Executive Summary
Avix Car Rentals operates within the US travel industry. The firm has been successful in its operations since its establishment in 2004. Despite the industry’s competitiveness, the firm’s management team intends to develop the firm’s competitive advantage. One of the ways through which the firm intends to achieve this is by broadening its fleet size. In an effort to address the customers travel needs, Avix Car Rentals has targeted both institutional and individual customers.
Over the few years it has been in operation, the firm has diversified its product and services offering. This has been achieved by incorporating different car classes so as to meet the customers’ needs. The firm has also managed to develop a number of strengths which has increased its competitiveness. The firm faces numerous challenges from different the environmental forces. However, there is a high probability of the firm attaining its profitability objective through effective marketing.
Mission and vision
The firm intends to offer unique customer experience with regard to their travel needs. In addition, Avix Car Rentals intends to become the car travel agency of choice within the
Environmental analysis
The car rental industry is a substantially large sector in the United States economy. The average annual revenue in the US car industry amounts to $ 18.5. As a result of the lucrative nature of the industry, there are a large number of players in the industry. Currently, there are approximately 1.9 million car rental vehicles in the US. As a result of the 2008 global financial crisis, the global car and rental industry was adversely affected as a result of a number of factors.
For example, the financial crisis led to a reduction in air traffic which culminated into a decline in demand for rental cars. However, the industry began to recover by mid 2009.
This illustrates that the car rental industry does not operate in isolation. However, it is affected by macro-environmental factors which arise from diverse environments which are represented by the acronym PESTLE. According to Birkholz (7), these environments include the political, economic, social, technological and legal environments. These environments are analyzed below.
Political environment
The US has experienced a relatively stable political environment for a number of decades. This has played a significant role in creating an environment conducive for the operation of firms in different economic sectors. Additionally, the US has created a good relationship with other countries. This has been achieved by entering into trade agreements such as the North America Free Trade Agreement (NAFTA). These trade agreements have contributed towards economic integration which is evident in the large number of trading blocs formed.
Through these trading blocs, it has become possible for firms in the car rental to import cars at a minimal or no fee. This means that it is possible for car rental industry to broaden their fleet size which is a key requirement for a firm in this industry to attain a high competitive edge.
The trade agreement has also made it possible for firms to outsource some of their operations from member countries which are cost effective.
Economic environment
The 2008-2009 economic recessions adversely affected the industry. As a result of the recession, price sensitivity amongst the consumers was increased. Consumers only purchased car rental products and services after determining whether the price is fair and are of high quality. Despite the economic recession, there is a high probability of the industry regaining its profitability upon the global economy full recovery.
Social-cultural environment
The car rental industry is also being affected by the emerging social-cultural trends with regard to consumption of rental cars. For example, over the past few years, consumers have become more concerned with the high rate of climate change. This has significantly influenced their demand for rental cars. Most consumers are portraying a trend towards cars with minimal or no emission of carbon dioxide which is a major cause of the high rate of global warming.
Another trend which is emerging relates to the rate at which firms are incorporating the internet in their decision making process. To cope with this trend, it has become paramount for firms to improve their technological strength so as to increase accessibility of internet by a large number of consumers.
Technological environment
The high rate of technological innovation has affected the consumers purchasing behavior. For example, consumers are increasingly searching for product information over the internet. In order to be competitive, it has become paramount for firms in this industry to integrate the internet in their marketing processes. One of the ways through which firms can achieve this is by providing diverse product and service information.
This gives an opportunity for consumers to order car rental products and services online via the firm’s reservation portals. Integration of the internet technology also gives the consumers an opportunity to compare car rental products and services from different firms. Development of the mobile technology industry especially the Smartphone industry is posing a threat to firms in the car rental industry. This is due to the fact that customers can enquire about car rental services using their phones.
Porter’s five forces
Threat of entry
As a result of the industry’s profitability potential, the threat of entry in the car rental industry is relatively high. New entrants pose a serious disadvantage to firm’s already in the industry through a reduction in their market share and hence their profitability.
One of the market segments which are experiencing an increment in number of entrants is the vacation sector. In an effort to enhance their stability, large enterprises are increasingly monitoring their market segments so as to create barriers to entry. As a result of the industry being moderately concentrated, new entrants find it difficult to venture into the industry.
