Case Analysis: Enterprise Rent-A-Car
Summary of Key Marketing Strategy Issues
With the rise of ride-sharing services such as Uber and Lyft, car rental companies are losing customers today (Reints, 2019). Although not as starkly affected as those in the taxi industry, car rental companies have also been hit hard by the growth of ride-sharing services (Ritcher, 2017). One such company is Enterprise Rent-A-Car, operational for over half a century and has been at the top of the rental car industry for years. A 2020 study by J.D. Power rated Enterprise as the second company in overall customer satisfaction, behind their biggest competitor Hertz (J.D. POWER, 2020). In particular, Uber and Lyft control most ground transportation, a position previously held by taxis and rental car companies like Enterprise. This paper discusses the effect that ride-sharing services like Uber have had on the rental car industry, particularly on Enterprise Rent-A-Car. Some recommendations will then be made on what Enterprise should do to get a competitive advantage.
Evaluation of Key Issues
Uber and Lyft are part of the gig economy, which provides services on-demand on a temporary or contractual basis and collaborative consumption (Davies, Donald, Gray, & Knox-Hayes, 2017). The drivers of ride-sharing services can work whenever they want, and customers can engage them whenever they require their services. Ride-sharing services rely on the compatibility of customers’ paths, meaning several people can share a ride if they are going to a similar destination. The most significant change brought by the ride-sharing service is the ease with which customers can catch a ride without worrying about driving or fueling the car. On the other hand, renting a car involves companies leasing their cars for a period. Unlike Uber and Lyft, rental car companies like Enterprise own their fleet. Uber’s operational model relies on people who own cars and register with the company as drivers. Therefore, the expense of fleet management is upon the contracted drivers instead of Uber as a company. The bulk of Enterprise’s operating expenses were spent managing its fleet.
Ride-sharing services are also preferred because they are hassle-free when it comes to ordering and payment. Dealing with rental services takes longer, mainly because the car has to be picked physically by the customer. The lengthy process of getting served by a rental car company such as Enterprise dissuades customers who are in a hurry from using their services. This has contributed to them missing opportunities in critical areas such as airports (NPR, 2016). Ride-sharing services are concentrated in densely populated areas, where the high unemployment rate also creates employment opportunities for drivers (Vanderschuren & Baufeldt, 2018). The limited transport systems in urban areas have also made ride-sharing a convenient option for customers.
The fact that Uber and others can operate at any time has also endeared it to customers. Enterprise closes its branches at 6 p.m., meaning customers in need of their services past that time are inconvenienced. Ride-sharing services are known to have a shorter waiting time compared to the time spent accessing rental cars. The Uber app informs a customer how long they have to wait before their ride arrives. Ride-sharing services have also proven ideal for tourists who are unfamiliar with the places they are visiting. The experience of using ride-shares helps tourists avoid driving where they do not know.
Propose and Justify your own Solutions
Regardless of the competitive means Uber and its counterparts have used to gain market share in the ground transportation industry, rental cars are still the preferred means by many (McGrane, 2017). Rental car companies such as Enterprise have to adapt to the changing transportation market or risk losing their businesses. The primary competitive advantage that Enterprise has is the strength of its brand and the vastness of its reach. Over the years, Enterprise has grown to be a reputable brand recognized primarily for its exceptional customer service. The company has spent a ton of money researching ways to enhance consumer satisfaction. Their research narrowed down to three areas; the cleanliness of their cars, staff attitude and helpfulness, and transaction speed. In the past few years, Enterprise has ranked among the top rental car companies in customer satisfaction. This achievement reiterates comments made by the company’s founder Jack Taylor about prioritizing employees’ and customers’ welfare before profits (Kazanjian, 2021).
Another competitive advantage is that Enterprise is located in all the fifty states in the country. Enterprise boasts of 7,000 branches countrywide, with 90% of the population able to access its fleet within a 15-mile radius of their locale (Kazanjian, 2021). As a reputable company, Enterprise has both legal institutions and supporting industries, including insurance companies. This has enabled them to be operational everywhere, unlike ride-sharing services that are only prominent in cities and urban areas. Enterprise also operates in airports, which are a significant market segment of their business.
Furthermore, varying state regulations have affected Uber and Lyft operations in certain states. Uber’s business model does not view drivers as full-time employees and does not pay them benefits. In California, an Appeals Court ordered Uber to comply with the state’s law and recognize its drivers as employees (Trainer, 2020). However, rather than risk driving up the cost of their operations, Uber considered suspending their services in California. This is an example of how strong a brand Enterprise is, something its compliance with the law has helped achieve. Suspending operations in critical areas of their business means losing their market share.
Enterprise’s rental cars are ideal for longer trips, which is also a competitive advantage. Further, their prices are fixed as the company charges an hourly fee. Ride-sharing services such as Uber are known for hiking their prices whenever the demand for passengers is high. Times when prices are high include rush hours, poor weather conditions, and during holidays. At Enterprise, customers are only charged per hour regardless of the season, time of day, and prevailing weather conditions. Enterprise also offers a wide array of services other than rental cars. They also have a car-sharing option and also sell cars. Enterprise serves a broader array of customers, including those without cars and people having car trouble.
