire industry equals to 14. 85%, which is still substantial. The Enterprise underlying business situation is promising, yet management is concerned with the future growth opportunities.
Despite effective operations and therefore lower operation costs, the company still faces several obstacles on its way to a greater success. As Enterprise had taken the “home-city” niche, several competitors had followed to create a harsher competition. Furthermore, it is apparent that Enterprise brand recognition requires more attention as the majority of US citizens are not familiarized with the company’s services. It also becomes harder to hire new employees, as the workplace is not considered to be attractive to the public.
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In fact, there is an explanation for both of the cases. Enterprise spends a substantially lower proportion of its revenues on advertisements (0. 84%), compared to 2. 8% other companies in the industry. Yet, regardless of these everyday obstacles that the company has to face with as it grows, the current situation that Enterprise finds itself in is quite satisfying. Above mentioned obstacles are just the symptoms of the real issue. Currently managers are puzzled with the choice in the available future tactics, target markets and marketing strategies as a whole.
At this point of time Enterprise is operating in 3 separate markets with already established competitors. Yet, the company has been acting as a conglomerate of small individual stores, rather than as a single entity. For a company surrounded by strong competitors, it is essential to collaborate and direct all its outstanding resources and stores into a strongly unified body. This will allow Enterprise to reinforce a single solid marketing strategy into the entire company at all levels, and to replace currently self-managing stores.
If all stores are to implement the same tactics all at once, the competitors could be outrun more easily and it would enable a faster growth. Therefore, the goal of Enterprise management should be to create a comprehensive coherent strategy plan, in which they should specifically outline the target audience and the channels of promotion, as well as to define clear roles and tactics for every store and business function. By prioritizing its markets and target audiences the strategy plan will enable the company to avoid scattering its efforts, so that a greater growth can be achieved.
Alternatives: 1) Do nothing. In 1996 Enterprise revenue was $2. 61 billions, which accounted for 55% of the replacement rent-a-car market. After the SWOT analysis it becomes evident that Enterprise continues to hold a solid position in the market and has superior advantages over its competitors. Although increasing competition was indicated as a threat, it is not disastrous to the Enterprise. The company has several “aces in the pocket”. It can drop the prices well below competitors’ break-even prices, and still remain profitable. Thus, Enterprise can easily drive out its competitors in the price war, if needed.
Furthermore, its advertising costs are substantially lower, and yet its marketing promotion provided substantial benefit in the replacement market. The problems of the Enterprise service awareness in the public are not as much a problem for the mainstream business - the replacement rentals. For the replacement market, the public does not need to know about Enterprise and its services while their cars are operative. Loyal mechanics will direct the prospects to Enterprise, once they need to replace their car. However, the problem of service awareness does arise in the new sectors, leisure and business markets.
These prospects have to know about the services, so they can consider Enterprise as a possible candidate. But is it really a problem? 78% of the Enterprise revenues are raised in the replacement market, which does not require higher advertisement costs. And only 22% revenues are dependable on the additional advertisement. Thus, it can be argued that the benefits from extra advertisement are not sufficient enough to cover its costs. Instead, managers can continue to rely on the word of mouth, which will carry on, and eventually increase public awareness to the desired level without any additional costs.
The market is currently growing at 10%, which ensures sufficient future growth. The company operates in a beneficial external and internal environment. Patriotic managers can thus continue to focus on the customers and applying individual handling for each business case. Although, the recommendation for this alternative would be to have more HR activities going on, such as team building among the stores, as well as more recruitment advertisement. However, HR activities are not the focus of this paper. Thus, overall everything is going well, and Enterprise can decide to keep things the way they are.
District management will continue to choose their own markets, customers, and prices based on the locality. This will enable the company to catch different trends in different regions simultaneously. The problem with this alternative is the absence of an integrative strategy and image of the company as a whole. Yet, with proper guidelines from the top management regarding minimum prices and maximum costs, presence of sophisticated databases and talented district managers - disunited stores can be turned into an advantage. 2) Market Penetration.
