olympics car rental case study

Olympics Car Rentals

Final Exam Presentation IMBA Nov 2012

Abhishek Kumar Mishra Vivek Jha

Dec 13, 2013

Table of contents

Executive Summary

Car Rental Industry

Olympic Car Rental

Enterprise Car Rental

Recommendations

Risk and Mitigation

2

Executive Summary

Olympic Car Rentals is the 4th biggest car rentals company in USA

Airport Business rentals is an attractive segment and is 9.6 billion dollar segmant

Enterprise, the biggest car rental company is moving aggressively in this segment, creating significant business risks for Olympic

How should Olympic car rentals react to this move and attract more customers

Differentiate itself as an Elite provider

Increase customer base through Partnering

with local / small car rental providers/

mobile companies

Adopt dollar based reward system to increase customer spending and build

loyalty

Our Recommendations

3 Summary Olympic Industry Recommendation Risks Enterprise

Executive Summary

Car Rental Industry

Olympic Car Rental


Recommendations

Risk and Mitigation

4

Car rental in US is a matured market of size $24 billion

Summary Olympic Industry Recommendation Risks 5

High

Concentration

High Growth

Low Growth

Low

Concentration

$24 billion

Growth rate 2%

Low profit margin

50%

50%

20%

80%

City

Airport

Leisure

Business

Rental type Traveler type

Key categories

0 2000 4000 6000 8000 10000 12000

Business

Leisure

Revenue ($ MM)

Airport revenue

At $9.6 billion, business rentals at Airport account for 40% of the entire industry

Enterprise

24%

50%

14%

7% 5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Market share

Other

The car rental industry is very competitive and consolidated

6

Suppliers High

Threat of Entry Medium

Threat of Substitutes

High

Industry Consolidated

4 players

Customers High

Car dealers Insurance co

Maintenance co

Public transport Personal vehicle Shared vehicle

High investment Third party agencies Car manufacturers

Business Leisure

(Individual/ Corporate)

Top 3 firms control 88% of Market share (revenue wise)

Hertz is the leader in business segment whereas Enterprise owns more than 50% of market share

88%

Olympics

Avis

Enterprise

Hertz

Summary Olympic Industry Recommendation Risks Enterprise

Executive Summary

Car Rental Industry

Olympic Car Rental


Recommendations

Risk and Mitigation

7

Olympic Car rental is a value player and not a strong player

8

4th largest company Value player

Airport / Off- airport rentals

Business and leisure travelers, individuals/ corporates

Hertz, Avis, Enterprise Rentals

Company

Customers Competiti

on

7% Market share (revenues)


Executive Summary

Car Rental Industry

Olympic Car Rental


Recommendations

Risk and Mitigation

9

Enterprise Rent-A-Car’s, a big player in off-airport rentals is looking to increase its presence in the business traveler market

10

Key Risks for Olympics- Potential loss of market share, aquisition

Great coverage: Within 15 miles at 90% of population

Its new customer loyalty program targeted at attracting business customers is gaining popularity


Executive Summary

Car Rental Industry

Olympic Car Rental


Recommendations

Risk and Mitigation

11

Olympics Rent A Car needs to shield itself from the possible business risks arising from Enterprise’s latest move

12

“In order to compete against the Enterprise and other competition, Olympics should take the following steps”

Differentiate itself as an Elite

provider

Increase customer base through

Partnering with local / small car rental providers/ mobile

companies

Adopt dollar based reward

system to increase customer

spending and build loyalty


1. Olympic should target upper class of renters and offer “Elite” services

» Hertz is earning 24% revenue share with 17% fleet share

» Heavy business travellers pay $190 per trip, Medium business traveller pay ~$ 57 per trip

» In business category, Enterprise is weak with just 20% market share of business travellers

» 20% business traveller contribute to 80% revenue for airport rentals

» Offer premium Services Free pick up and drop

Zero Black out

No queue for members – 5 minute check out promise

Key handing over to Air travellers at Airport

13

Unit % Revenue

( %) Revenue ($ MM)

Hertz 17 24.00% 5760

Olympic 6.70% 7% 1680


Enterprise is too big player to enter in to price war instead capturing target customer is better proposition

» Enterprise holds 50% revenue share and 53% fleet of cars

» Diversification is needed to spilt risk- Elite club is differentiation and diversification both

» Olympic should bring Elite club to weekend travellers , They contribute just 5 % in revenue but 9% in profits

» Olympic is highly leveraged and further addition in debt may increase its cost of debt.

