Car Sharing Strategy: Enterprise Rent-a-Car

This memo addresses three key issues: Enterprise Holdings’ current competitive advantage, the impact of the car sharing business on the structure and profitability of the car rental industry, and how the company should approach the car sharing business.

I’ve developed my recommendations using the tools and frameworks of corporate strategy. Competitive Advantage. Enterprise possesses two key competitive advantages: 1) economies of scale through our position as industry leader with 6,000 locations and 850,000 vehicles and; 2) Ecars and ARMS, our proprietary closed-standard technology platforms. These advantages have created high barriers to entry for our competitors and have allowed us to capture more value through higher prices to our customers. The Impact of Car Sharing.

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Car sharing is a close viable substitute and reduces our ability to capture value in the form of high prices; because the customer can exercise choice this enhances his bargaining power. The availability of close substitutes reduces prices and therefore decreases profitability. Enterprise’s Strategic Approach. The car sharing market is a growing market that Enterprise must address. Enterprise should utilize its existing fleet and location assets, best practices, and economies of scale to further develop WeCar into a loosely affiliated brand while extending its hallmark pick-up and drop-off service to WeCar. Discussion

Competitive Advantage: Source, Sustainability and Scope. Source. Enterprise derives it competitive advantage through a mix of products, services and market position. With over 6000 locations, 850,000 cars, industry market share of 48%, proprietary IP technology that streamlines processes, reduces costs, and erects exit barriers for our largest customers care, position us as the industry leader. These advantages, combined with an employee- and customer-centric values, operational best practices, and a deep incentive-based teamwork culture, form a unique set of value creating activities that makes Enterprise difficult to imitate.

Sustainability. Over the past twenty-five years, Enterprise has made several investments in the form of “hard commitments” which have enabled it to fend off threats from potential rivals. Our successful, proprietary Ecars and ARMS technology has enabled us to become enmeshed in our largest customers’ business processes. Additionally, these technologies have reduced transaction costs for our biggest customers and created barriers to exit (i. e. high switching costs, for instance, if Geico Insurance decided to switch to Avis).

These hard commitments, layered with strong IP protection, enable the company to secure and defend a lonely position on the strategy frontier. Our “unique mix” of competitive advantage enables us to create and capture value better than our competitors–competitors that must rely on generic differentiation strategies to avail themselves in the market. Scope. Unfortunately, not all our advantages extend to other key markets like airport and car sharing.

Airports serve business and leisure travelers who demand convenience, speed and in-and-out service. Car sharing serves the urban dweller who doesn’t own a car. Ecars and ARMS are closed-standard technology platforms built for our insurance customers; these technologies create zero advantage for us in other markets, particularly airports, where consumers face a wide degree of choice among our competitors, Hertz, Avis-Budget and Thrifty-Dollar, which are perfect substitutes. We acquired Alamo-National to expand our presence in airports.

However, acquiring a car sharing company as a strategy to enter the car sharing market doesn’t make sense because the market lacks an attractive acquisitions target that can reinforce our competitive advantage in the space. Utilizing our 6000 locations, our 850,000 vehicle fleet, and our strong local management, we can do this ourselves. And the technology is open and easy to build. Car Sharing The Effects on Profitability As mentioned earlier, the presence of close viable substitutes reduces our ability to capture value in the form of high prices.

Faced with more choice the customer gains bargaining power. This bargaining power reduces prices and increases consumer surplus, which is area between A and B on the graph below: If the company is unable to capture value in the form of higher prices because of a close substitute, then profitability will decline. Exhibit 1 highlights the five key forces to determine the potential for profitability in the car sharing market: Buyer Power, Supplier Power, Threat of New Entry, Threat of Substitution, and Competitive Rivalry.

This five forces analysis reveals how we could be witnessing the onset of industry effects in the car rental industry. Industry Effects “Research on profitability shows that most profitability depends on industry effects. ” The market for car sharing is growing and long term outlook is robust. Why? In cities, car ownership is actually declining. High gas prices are causing more people to move into cities and use alternative transportation. Fewer cars in urban areas mean fewer insurance claims, which for us translates into lower revenue.

Car sharing is experiencing robust growth: Car Sharing Market Growth Rates (US and Europe) – 2010-2013 2010 2011- 2013 (projections) 15. 53% CAGR 12. 50% 449,700 users 640,500 thousand users Car Rental Industry: Market Segments and Revenues Airport Local Car Sharing Business Discretionary Urban Leisure Insurance & Repair College/University ($10B) ($10B) ($2. 818B) 2016 est

While car sharing has the potential to cause disruption, our industry can remain attractive, however, if we continue to focus on providing a wide array services for anyone who needs or wants to rent a car. This focus includes utilizing our assets and capabilities to build WeCar into its own brand with a unique value proposition. Car Sharing: A Strategic Approach What do we know about Zipcar? Well, ZipCar’s business model did not work as well as planned. Over time, research showed that customers were only willing to walk a few blocks in order to retrieve a car.

Thus, ZipCar needed to have locations scattered in neighborhoods every 5-6 blocks, which proved an expensive and impractical proposition. We could solve this problem (and create an advantage) by using our signature invention–pick-up and drop-off services. This will differentiate us from ZipCar and a deliver higher level of service to customers–allowing us to extract more consumer surplus through customers’ willingness to pay. You might object by saying this is a generic strategy, easily replicable and therefore not sustainable. But we’ve been doing it for 24 years and no one has copied it.

Why? Because it requires scale and manpower our competitors don’t have. How do we position WeCar? Should we integrate it right next to Enterprise? No. Because doing so could prove risky and undermine our ability to capture value. Integrating WeCar with Enterprise risks confusing our customers, diluting our brand, and forces us to compete with ourselves. Our approach should be to develop WeCar as a separate brand with its own lot locations while leveraging our existing assets to build economies of scale and competitive advantage 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.

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Car Sharing Strategy: Enterprise Rent-a-Car. (2016, Nov 21). Retrieved from