Alternatively, Enterprise can choose to get back on track with their older strategy and focus only on the replacement market. This is the strategy that made the company successful in the first place. Enterprise has a solid network within the market, and has a sufficient business cost advantages over its competitors. Why not use these advantages? Under this alternative the mainstream business would remain to be the replacement market. The other two segments will still be maintained as activities on the side, for slight diversification of the business.
The presence of these two business streams will reduce the risk of going out of business in case of severe unforeseen economical changes in the mainstream sector. However, the top management should track the resources carefully and allocate most of them to the replacement market, as well as providing more guidance in the pricing strategies of the district managers. Furthermore, the replacement market share should be further increased. This can be achieved through a stronger advertisement campaign targeted towards the final customers – local drivers.
The advertisement campaign should focus on getting the message of pick up across clearly. In addition Enterprise might choose to focus on insurance companies, and sign a contract with them, which will state that the insurance company will only cover the replacement car costs obtained in the Enterprise Rent-A-Car. In return, Enterprise can give whole sale discount to the insurance company on the services that will decrease the coverage costs for the insurance company. It is a win-win situation.
Therefore, in addition to the replacement market share growth the company will also experience 10%-15% industry growth. The marketing promotion costs (advertising costs and insurance companies’ discounts) will rise, however they will still remain below the industry average, keeping it a cost advantage. 3) Market Development. Previous alternatives do result in a future growth, yet they overlook an important opportunity. The 22% of the “side-businesses”, leisure and business markets, are actually larger markets than the replacement market (33%, 40% and 27% respectively).
This might be a signal that the ongoing diversification is directed towards more beneficial markets, and thus should be further explored. In this case advertising should be increased and directed towards the final customers of the leisure and corporate markets: local businesses and travelers. The costs will rise, but due to the low operational costs profits should still be satisfactory. And the market share of the “side businesses” will increase, resulting in higher profits.
The problem hidden in this alternative is that at one point one of the sector has to be prioritized over others. This choice has to be made because of the shortage in resources for running all of the sectors at top gear simultaneously, particularly lack of labour resources. Yet, even if more resources could be obtained Enterprise will be forced to focus only on one segment, because Customers will not be able to associate two or more different services with one company. Thus, eventually in the mind of the public one sector will crowd out all the others, as the most successful.
Therefore, by diversifying the focus of the business, Enterprise will be forced out into a larger market, either to business or to leisure & discretionary rentals. The downside of this change is that it happens at the expense of the replacement market, in which attained knowledge, loyal mechanics and customers will be given up. Furthermore, the advertising costs will increase well over the obtained costs under previously mentioned alternatives. The political and legal opportunity will also be lost. Other hidden costs can unexpectedly arise in the process of the shift.
Thus, although the benefits of the shift are promising they along with the costs are unknown. This alternative promises potentially greater opportunities, but it also requires high risks to be taken along with increased costs. Recommendation: After considering all of the alternatives and their pros and cons, it appears irrational to maintain disunited stores, as they are too hard to control, and are too vulnerable to competitors. The choice now lies between market development and penetration. Both require a solid strategy and tactic plan, as well as stricter price control.
Under market development the opportunity of shifting from replacement market to either leisure or corporate markets are appealing. Yet, Enterprise will lose its cost advantageous, the network of loyal partners and customers, and beneficiary political/legal policies. Enterprise would have to risk everything to redefine its business in a new market and to compete with more sophisticated competitors in those markets. Thus, the amount by which the opportunity in the new markets exceeds costs and losses is unclear; perhaps might even be smaller.
Therefore, the best strategy is to go back to the single-minded focus. Under the market penetration alternative, the expected industry growth of 10%-15% will be added to the growth of the replacement market share. This alternative allows Enterprise to use all of its advantages to overthrow the competitors and to gain a larger market share. The combination of the two growth factors therefore would result in an extremely impressive growth figures, with minimal costs and risks carried out by the Enterprise. Therefore, market penetration is the optimal solution.
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