Olympic rent a car business essay

BRIEF SUMMARY

Olympic is a US rent-a-car company facing some modifications in our market it functions. A competitor company (Enterprise) is changing its loyalty program. Olympic managers need to evaluate the impact of those changes and to have actions in order to respond properly to those improvements without losing business and if possible taking advantage of the case. The aim of this kind of study is always to evaluate all those changes also to propose a recommendation as a solution to these industry changes.

MARKET SUMMARY

The auto renting sector in ALL OF US is a $24 billion sector dominated by simply 4 big players, Business, Hertz, MENACE and Olympic with the pursuing market revenue shares: Organization is the dominant player with 50% talk about ($12 billion) followed by Hertz with 24%, AVIS with 14%, Olympic with 7% and the additional 5% happen to be shared simply by smaller players.

This kind of business can be heavily based mostly of the general state with the economy and since the global catastrophe of 08 were there was obviously a 6, five per cent break in total revenues, the revenues happen to be recovering since 2009 growing between two and 3% every year.

This revenue growth is caused by the growth of prices rather towards the growth in the number of consumers.

There are 2 big markets for the rent-a-car business, the Airport terminal rentals plus the Local renting.

The air-port rentals bring about with 50 percent of the total revenue ($12 billion) and therefore are divided into leisure time and business clients. Costs are bigger due to fees paid towards the airports that consist in 10% in the revenue as well as the fixed charges for surfaces.

The local booking contributes together with the other 50 percent ($12 billion) and the primary clients happen to be insurance companies. The counters are located at car dealerships and repair retailers. Enterprise and Hertz will be the main players in this market and Enterprise has more than 50% reveal.

This sector is heavily influenced by adaptation with the car fleet to demand and between 2008 and 2012 in response to the global crisis the total number of rent-a-car cars was diminished simply by 0, five per cent.

CUSTOMER EVALUATION

In 2012, 27% of US adults (proximately fifty nine. 400. 500 people) leased a car plus the main renters were the organization travelers. In 2012 airport market, 20% of the travelers were business travelers and offered origin to 80% from the revenue as well as the other many of these of travellers were leisure travelers and represent 20% of the income. Usually organization travellers pay more than enjoyment travellers. This can be mainly because leisure travelers spend smaller each day charges as they travel in lower earnings days, perform preplanned journeys and to loyalty program redemptions. Business travelers tend to generate points in corporate travelling and to spend those points in leisure exploring.

Across this industry, Rent-A-Car companies are likely to use dedication programs to develop relationship among costumers. Each company provides it’s own program but they are all much the same. The customer earns points depending of the number of days they rent the car and they also receive free upgrades. The earned items can be believed and sold for local rental days. In 2013 Enterprise changed how their customers gain the commitment program factors. Customers that received points based in the quantity of days of consumption now acquire points based upon the money they spend. Therefore they make more items faster.

Usually clients don’t have any sort of restriction to participate in dedication programs. Anyone that rents an auto can be a affiliate depending on the length of time they rent, as effect people are people of many loyalty courses as they rent in different companies. The rental loyalty programs are not genuinely differentiating leasing companies they can be a advantage for customers.

In 2012 10% of Olympic consumers were associates of Olympic medalist system and these customers offered 21% from the revenues. They paid for three or more. 996. 000 days and claimed 375. 000 cost-free days. Therefore $323. 4 hundred. 000 of revenue originate from members of Olympic medalist program, to this revenue we must subtract the fixed costs, the free of charge days expense and the plan advertising costs ($28. 500. 000). The fixed value is 20% of $21 ($4, 2) multiplied by the total rental times and the same $1. 575. 000 and the free days cost is comparable to $7. 629. 552. This gives an economic worth of $233 per Olympic medalist plan customer.

The totally normal customers signify 79% of revenues that translate into $1. 216. 600. 000. The entire rental times for these customers are twenty-four. 681. 500 and these days represent a cost of $103. 660. 200 (24. 681. 000 times $4, 2). There are also the advertising costs of ($108. 000. 500 ” $28. 000. 000 = $80. 000. 000). Subtracting to $1. 216. 600. 1000 the variable costs as well as the advertising costs we end with $1. 032. 939. 800. Dividing this worth by the count of regular clients (11. 052. 000) the economic worth of the regular customer is usually obtained and equals to $93. The conclusion is the fact loyalty system clientsstill possess a big economic influence in the revenue framework.

