Olympic rent-a-car company Essay

SUMMARY exceeding is a US rent-a- simple machine high society facing some changes in the mart it operates. A competitor caller ( try) is changing its inscription course of study. surpassing managers charter to evaluate the impact of those changes and to transfer actions in order to respond correctly to those changes without losing mart sh atomic come down 18 and if thinkable victorious advantage of the situation. The aim of this study is to evaluate those changes and to propose a recomm devastationation to respond to these market changes.MARKET SUMMARYThe machine contract manufacture in US is a $24 billion industry dominated by 4 big players, Enterprise, Hertz, AVIS and majestic with the following market revenue shares Enterprise is the dominant player with 50% share ($12 billion) followed by Hertz with 24%, AVIS with 14%, surpassing with 7% and the separate(a) 5% are shared by smaller players.This logical argument organisation is intemperately dependent of the ove rall state of the economy and since the global crisis of 2008 were there was a 6,5% break in entire revenues, the revenues are recovering since 2009 growing among 2 and 3% every year. This revenue ontogeny is due to the growth of prices rather to the growth in the number of clients.There are 2 big markets for the rent-a-car business, the Airport leases and the Local term of a contracts.The airport rentings contribute with 50% of the nub revenue ($12 billion) and are divided into blank and business clients. Costs are higher due to fees paid to the airports that consist in 10% of the revenue plus the fixed fees for counters.The local renting contributes with the other 50% ($12 billion) and the primary(prenominal) clients are insurance companies. The counters are hardened at car dealerships and repair shops. Enterprise and Hertz are the main players in this market and Enterprise has to a longer extent than 50% share.This industry is firmly influenced by the adaptation of the car fleet to demand and amongst 2008 and 2012 in response to the global crisis the total number of rent-a-car cars was diminished by 0,5%.CUSTOMER ANALYSISIn 2012, 27% of US adults (proximately 59.400.000 people) rented a car and the main renters were the business travelers. In 2012 airport market, 20% of the travelers were business travelers and gave neckcloth to 80% of the revenue and the other 80% of travelers were leisure travelers and check 20% of the revenues. Usually business travellers pay more than leisure travellers. This is mainly because leisure travelers pay smaller per solar day charges as they travel in move revenue geezerhood, do preplanned trips and to loyalty program redemptions. Business travelers tend to score points in business travelling and to spend those points in leisure travelling.crosswise this industry, Rent-A-Car companies tend to use loyalty programs to develop relationship in the midst of costumers. Each caller-up has its own program but th ey are all very similar. The customer earns points depending of the number of days they rent the car and they besides receive unfreeze upgrades. The earned points can be claimed and interchange for rental days. In 2013 Enterprise changed the way their customers gain the loyalty program points. Customers that received points based in the number of days of usage right off receive points based on the money they spend. This inwardness that they earn more points straightaway.Usually clients dont have any kind of labor to participate in loyalty programs. Anyone that rents a car can be a member depending on the number of days they rent, as resultant role people are members of several loyalty programs as they rent in different companies. The rental loyalty programs are non really differentiating rental companies they are a perk for customers.In 2012 10% of exceptional customers were members of Olympic medalist program and these customers provided 21% of the revenues. They paid fo r 3.996.000 days and claimed 375.000 free days. This authority $323.400.000 of revenue come from members of Olympic medalist program, to this revenue we have to figure the fixed cost, the free days cost and the program advertising cost ($28.000.000). The fixed cost is 20% of $21 ($4,2) multiplied by the total rental days and embody $1.575.000 and the free days cost is equal to $7.629.552. This gives an economic cheer of $233 per Olympic medalist program customer.The regular customers represent 79% of revenues that translate into $1.216.600.000. The total rental days for these customers are 24.681.000 and these days represent a cost of $103.660.200 (24.681.000 x $4,2). There are also the advertising be of ($108.000.000 $28.000.000 = $80.000.000). Subtracting to $1.216.600.000 the variable costs and the advertising costs we end with $1.032.939.800. Dividing this think of by the total number of regular customers (11.052.000) the economic value of the regular customer is obtained and equals to $93. The conclusion is that loyalty program clientsstill have a big economic influence in the revenue structure. family ANALYSISOlympic is one of the four biggest rent-a-car companies in the US with a share of 7% of revenues witch is the smallest share of this group. The companionship as chosen to be a follower