The large enterprises are making it hard for investors to venture into the industry through requirement of high resource requirements. For example, establishing a car rental business requires an investor to have a substantial amount of financial capital.
One of the ways through which they are achieving this is by establishing rental location in a large number of areas. For example, Enterprise which is one of the largest car rental firms in the US has established its outlets in approximately every 15 miles. Their effort to attain stability in the market has made it complex for new entrants.
Threat of substitute
Currently, the car rental industry is faced with a wide range of substitute. One of the factors which have led to the large number of substitutes is the technological development. For example, it is less attractive for one to rent a car to attend a meeting while he or she can follow the proceeding of the meeting through integration of video conferencing and other collaboration software. This technology can enable individuals to collaborate virtually more cost effectively.
Additionally, there is large number of cars which means that switching cost is relatively low. Individuals can take a cab as a substitute to rental car if he or she intends to fulfill a day’s course. By taking a cab, a consumer receives almost the same level of satisfaction as he or she would have received from the rental car at a low cost. Renting a car is relatively costly.
Alternatively, the industry is also facing a challenge from public transportation which is considered as the most cost effective method to travel despite the fact that it can be time consuming to travel using this method. Air transport is also increasingly being considered as a more convenient method to travel due to speed and performance.
However, air travel is costly compared to rental cars. Despite the existing threat of substitute car rental firms are to a certain degree cautioned against the effects especially with regard to corporate consumers. As a result, the threat of substitute is relatively low. This arises from the fact that the number of firms in the industry do not lead to erosion of the industry’s level of profitability. For example, most consumers have instituted travel policies which stipulate when renting a car is appropriate.
Suppliers bargaining power
The car rental industry is characterized a low supplier power arising from the large number of firms in the industry and substitutes. As a result, suppliers do not have control when supplying rental cars. Considering the fact that rental cars are in most cases purchased in bulk, the rental car agents are usually the ones who have influence on the terms of sale.
This is due to the fact that they can be able to influence other suppliers to lower their sales price. There are also no switching costs. For example, consumers are not affected by purchasing from different suppliers other than from suppliers to which they are used to.
Buyer bargaining power
Buyer power in the car rental industry varies according to the type of customer. For example, corporate customers have a relatively high power. In an effort to meet their demands, a trend is emerging whereby car rental firms are increasingly formulating strategies which are aimed at addressing the travel needs of organizational customers. The high buyer power amongst corporate consumers leads into a reduction in supplier power, that is, car rental firms while that of corporate buyers is improved.
In addition to their price sensitivity, corporate customers have a substantial amount of information regarding the industry’s pricing structure. Additionally, they purchase in large quantities making them to have a certain degree of bargaining power. In their purchasing patterns, corporate customers have integrated the use of internet technology to force the price of rental cars down.
On the other hand, individual or vocational customers have minimal or no buyer power on the rental terms. Additionally, their bargaining power is limited by a number of factors. One of these factors arises from the fact that their price sensitivity is low. Additionally, their purchasing patterns is infrequent and often in lesser amounts.
Rivalry
The degree of rivalry in the industry is high. This arises from the fact that there are a large number of firms operating in the industry. In an effort to position themselves effectively in the market so as to enhance their profitability, these firms are broadening their fleet sizes. This trend is mainly so amongst the leading firms in the industry. The intensity of competition is on the increase as firms try to attract a large number of customers both corporate and individual.
Considering the fact that the profit margin is relatively low, firms in this industry are concerned with other competitive features other than only price. Competitors are currently more concerned with creating value for the customers. One of the ways through which they are achieving this is through provision of a wide range of amenities such as technological gadgets. Other technologies which are being incorporated by these firms include the Never-Lost GPS systems.
In their operation, car rental agencies are faced with numerous fixed operating costs such as maintenance, insurance and property rental. In an effort to deal with these costs, car rental firms are quite sensitive with regard to pricing. The firms are increasingly adjusting their pricing strategy in an effort to deal with the high operating cost and at the same time satisfy the consumers.
As a result of the 2008-2009 economic crises, the car rental industry was adversely affected due to a decline in the volume of corporate and individual customers due to reduction in demand. Additionally, there was a significant reduction in rental car rates. This culminated into a slow industry growth. In an effort to gain a high competitive edge, firms in the industry are minimizing their dependence on the airline industry. As an alternative, these firms are venturing into the leisure sector.