COMPANY ANALYSIS

Olympic is among the four biggest rent-a-car companies in the US which has a share of 7% of revenues witch is the tiniest share of this group. The organization as decided 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 corporation for eight to 18 a few months. The profits per car is somewhat below para industry normal and the reason behind this could be the prominence of airport terminal counters that bring even more costs towards the company than a local countertop.

Olympic provides seen a marked improvement on the revenues for the last 4 years and in desk 1 we can see an increase with the net benefit from a loss of $15 million in 2008 to a earnings of $32 million this year. The main reason for the results is a company flexibility to adapt its car fleet to demand (table 2) and also the adaptation with the number of counter tops the company provides (table 3).

RECOMMENDATION

The recommendation is the fact Olympic rent-a-car doesn’t stick to the Enterprise strategy.

About 1, 45% in the total local rental days of 2012 involved free days and a free working day reward costs about $21 to cover the fixed costs and the payment to the franchisee. Of the 108000 cars navy each car was leased about 232 days per year. With this kind of data we are able to calculate the whole rental days. Total rental days happen to be equal to 108. 000 back button 232; therefore 25. 056. 000 rental days per year. The one particular, 45% with the total rental days provide us with the total free days per year in 2012 this kind of percentage signifies 363. 312 free days that multiplied by the expense of a free time ($21) can give us the cost of all the totally free days news. The total cost for the free days is corresponding to $7. 629. 552.

In the event that Olympic chooses to match the Enterprise present, the number of free days raises to a worth between 1, 65% and 1, 95% of total rental times this means numerous free days and nights between 413424 and 488592 and a growth of free times per year among 50. 112 and 125. 280 days and nights, this means an increase in cost of the programs free days of $1. 052. 352 to $2. 630. 880 (1 million to a couple of, 5 millions increase of free days price per year). Considering that the need will not maximize a lot therefore a net decrease of a few to 8% of total profits. This decrease is definitely significant for any company which has a small working margin of 15, 8%. The way Olympic responds towards the enterprise project will be decisive in the success of the organization. Matching the enterprise offer will result in an increase in the cost and no increase in market share is guaranteed.

Since no superb increase in demand is predicted, following the Business strategy could simply stand for a 3 to 8% reduction in revenue, Olympic cannot afford this reduction due to the slim operating perimeter. Beside this kind of, the number of Olympic rent-a-car is very very well adapted to de require and putting into action no power outage days may possibly let a lot of Olympic medalist clients unfulfilled. Enterprise contains a huge navy and readily available cars therefore it can find the money for not having blackout days.

The increasing usage of the Internet to compare rates and to publication services will diminish the loyalty programs importance and effectiveness. Alternative party consolidators the online price comparisons and bookings bring a larger relevance to prices the rent-a-car firms practice. This will affect the companies’ loyalty applications effectiveness. Simply by focusing on selling price, customers is going to chose a rent-a-car company by price of the service taking to a second plan the loyalty programs benefits. This means that Olympic will need to focus on global cost lowering of order to continue to keep lowering the prices and therefore gain advantage above the competitors. In the foreseeable future the companythat has the affordable prices will master the market.

One other market inclination is the lowering of organization travelling and the growth of online communications. Because of this in future rent-a-car companies will have less organization travellers, at this moment these clients are the heavy users of loyalty courses, and the amusement clients can gain weight for the revenue share.

Olympic should certainly maintain their loyalty system essentially as a result of economic value of the loyalty programs consumers ($233) much larger them the normal clients ($93) and enhance the program by providing other sort of benefits that can improve the marketplace penetration with the program. A few of these benefits could be faster pick up and drop off time for this program customers. As you go along the company may evaluate all their loyalty plan customers economical value and adapt to the expected loss of loyalty software importance by reducing free of charge rental days and using the savings of this reduction upon rental selling price reduction. Since loyalty applications don’t gain business companies Olympic offer the chance to this kind of customer to choose between the loyalty program benefits or a decrease in price. This will attract more large companies business retaining the small and individual discuss.

To reduce the fee structure Olympic should also make an effort to gain market in the local business dominated by Enterprise and Hertz, this may help to avoid the large costs associated towards the operation in airports. In this way Olympic may gain business of a marketplace dominated by simply 2 businesses, maintain their very own business market share threatened by the teleconferencing developments (shift to insurance) and to improve the global cost structure by taking benefit of the lower costs associated to the kind of desks.

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