» Bronze members should be invited to join elite club. They are active and are 11 times more than gold club members

14 Summary Olympic Industry Recommendation Risks Enterprise

Olympic needs to spilt efforts between Elite and regular customers and balance between value Vs volume

» “Olympic Elite” group for those whom service is more important than lowest price

» 30% of cars for “Elite Club” – safety net & growth prospect

» Avoid risk of failure by100% transition in to Elite club

» Utilise current facilities and increase web presence

» Olympic should aim at increasing revenue by 8 % and profit margin to 4% from 2.1% for “Elite club”

15

Total Inventory 108000

2012 revenue - $ Million 1540

30% Inventory 32400

30% revenue 462

Increase revenue by 8% 498.96

New Profit Margin @ 4% 19.96

Delta Profit Margin - $ Million 10.2564


2. Olympic should expand its customer base by partnering with independent companies, mobile / coupon companies

Lesser number of locations

High debt- 136% of revenues

Stiff competition

Number of bookings is not increasing

New entrants- coupon deal providers/ price

comparators

Higher use of online booking

Budget friendly

Convenient bookings

16

Lesser flexibility compared to competition

Lower prices Lower prices, higher

convenience

Internal factors Competition Trends

Difficult to increase its revenue by increasing prices, possible to increase by addressing customer concerns of convenience


Smaller/independent firms provide higher number of locations as an important convenience factor for passengers

17

0

1000

2000

3000

4000

5000

6000

Independents Other companies 0 50 100 150 200 250 300 350 400

U-save

Rent-a-wreck

Affordable/sensible

ACE rent-a-car

Payless

Triangle Rent-A-Car

Fox Rent A Car

Locations with other firms

Olympics can create a network of independent car rentals, smaller firms and giving it a great customer base and convenience

Independent Other firms Partnership Acquisition

Pros Large network Lower requirements Higher flexibility

Smaller network Easy to partner with

Cheaper Simpler

Lesser number

Cons Less control Less loyalty

Higher control Higher valuation

Large number

Costly


Consumers are becoming tech savvier and increasing becoming comfortable with online transactions and third party agencies

Online 46%

Third party 12%

Other methods

42%

Booking channels- business customers 2012

58% of business travelers booked their travel through online methods

(operator/third party)

90

119

0

20

40

60

80

100

120

140

2009 2012

Online sales of leisure and business travels increase by more than 20% in 3 years

18

Online trends/ third party agencies provide convenience and price options. More consumers will be moving to online platform/ third party agencies


Emerging trends such as mobile devices and online coupons are attracting further customers online

19

32% of travel bookings expected in

2016

Increase in online coupon vendors-Groupon and Comparative pricing sites

Convenience

Best deals

Mobile devices Online coupons

Business/ Leisure Leisure

An early partnership with mobile companies, app developers, third party agencies and online coupons companies can help Olympics push its deals before competition

Best prices


20

3. Olympics should use its reward system to incentivize customers and increase number of trips 3. Olympics should adopt dollar based reward system

0%

20%

40%

60%

All Loyalty club members

The number of Olympic’s Medalist reward program members is way behind Hertz, Avis and Enterprise

Members

(000s) % active

members

Spend/ rental

day Spending/ member

Gold 210 37% 66 127

Silver 630 48% 98 188

Bronze 1460 58% 75 136

Silver members spend highest/ day and higher/ member

Olympics should strengthen its reward program to include more members in Silver membership


Dollar based incentive program will be successful, if the customer base increase by 5% and customers spend atleast 25% more

21

Day based program

Dollar based program

Number of rentals 1.45% 1.80%

Annual rentals 26625000 26625000 total free rental days 386062.5 479250 Extra cost/day 21 21 Total extra cost (Million) 19.6 Increase in membership 5% Increse in spend (%) 126% Extra earning 20.36 Net loss -0.79

Moving to a dollar based reward system will incentivize business customers to spend more


Heavy business travelers are a good target for higher consumer spend

22

Customer segments

% of all business travellers

# of trips (Million)

% of industry revenues

Revenue ($ Million)

Revenue/ trip

Heavy 37 35 55 6600 190.17

Medium 45 42 20 2400 56.86

Light 18 17 5 600 35.54

Business customers pay higher/ trip- as such moving to a dollar based reward system will incentivize customers to earn higher reward, at the same time, higher spend by

customers can make up for the additional revenue for extra trip


Executive Summary

Car Rental Industry

Olympic Car Rental


Recommendations

Risk and Mitigation

23

Risks and Mitigation

24

Risks Impact Mitigation factors

Competition replicate the strategy easily High Have deep relationships, sign exclusive agreement

Olympic car rental gets acquired through a LBO

High Adopt a good financial strategy

Insufficient funding to fund elite program

High Adopt a good financial strategy

Incentive scheme fails to increase the market share

Medium

Support incentive scheme with a good advertising strategy, provide more value added services

Prices drop down further Low Focus on premium services

Elite club fails to attract enough customers

Medium Support with a good advertising strategy, provide more value added services


Thank You

25

26

-0.79 90% 100% 125% 150%

3% 11 10 7 5

5% 5 3 -1 -5

7% -1 -3 -9 -14

10% -10 -13 -21 -29

3. Olympics should use its reward system to incentivize customers and increase number of trips Sensitivity Analysis for Dollar based program

olympics car rental case study

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