and has always priced lower than Hertz. It has 464 rental locations and a fleet of 108000 cars that remain in the conjunction for 8 to 18 months. The income per car is slightly below de industry average and the reason for this by chance the dominance of airport counters that bring more costs to the company than a local counter.Olympic has seen an improvement on its revenues for the last 4 geezerhood and in table 1 we can see an increase of the last(a) profit from a loss of $15 billion in 2008 to a profit of $32 million in 2012. The main reason for these results is the company flexibility to adapt its car fleet to demand (table 2) as fountainhead as the ad aptation of the number of counters the company has (table 3).RECOMMENDATIONThe recommendation is that Olympic rent-a-car doesnt follow the Enterprise strategy.About 1,45% of the total rental days of 2012 involved free days and a free day reward costs about $21 to cover the fixed costs and the payment to the franchisee. Of the 108000 cars fleet each car was rented about 232 days per year. With this selective information we can calculate the total rental days. Total rental days are equal to 108.000 x 232 this means 25.056.000 rental days per year.The 1,45% of the total rental days give us the total free days per year in 2012 this percentage represents 363.312 free days that multiplied by the cost of a free day ($21) testament give us the cost of all the free days in 2012. The total cost for the free days is equal to $7.629.552.If Olympic decides to match the Enterprise offer, the number of free days leave behind increase to a value amidst 1,65% and 1,95% of total rental days this m eans a number of free days between 413424 and 488592 and an increase of free days per year between 50.112 and 125.280 days, this means an increase in cost of the programs free days of $1.052.352 to $2.630.880 (1 million to 2,5 millions increase of free days cost per year). Considering that the demand will not increase a lot this means a net decline of 3 to 8% of total profits. This decrease is significant for a company that has a small operating margin of 15,8%. The way Olympic responds to the attempt initiative will be decisive in the profitability of the company. interconnected the enterprise offer will lead to an increase in the costs and no increase in market share is guaranteed.Since no great increase in demand is predicted, following the Enterprise strategy would simply represent a 3 to 8% reduction in profits, Olympic cannot reach this reduction due to the narrow operating margin. Beside this, the fleet of Olympic rent-a-car is very well adapted to de demand and implemen ting no memory loss days would probably let some Olympic medalist clients unsatisfied. Enterprise has a huge fleet and available cars this means that it can afford not having blackout days.The increasing usage of the Internet to compare prices and to give services will diminish the loyalty programs importance and effectiveness. Third fellowship consolidators the online price comparisons and bookings bring a greater relevance to prices the rent-a-car companies practice. This will affect the companies loyalty programs effectiveness. By focusing on price, customers will chose a rent-a-car company by the price of the service taking to a second plan the loyalty programs eudaimonias. This means that Olympic should focus on global cost reduction in order to keep minatory the prices and therefore gain advantage over the competitors. In the future the companythat has the lower prices will dominate the market.One other market intent is the reduction of business travelling and the growth of internet based communications. This means that in future rent-a-car companies will have less business travellers, at this moment these clients are the heavy users of loyalty programs, and the leisure clients will gain weight on the revenue share.Olympic should maintain their loyalty program essentially due to the economic value of the loyalty programs customers ($233) overmuch greater them the regular clients ($93) and improve the program by offering other kind of benefits that could improve the market penetration of the program. Some of these benefits could be faster pick up and drop off time for the program customers. along the way the company could evaluate their loyalty program customers economic value and adapt to the expected decrease of loyalty program importance by reducing free rental days and using the savings of this reduction on rental price reduction. Since loyalty programs dont benefit business companies Olympic offer the chance to this kind of customer to favour between the loyalty program benefits or a decrease in price. This should attract more large companies business maintaining the small and individual share.To reduce the cost structure Olympic should also try to gain market in the local business dominated by Enterprise and Hertz, this would do to avoid the large costs associated to the operation in airports. This way Olympic could gain market share of a market dominated by 2 companies, maintain their business market share threatened by the teleconferencing trends (shift to insurance) and to improve the global cost structure by taking advantage of the lower costs associated to this kind of counters.