Olympic rent a car

Topics: Costs, Variable cost, Microeconomics Pages: 7 (1852 words) Published: September 9, 2014
OLYMPIC RENT-A-CAR US CASE STUDY

STUDENT: JOSÉ FILIPE SOUSA CARVALHO

SUMMARY

Olympic is a US rent-a-car company facing some changes in the market it operates. A competitor company (Enterprise) is changing its loyalty program. Olympic managers have to evaluate the impact of those changes and to take actions in order to respond correctly to those changes without losing market share and if possible taking advantage of the situation. The aim of this study is to evaluate those changes and to propose a recommendation to respond to these market changes.

MARKET SUMMARY

The car renting industry in US is a $24 billion industry dominated by 4 big players, Enterprise, Hertz, AVIS and Olympic with the following market revenue shares: Enterprise is the dominant player with 50% share ($12 billion) followed by Hertz with 24%, AVIS with 14%, Olympic with 7% and the other 5% are shared by smaller players.

This business is heavily dependent of the overall state of the economy and since the global crisis of 2008 were there was a 6,5% break in total revenues, the revenues are recovering since 2009 growing between 2 and 3% every year. This revenue growth 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 rentals and the Local rentals.

The airport rentals contribute with 50% of the total revenue ($12 billion) and are divided into leisure 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 main clients are insurance companies. The counters are located at car dealerships and repair shops. Enterprise and Hertz are the main players in this market and Enterprise has more than 50% share.

This industry is heavily influenced by the adaptation of 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 by 0,5%.

CUSTOMER ANALYSIS

In 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 origin to 80% of the revenue and the other 80% of travelers were leisure travelers and represent 20% of the revenues. Usually business travellers pay more than leisure travellers. This is mainly because leisure travelers pay smaller per day charges as they travel in lower revenue days, do preplanned trips and to loyalty program redemptions. Business travelers tend to earn points in business travelling and to spend those points in leisure travelling.

Across this industry, Rent-A-Car companies tend to use loyalty programs to develop relationship between costumers. Each company has it's own program but they are all very similar. The customer earns points depending of the number of days they rent the car and they also receive free upgrades. The earned points can be claimed and exchanged 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 now receive points based on the money they spend. This means that they earn more points faster.

The Olympic Medalist reward program SWOT analysis

Internal

Strengths

Weaknesses

Increase rental costumers loyalty

Loyal customers are the more profitable and may lead companies they work to be loyal to a renting company

Heavy airport presence

Industry wide standard (no differentiation clients belong to several rewards programs)

Program cost (airports counters are expensive to maintain)

Accessible to any customer

Way customers earn points

Not profitable for companies

Blackout days

External

Opportunities

Threats

Implement other benefits (Faster service)

Change points...
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