Competition in the market
The competitiveness of the car rental industry arises from two main sources which are related to the consumer. There are two categories of consumers in the car rental industry. These include the organizational and the individual consumer. With regard to the vocational consumer, there are two main reasons for the industry’s competitiveness.
Firstly, the industry is saturated and dominated by the leading firms. Smaller firms in the industry have a relatively low market share. Secondly, competition in the corporate market segment is relatively high since most of the market is controlled by the large enterprises. In an effort to establish their competitiveness, firms in this industry are increasingly considering strategies on how to deal with the industry’s competitiveness and to enhance their profitability.
One of the ways through which they are achieving this is by increasing their fleet size. In an effort to understand the degree of competiveness in the industry, Porters five forces have been incorporated.
The five forces relate to threat of new entrant, threat of substitutes, buyer bargaining power, supplier bargaining power and degree of rivalry. The competitive attractiveness of the car rental industry was adversely affected by the recent economic recession. Its attractiveness has also been affected by the large number of firms in the industry.
Customer demographics
In targeting its customers, the firm has segmented its market by incorporating a number of market variables. These variables include geographic variables, demographic variables and psychographic variables. With regard to the customer’s demographic characteristics, the firm has targeted customers whose age is above 25 years and possesses a valid driving license for at least a period of one year. Considering the fact that the US is a cosmopolitan society, the firm has targeted customers of all races.
However, they must possess a good credit score. Considering that customers belong to different income categories, the firm’s core target group includes the middle class income consumers. With regard to geographic variable, the firm ensures that it covers a wide geographic area. This is achieved by establishing outlets in all the regions within the US. These outlets are located in airports and also outside the airports.
With regard to the customers’ psychographic characteristics, the firm targets customers with different needs. One of these benefits relate to the benefit sought such as leisure renters and business renters. Leisure renters entail consumers who rent cars with the objective of improving their ease of mobility. In most cases, leisure renters hire cars for a long duration of time. On the other hand, business renters include individuals who rent cars to ease their travel to and fro airports.
The firm has also categorized its customers on the bases of their usage or frequency of purchase. The two main categories considered include the heavy users and light users. The heavy users include individual or corporate customers who frequently consume car rental products while light users include customers who purchase their products on the basis of convenience and price. As a result, their decision to purchase car rental products and services is not limited to one firm. However, they compare the price of the competing firms.
Product service
Considering the fact that the firm intends to serve both corporate and individual customers, the management team offer a wide range of cars to its customers in an effort to ensure that its customers are satisfied by effectively meeting their needs. The various categories of cars which the firm offers include compact cars, convertible cars, economy cars, luxury cars, standard cars, premium cars, full size cars, midsize cars, minivans and compact cars.
Some examples of compact cars which the firm has integrated include Ford Escort and Ford Focus. The firm’s management team ensures that these cars are fitted with features which enhance customer satisfaction. Examples of features that characterize these cars include Power-Assist Steering, safety features such as Air Bags, Automatic Transmission, 4-Cylinder Engine, Dual Mirrors and AM/FM Stereo Radio. The compact cars have a capacity of carrying 2 children and 2 adults and a luggage of 2 small suitcases and 1 large suitcase.
The convertibles cars are composed of models such as Ford Mustang convertible and Chevrolet Cavalier. The main features for convertible cars include Tilt Steering, Power Door Locks, Tinted Windows, 4-6 Cylinder Engine, Air Bags and Anti-Lock Brakes.
The full size cars include Ford Taurus, Chevrolet Impala and Buick Regal. In addition to features possessed by convertible cars, Full-Size cars have additional features which include Power Assist Steering, Tilt Steering Wheel Cruise Control, and Anti-Lock Brakes. These cars have a capacity of carrying 4 adult passengers, 3 small suitcases and 2 large suitcases. Mid-size car include Pontiac Grand Am and Mazda 626. The features of these cars include Electric Windows, air conditioning, and Covered Hatch.
The premium cars include Ford Crown Victoria, Pontiac Bonneville and Buick Le Sabre. These cars have 6 cylinder engine and Automatic Transmission in addition to mid-size cars. The premium cars have a capacity of carrying 5 adult passengers, 2 large suitcase and 3 large suitcases. Some of the luxury cars which are integrated include those of leading brands such as Porsche, Lamborghini, Mercedes Benz, BMW, Infiniti, Ferrari and limousine. These cars can carry up to 6 adult passengers, 2 small suitcases and 4 large suitcases.
