Do you think that Avis/Hertz will be able to replicate Enterprise’s success in the local car rental market? It’s hard to believe that Avis/Hertz would be able to replicate Enterprise’s success (at least in the near term) in the local car rental market. Given their current dominance in the market, relationships with auto shops/dealerships/insurance companies, and reservation system’s direct interface with insurers, Enterprise is the most well positioned car rental company for discretionary and insurance repair/replacement rentals. Dominance – Enterprise initially sacrificed investment in the airport market in order to dominate the local market. With its 6,000 branches, one wonders how Avis/Hertz would begin to match Enterprise’s footprint? I imagine this could only be accomplished via substantial capital investments on the parts of Avis/Hertz coupled with initial price breaks for customers in order to tear business away from Enterprise.
This action, however, would eat into the profitability of said market. Additionally, Avis/Hertz would have to compete with the burgeoning car sharing industry. These obstacles appear to be too significant to overcome so late in the game. Relationships – The ties established between Enterprise and the auto shops/dealerships/insurance companies are deeply rooted and well founded. In order to convince these institutions that an Avis/Hertz relationship would also be beneficial (or would be superior to Enterprise’s), a compelling sales pitch would need to be made. What can Avis/Hertz offer these institutions that Enterprise isn’t currently providing? The products/services of all three-car rental agencies appear to be of equal quality (if not a slight edge given to Enterprise), so what is the end benefit of new relationships to auto shop/dealership/insurance company?
Interface – The case does not quantify any initial investments made by the insurers to develop the reservation interface, but one must assume the investments were substantial (either measured in capital or time). In order to be profitable/dominant in the local market, Avis/Hertz would either have to abolish these ties, establish new ones (assuming there are untapped institutions), or run their systems in parallel with Enterprise’s. The latter appears to be most likely, and that could result in profit erosion, as Avis/Hertz would likely have to reduce prices in order to gain market share.
I question whether an auto shop/dealer/insurer would even want to train employees how to use a competitor’s system, unless there is a substantial upside in doing so. Side note: My only reservation in giving Enterprise sole competitive advantage in this space is their apparent penchant for risk. By handling all of its own vehicle sales, has Enterprise merely been lucky or are they simply more skilled at the buying/selling of their fleet? Given Enterprise’s long-term success, one must assume the latter…
Courtney from Study Moose
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