This memo discusses three main topics about Enterprise Holdings: their current competitive advantage, the impact of the car sharing business on the car rental industry’s structure and profitability, and how the company should handle the car sharing business.
I have used the tools and frameworks of corporate strategy to develop my recommendations. The company has two main competitive advantages: 1) economies of scale due to being the industry leader with 6,000 locations and 850,000 vehicles; and 2) our proprietary closed-standard technology platforms, Ecars and ARMS. These advantages have created strong barriers for competitors and have enabled us to charge higher prices to our customers, capturing more value. The emergence of car sharing has had a significant impact.
Car sharing is a viable alternative that decreases our ability to benefit from high prices, as it allows customers to choose and increases their bargaining power. The presence of similar options lowers prices and reduces profits. Enterprise needs to address the growing car sharing market and can do so by leveraging its current fleet, location assets, best practices, and economies of scale. This will help develop WeCar as a separate but connected brand, while expanding its signature pick-up and drop-off service to WeCar.
Competitive Advantage: Source, Sustainability and Scope. Source. Enterprise obtains its competitive advantage through a combination of products, services, and market position. With more than 6000 locations, 850,000 cars, and a market share of 48%, our proprietary IP technology streamlines processes, reduces costs, and creates exit barriers for our largest customers. This positions us as the leader in the industry. These advantages, along with our values centered around employees and customers, operational best practices, and a strong culture of teamwork driven by incentives, create a unique set of activities that make it difficult for others to replicate Enterprise’s success.
Over the past twenty-five years, Enterprise has invested in “hard commitments” that have helped protect it from competitors. Our Ecars and ARMS technology has integrated us into our major customers’ operations and lowered costs for them. This has also made it difficult for customers like Geico Insurance to switch to Avis due to high switching costs.
The company’s firm commitments and robust IP protection enable it to create and safeguard a distinct position in the strategy frontier. Our unique blend of competitive advantages empowers us to surpass our competitors, who depend on generic differentiation strategies in the market. Nevertheless, these advantages do not apply to crucial markets like airports and car sharing.
Airports serve the needs of both business and leisure travelers, providing convenience, efficiency, and quick service. Conversely, car sharing addresses the transportation requirements of city residents without their own vehicles. Our Ecars and ARMS technology platforms were initially designed for insurance clients but do not offer any advantages in other markets like airports. Consumers in the airport sector have a variety of choices, including Hertz, Avis-Budget, and Thrifty-Dollar – our competitors who can be seen as excellent alternatives. To strengthen our position at airports, we acquired Alamo-National.
However, it doesn’t make sense to acquire a car sharing company as a strategy to enter the market because there is no attractive acquisitions target that can enhance our competitive advantage. We can achieve this ourselves by utilizing our 6000 locations, 850,000 vehicle fleet, and strong local management. Moreover, building the technology for car sharing is open and easy. Car sharing has a negative effect on profitability as the presence of viable substitutes reduces our ability to charge high prices.
The customer’s bargaining power increases with more choices, leading to lower prices and greater consumer surplus, as shown by the area between A and B on the graph below. If a company cannot charge higher prices due to the availability of substitutes, its profitability will decrease. Exhibit 1 outlines the five key forces that determine the potential for profitability in the car sharing market: Buyer Power, Supplier Power, Threat of New Entry, Threat of Substitution, and Competitive Rivalry.
The car rental industry’s analysis of the five forces indicates that industry effects are crucial for profitability, as noted by research. The car sharing market is witnessing growth and has a positive long-term outlook because of the decline in car ownership within cities. The increase in gasoline prices has prompted individuals to move to urban areas and choose alternative transportation options. As a result, there has been a decrease in urban cars, leading to reduced insurance claims and revenue for our company.
The car sharing market is growing rapidly, with a projected growth rate of 15.53% from 2010 to 2013 in the US and 12.50% in Europe. The number of users is also increasing, estimated at 449,700 in 2010 and expected to reach 640,500 thousand by 2013.
Various market segments are included in the car rental industry such as airport, local, business, discretionary, urban leisure, insurance and repair, and college/university. The estimated revenues for airport and local car rental are $10 billion while the college/university segment brings in $2.818 billion.
These positive growth trends suggest a promising future for the car sharing market.
While car sharing presents the possibility of causing disruption, our industry can still be appealing if we maintain our focus on offering a diverse range of services for individuals in need of or interested in renting a car. This emphasis entails leveraging our resources and abilities to establish WeCar as a distinct brand with a distinct value proposition. Car Sharing: A Strategic Approach. What do we understand about Zipcar? The truth is, ZipCar’s business model did not perform as expected. Eventually, research demonstrated that customers were only willing to travel a short distance on foot to access a car.
ZipCar faced the challenge of needing locations in neighborhoods every 5-6 blocks, which was expensive and not feasible. Nevertheless, we can resolve this problem and gain an edge by utilizing our pick-up and drop-off services. This will distinguish us from ZipCar and provide customers with a higher level of service, allowing us to generate more revenue through customers’ willingness to pay. While some may argue that this strategy can be easily copied and therefore not viable in the long run, we have successfully implemented it for 24 years without any imitations.
Why should we position WeCar separately from Enterprise? Because it offers us the advantage of scale and manpower that our competitors lack. Integrating WeCar with Enterprise could be risky and jeopardize our ability to capture value. It may confuse our customers, dilute our brand, and lead to internal competition. Instead, we should develop WeCar as a distinct brand with its own lot locations, while utilizing our existing assets to build economies of scale and gain a competitive edge in the car sharing market.
Exhibit 1: Five Forces Analysis on the Car Sharing Industry
[3]. World Car Sharing Industry Overview Report http://www.reportlinker.com/p0690960/Global-Car-Sharing-Market-Report-Edition.html
[4]. Fiona Murray, MIT EMBA IDEA Week Lecture, March 22, 2013.
[2]. Frost & Sullivan (Strategic Analysis of Carsharing Market in North America).
[1]. Stern, Scott. MIT Sloan School of Management EMBA Strategy Lecture, January 26, 2013.