The features of the luxury cars include Power Driver Seat, Delay Wipers, Leather Interiors, Air Conditioning, 6 cylinder supercharged engine, Dual Climate Zone and Tire Inflation Monitor. Ford Ranger forms the largest composition of the compact pickup cars. These cars are able to carry 2 adult passengers, 4 small suitcases and 6 large suitcases. The features of this car model include Rear Anti-Lock Brakes, Dual Air Bags, V6 engine, Secured and spacious 6 foot trunk, power brakes, closed cab and rear sliding glass window.
Chevrolet Metro composes the economy cars category. These cars have capacity of carrying 2 children and 2 adults and a load of 2 small suitcases. The minivans include cars such as Ford Windstar and Chevrolet Venture. These cars have a passenger capacity of 6 adults and 1 child and a load capacity of 1 small suit case and three large suitcases. The standard car models include Ford Mustang, and Chevrolet Monte Carlo. These cars can carry one small suit case and two large suitcases. Additionally, these cars can carry 2 adult and 2 children.
In addition to the firm also offer other services which include car washing and collection of the cars. The firm will also ensure that emergency assistance is provided to its customers. To ensure that the cars are environmentally friendly, the firm ensures that it acquires cars which utilize green energy such as biofuel. This increases the probability of the cars appealing a large number of customers.
Boston Consulting Matrix
Avix Car Rentals have developed a portfolio of products. Using the Boston Consulting Matrix, the firm’s products are categorized into four business units which include stars, dogs, cash cows, and question marks. The luxury cars form the firms’ stars which are characterized by high growth and high market share.
The economy cars, full size cars, midsize cars, and compact cars form the firms’ cash cows. These cars have a high market share but a low growth. On the other hand, premium cars form in the question marks category. These cars have a low market share and a high potential of growth. The fourth category which includes the dogs is characterized by low market share and low business growth.
Promotional strategies
The entrepreneurs appreciate the fact that for the firm to succeed upon being launched, it is vital for market awareness regarding the firm be established. This is due to the fact that knowledge of a product or services plays a vital role in the consumers purchasing behavior (Gillman & White 2002).
To ensure that there is substantial market awareness, the firm incorporates Integrated Marketing Communication. This entails utilization of emerging and traditional marketing communication strategies. In its promotion strategy, the firm utilizes different methods which include advertising, public relations, sales promotion and direct marketing.
In order to create awareness in the entire US market, different mediums have been integrated in its advertising strategy. For example, the firm uses the radio, television and print media such as magazines and the local newspapers. In selection the medium, the firm conducted a comprehensive market research to determine its market coverage. Only mediums which have a large market share are used so as to maximize on the effectiveness the advertising campaign.
The firm also utilizes outdoor advertising methods by posting adverts on billboards that are strategically located. This gives an opportunity to a large number of customers to learn about the firm’s products and services.
In its sales promotion strategy, the firm offers the consumers free rentals. For example, the firm has instituted a lending program whereby customers receive an offer of a free weekend rental if the customer rents a car for a maximum of 5 consecutive days. This plays a significant role in ensuring that its customers receive additional value.
The firm has also incorporated emerging technologies in its advertising strategy specifically the internet. This has been achieved in a number of ways. Firstly, the firm has designed a website in which it posts information regarding its product and services offering. Additionally, the firm has also partner with the famous search engines such as Google, Yahoo and Bing.
The partnership entails a contract whereby the search engines companies are required to post the firm’s product offering on their home page. This has increased the firm’s ability to reach a large number of customers considering the fact that a large number of customers access the internet on a daily basis.
Findings of a market research conducted by the management team revealed that the firm can create market awareness more effectively and cost efficiently. This can only be achieved through integration of emerging social communication tools. Some of the social communications tools that the firm has integrated include Facebook, Blogs, Web 2.0, Wikis and You Tube. Through these tools, it is possible for the firm interact with the consumers more effectively.
This arises from the fact that consumers are able to post comments and ask questions regarding the firm’s product and services. The resultant effect is that the firm is able to undertake direct marketing. The resultant effect of the interaction between the firm and its customers is that the firm is able to create and sustain a strong customer relationship. The resultant effect is that the firm has been able to develop an online community.