Recommendations
One of the recommendations to help Enterprise improve its chances of competing with ride-sharing services like Uber and Lyft is to partner with them. Already, Enterprise has the advantage of having a large fleet. In 2015, Uber partnered with Enterprise to increase employment opportunities for drivers who had no cars (Hawkins, 2015). Although Enterprise treated the transaction as a regular car rental, the move helped lower the barrier to entry for potential Uber drivers. Lyft also had a similar deal with Enterprise’s main competitor Hertz (Hawkins, 2015). Alternatively, Enterprise could also introduce its ride-sharing service by renting its cars to drivers working for them. This scheme could target its regular rental car customers and allow them to offer ride-sharing services. The proceeds will then be split between drivers and the company.
Alternatively, drivers’ proceeds could be deducted from the money paid when renting the car. In this plan, Enterprise has the advantage of its extensive fleet, countrywide presence, and brand reputation. Unlike the drivers at Uber and Lyft, those at Enterprise will be treated as company employees. Such a move will attract more drivers seeking to work with Enterprise. In addition, having their ride-sharing service would help the company tap into the segment of consumers looking for short trips, an area that companies such as Uber and Lyft have dominated. It will also create an opportunity for the company to remain open for longer hours. Even without launching their ride-sharing service, Enterprise should consider operating for longer hours during the day as the economy is still active at night.
Another recommendation will be to take advantage of technological changes to reduce the time taken for customers to reserve and access their rental cars. Seeing as waiting in line even after booking online is an issue for customers, especially those in a hurry, Enterprise could leverage technology to ensure such issues are sorted. For instance, the company could avoid double-booking or booking but finding no cars available. This move, coupled with their outstanding customer service, would enable Enterprise to secure more customers in busy areas such as airports.
Enterprise does not have much to worry about with the rise of ride-sharing services such as Uber and Lyft. Uber and the likes have leveraged technology to create a niche in the ground transportation industry, which can be replicated. Enterprise has cultivated its niche for decades, which in itself is a competitive advantage. Therefore, to stay relevant, Enterprise needs to use its strengths of size, reputation, and excellent customer service and further innovate to continue its market dominance.
References
Davies, A. R., Donald, B., Gray, M., & Knox-Hayes, J. (2017). Sharing economies: moving beyond binaries in a digital age. Cambridge Journal of Regions, Economy and Society, 209-230.
Hawkins, A. J. (2015, December 1). Uber is offering cheap rental cars to its Denver drivers. Retrieved from The Verge: https://www.theverge.com/2015/12/1/9831364/uber-is-offering-cheap-rental-cars-to-its-denver-drivers
J.D. POWER. (2020, October 14). Rental Car Customer Satisfaction Holds Steady as Industry Deals with Reduced Volume, J.D. Power Finds. Retrieved from J.D. POWER: https://www.jdpower.com/business/press-releases/2020-north-america-rental-car-satisfaction-study
Kazanjian, K. (2021). People Over Profits: How Enterprise Drives Success. Retrieved from ESM: https://www.enterpriseengagement.org/articles/content/8289133/people-over-profits-how-enterprise-drives-success/
LeBeau, P. (2018, January 30). Business travelers increasingly prefer ride-hailing services over car rentals, taxis. Retrieved from CNBC: https://www.cnbc.com/2018/01/29/business-travelers-increasingly-prefer-ride-hailing-services-over-car-rentals-taxis.html
McGrane, E. (2017, September 27). Why Enterprise and Alamo are more valuable than Lyft and Uber. Retrieved from LinkedIn: https://www.linkedin.com/pulse/why-enterprise-alamo-more-valuable-than-lyft-uber-eugene-mcgrane
NPR. (2016, January 21). Business Travelers Often Skip The Rental Car, Use Uber Instead. Retrieved from NPR: https://www.npr.org/sections/alltechconsidered/2016/01/21/463750503/business-travelers-often-skip-the-rental-car-use-uber-instead
Reints, R. (2019, March 6). Car Rental Companies Are Losing Customers to Rideshares, Report Says. Retrieved from FORTUNE: https://fortune.com/2019/03/06/car-rental-rideshare-market-share/
Ritcher, W. (2017, May 9). Uber is shaking up the rental-car business. Retrieved from Business Insider: https://www.businessinsider.com/uber-vs-rental-car-business-2017-5?r=US&IR=T
Trainer, D. (2020, September 9). The Emperor Has No Clothes – Uber’s Business Model Is Broken. Retrieved from Forbes: https://www.forbes.com/sites/greatspeculations/2020/09/09/the-emperor-has-no-clothes–ubers-business-model-is-broken/?sh=32957ab1706a
Vanderschuren, M., & Baufeldt, J. (2018). Ride-sharing: A potential means to increase the quality and availability of motorised trips while discouraging private motor ownership in developing cities? Research in Transportation Economics, 607-614.