To what extent is the car club proposal an appropriate extension strategy for First Cars Plc
The main reason why First Cars Plc.should adopt this Car Club proposal is due to the current market position of the firm.The firm’s current market share (in the car rental market) is decreasing due to a leading budget airline offering car rental services to its passengers.
The new proposal to target the ‘Car Club’ market would be very beneficial to First Cars as this market is experiencing rapid growth due to the ever rising costs of car ownership (predicted to rise by 20% in the period 2010-14). Early entrance to this market could present an excellent chance to accumulate market share within a market which currently does not have much competition, and with the 2012 Olympic Games just around the corner, this could not have come at a better time. Whereas the current car rental side of the company is losing market share, the Car Club market is predicted to do nothing but grow in size (110% in volume and 300% in value) in the period 2010-14, meaning that this decision could be the difference between a profitable & growing business, and a failing one.
Another reason why First Cars Plc. should adopt this proposal is because of a grant from the Mayor of London. This £1.5m grant is for the creation of car club bays within the inner-city area of London (the main area being considered for the scheme), and would potentially reduce the costs of setting up the infrastructure for the Car Club scheme to operate. This would have a great impact on the business as one of the main costs to this scheme would be adequate parking within the area. The fact that the grant is from the Mayor of London will also generate publicity for the company, which is always a good thing.
Finally, this is suggested as a pilot scheme. In the unlikely event that this scheme does not prove successful, First Cars Plc. can always fall back on their existing services, although they will be in a large amount of debt.
One reason against the plan is the financial implications for the firm. The training budget for the Car Club is £400,000, over 10 times more that their current spend on training. The budget for marketing is three times the size, and the average staff salary is predicted to rise by around £10,000. When considering these figures one has to question the feasibility of this scheme. This is a large outlay for a ‘pilot’ scheme and the company has ‘limited financial reserves’. This scheme would also fall within the ‘New Product Development’ area of Ansoff’s matrix, an area with a large amount of risk.
The plan also suggests that management should operate in a decentralised manner. This means that instead of a couple of senior managers being responsible for the whole company, control is spread across a larger number of employees. This is a different method to their current centralised management style and means that the senior managers currently in control of the company would lose part their control of the business. As the company is new to this management style, it is quite risky. Poor decisions could be made by inexperienced staff and could lead to disaster.
The case study also states that Amy is ‘keen to make a big impact within the business quickly’. Does this mean that she has rushed these plans in order to achieve this? Has she doctored the figures in order to progress the scheme forward and impress her superiors? This could mean that the business is moving into a new market based on data which is not even correct.
Overall I do not think that First Cars Plc. should adopt the Car Club Proposal. The idea looked initially promising; an emerging market which is predicted to grow by 300% in value, with little competition at present. These suggestions are all around figures that Amy has put together however. Without the knowledge that Amy may be biased with her predictions, this would appear to be a very good proposal. However, the depth and accuracy of the plan is vital to ensure the success of the business and as this has been brought into question, I would have to say that I do not recommend that First Cars Plc. should progress any further with this proposal until at least this data has been checked and agreed by the directors.