Pricing strategy
Considering the intensity of competition in the industry, the firm’s management team made a decision to adapt value based pricing strategy. According to Greene (107), the strategy entails setting the price point of its cars on the basis of the value the customer receives. In its pricing strategy, the firm has considered a number of factors.
These factors are determined by the customer and they include the length of rental, the expected mileage traveled during the rental period, insurance coverage and maintenance, and the amenities provided. In addition to its value pricing strategy, the firm will also integrate the concept of penetration pricing which entails setting the price point at a lower level compared to its competitors (Baker 66).
Research and development
In an effort to address the changes in consumer tastes and preferences, the firm will conduct continuous market research. The research will be aimed at determining the consumer’s travel preferences. Additionally, the firm will also conduct a research to determine changes in features of its rental car models. This will make it possible for the firm to improve its fleet by incorporating the new models. The resultant effect is that it will be possible for the consumers to achieve maximum satisfaction.
SWOT Analysis
The following chart illustrates the firm’s strengths, weaknesses, opportunity and threats.
Figure 2: Avix Car Rentals SWOT analysis
Human Resource Plan
The management team has appreciated the fact that the success of the firm is dependent on its human capital and its business structure. In order to achieve this, the firm’s management team came into a consensus to adopt an effective business structure. This gives the firm a legal basis of operation.
The firm operates as a partnership business of three individuals. Decision to adopt the partnership business structure arose from the need to share skills between the various parties. All the partners have different skills and experience with regard to operation of car rental business.
The firm has adopted a bottom-up organizational structure which is headed by the Chief Executive Officer. This has greatly enhanced communication within the firm. For example, consumers can be able to communicate their opinions to the top management.
To ensure efficiency in the firm’s operations, the firm has a policy which is aimed at ensuring continuous outsourcing of its human resource from the local labor market. Additionally, the firm has instituted an employee training program which is aimed at ensuring employee development. Recruitment of the employees is undertaken on the basis of the various departments’ requirements. These departments include:
- The operation department,
- Sales and marketing department
- Finance department
- Human resource department.
The chart below illustrates the firm’s organizational structure.
Non-financial rewards
In addition, to its employee’s financial compensation, the firm has incorporated a number of non-financial rewards. These rewards are aimed at motivating the employees hence enhancing their level of satisfaction. Some of the non-financial rewards incorporated by the firm include recreation trips, medical care and recognizing employees with outstanding performance.
Questionnaire
In an effort to evaluate the level of satisfaction amongst the employees, the firm has developed an open ended questionnaire which is used in explaining their opinion. Some of the core questions in the questionnaire include.
- How do you rate the firm’s employee motivation strategy?
- Are you satisfied with the firms motivation efforts
- How can the firm improve its employee level of satisfaction?
- Are you satisfied with the firm’s working environment?
Financial Plan
The firm has projected a healthy financial performance over the next two years three years as illustrated in the financial statements below.
Balance Sheet
Cash flow statement
Compare and contrast
From the above financial statements, it is evident that there is a high probability of the firm succeeding by attaining its financial stability. The projections indicate that the firm will experience an improvement in its financial profitability over the three years. This will play a vital role in dealing with the increased competition in the industry. For example, the firm will be able to broaden its fleet size without depending on credit finance. However, the firm has to improve its marketing efforts in order to improve its performance.
Conclusion
The US car travel industry is characterized by a high degree of competition. Additionally, it has also been affected by changes from the macro-environment. In order to survive, firms in this industry are required to develop their competitive edge. This means that despite the competitive nature of the US car rental industry, there is a potential of Avix succeeding in attaining its profitability objective. One of the ways through which this can be achieved is by improving its marketing efforts.
For example through various strategies such as creating market awareness, offering products which are inline with the customers demand and ensuring accessibility of its products and services. To remain competitive, the firm has to continuously undertake market research so as to determine the most effective way of improving its products. The resultant effect is that the firm will be able to meet its customers travel needs.
Works Cited
Baker, R. Implementing value pricing: a radical business model for professional firms. Hoboken, N.J: Wiley, 2011. Print.
Birkholz, A. Business analysis on the web.de AG. Munchen: Grin Verlag GmbH, 2007. Print.
Greene, C. Entrepreneurship. Mason, OH: Cengage Learning, 2011.
Gillman, J. and White, S. Business plans that work: includes actual business plans that successfully attracted financing. Avon, Mass: Adams Media, 2002. Print.