Olympic Rent-A-Car U.S., the third-largest company in the industry of car hire, is planning to match the loyalty program of its market-leading competitor (Enterprise). The marketing and operations managers of the company must review the company's financial statements and decide on whether they could afford the program and how much should they spend on matching Enterprise's program.
John Deighton and James T. Kindley
Harvard Business Review (913568-PDF-ENG)
June 24, 2013
Case questions answered:
- What should Walkins do? What factors help explain the performance of Olympic Rent-A-Car U.S.? What market forces may impede it in the future?
- Assuming Olympic responds to Enterprise, how should it do so? What is the potential impact of emphasizing dollars spent versus days of rental? What is the potential impact of removing blackout dates?
- What is the cost of matching Enterprise? How much should Olympic be willing to spend on the Medalist program?
- What is the monetary value of a medalist to Olympic?
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Case answers for Olympic Rent-A-Car U.S.: Customer Loyalty Battles
Case Study – Olympic Rent-A-Car U.S.: Customer Loyalty Battles
Olympic Rent-A-Car U.S. is the third-largest company in the industry of car hire in the U.S. It has a market share of 7%, below the market leaders, with Enterprise having 50% and Avis with 14% (Deighton & Kindley, 2013).
The company has a competitive advantage of offering low prices than that of competitors. It has a medalist reward program for loyal customers. The program has been modified frequently in the past in response to the competitive landscape of the market. Each rental day is equivalent to free 24 hours. Olympic needs to respond to the strategy of Enterprise by shifting the reward program from days rented towards the dollar spent.
Option for Walkins
Walkins should change the reward program to match that of Enterprise. The company already has the most competitive prices in the market and, therefore, it has to strive to get the most value out of the customers. Olympic Rent-A-Car U.S. should follow the lead by the Enterprise, which is expected to impact negatively to Hertz (Deighton & Kindley, 2013). This move will not only add revenue to the company but will also help in increasing market share at the expense of Hertz.
The available program that is based on the days spend has proved to be impactful to Olympic. It generated 21% of its revenue in the past year. Besides, the free day program has been relatively costly to the company, a problem that can be solved adequately by the new proposed plan of the spent dollar (Deighton & Kindley, 2013). The available program has a variable cost of $21. It also has other fixed expenses that are not captured in the free-day reward.
One of the factors that explain the performance of Olympic is the ability to change and adapt according to the market conditions. This competency has been critical to the sustainability of the company in mitigating risks and expanding its market growth. Olympic is also steered by serving customers with vast diversities. Although it targets the value-conscious customers, it also reaches out to the affluent ones and shoppers that travel for leisure and business.
A significant factor that may impede the future of Olympic Rent-A-Car U.S. is intensive competition. The company has a relatively small market share in comparison to the giants like Enterprise, Hearts, and Avis. The fierce competitive landscape has been forcing some players to merge with a goal of economies of scale (Deighton & Kindley, 2013).
For some, it was more of a drastic plight than finding the need for a merger. There were some that were forced out of the market. For example, the market had nine national competitors in 2002, and by 2012, five had already been phased out.
Responding to Enterprise
Olympic Rent-A-Car U.S. should follow the leadership strategy of Enterprise. It needs to adopt the dollar spent approach rather than the days of rental. This model is based on monetary value for both customers and the company. It can be significant in minimizing both variable and fixed costs for the company by ensuring that the credit points are awarded according to the amount of money that a customer spends. Customers will benefit from this program since frequent travelers pay more for their daily rentals. It implies that the process of…