Enterprise Rent a Car Analysis

Company Overview: Enterprise Rent-A-Car

Enterprise Rent-A-Car was started by Jack Taylor in St. Louis back in 1957 and is the largest rental car company in the world today.  They are well known for their exceptional quality of vehicle options, customer service, and their value proposition/catchy slogan “We’ll pick you up!”  They provide other transportation services such as Truck Rental, CarShare, Car Sales, Enterprise Fleet, but for sake of simplicity of this analysis, we are going to focus on the Enterprise Rent-A-Car segment.

Current Strategy

Enterprise Holdings includes three different rental car companies, Enterprise, Alamo, and National, each targeted towards a different market segment.  To better understand Enterprise Holdings’ overall strategy, I will break it down by each of their companies.  

Alamo is known as the cost leader in the industry.  Consumers go to Alamo because low price is most important to them and have little concern for “additional value added such as brand name, product quality, or service” (Rau pg. 59).  These customers are typically those that are looking for a set of wheels that can get them from A to B.  

National Car Rental is on the other side of the spectrum and uses a differentiation strategy.  National is only at airport locations and their typical customers are corporate business travelers that are willing to pay a premium for a car of their choice.  They travel very often and prefer speed and convenience.  This is not only targeted towards corporate renters but can be for any traveler that is willing to pay the higher price.  They have their Emerald Club Loyalty Program, which has a number of benefits for frequent renters.  For example, they can reserve a midsize car but pick from the Emerald Aisle, which includes premium and luxury vehicles as free upgrades.  When they find their vehicle of choice, the keys are in the car and they can drive off, with minimal interaction with staff.

Enterprise Rent-A-Car uses the value strategy.  Enterprise offers differentiation at a low cost that provides the upmost value for their customers. They differentiate themselves through multiple core capabilities.  Enterprise has a high-quality fleet of vehicles that are the cleanest and in the best condition, with a variety of makes and models for diverse customer demands.  They are most well known for their high-level customer service throughout the entire rental process. There is high contact from the employees to make sure that every customer is completely satisfied every single time.  They track this through monthly customer service survey scores from each branch location. One of their famous core values states, “Take care of your customer and employees, and profits will follow.”  Their employees and their customers are at the center of everything that they do and that is what truly sets them apart from their competition.  Another way that they differentiate themselves from their competitors is by offering a free pick up service, “We’ll pick you up!” They also give customers a ride to wherever they need to go when they return their rental.  Enterprise applies these core capabilities and is still able to offer lower prices than their competitors.  If you come into the branch with a lower price quote of a competitor, they will beat it by 5%.  Competitors do not have the resources to copy any of these core capabilities, which makes them extremely valuable to Enterprise and helps create their competitive advantage.  Between Enterprise Rent-A-Car, Alamo, and National, it is no wonder that Enterprise Holdings dominates the rental car industry by successfully utilizing the cost leader, differentiator, and value strategies.  

Porter’s Five Forces Analysis

Utilizing Porter’s Five Forces, I will analyze the rental car industry and assess the overall attractiveness of the industry.

Competitive Rivalry

There is a high level of competition within the industry with four firms dominating the landscape: Enterprise Holdings (Enterprise Rent-A-Car, Alamo, and National), Hertz, Avis/Budget, and Dollar Thrifty. Due to customers being price sensitive and the price transparency of being able to book reservations online, there is a high level of competitive pricing. However, “an industry adage held that, ‘there are two types of rental car companies: those that lose money and Enterprise’” (Busse). Enterprise is able to withstand competitive pricing and unfortunately for the competing companies, it continues to erode their profit margins.  If these current market leaders are already hurting to make a profit, it will be exceptionally difficult for new entrants to make it in the industry.

Price is not the only thing that drives the competition, but it is also value and differentiation.  Of the four companies mentioned, Enterprise has the strongest brand reputation.  They have the newest, cleanest, rental cars with a variety of makes and models.  They are most well known for their exceptional customer service and their ability to pick you up (and drop you off) if you need a ride before or after renting a car.  This strong brand reputation takes decades to build and the current competition is otherwise known to be less than satisfactory in all of these areas.  Therefore, a new entrant will have a hard time proving that they can do it better.

Threat of New Entrants

Threat of new entrants is extremely low for many reasons. In order to start a new rental car company, capital requirements create a substantial barrier to entry.  To put in in perspective, Enterprise Rent-A-Car has over 7,600 locations worldwide with a fleet of over 600,000 rental cars. That being said, a company looking to get into the rental car industry is going to need to have the capital to open a high number of locations in order to compete with Enterprise and the other companies in the industry.  

Enterprise’s high number of rental cars is due to their access and long-established network of loyal supply channels, which are the numerous brands of automobile manufacturers.  Enterprise has achieved high economies of scale within their mature supplier network which consequently makes entry by new firms very difficult. “On average, [Enterprise, Hertz, Avis, and Dollar Thrifty] buy nearly 2 million cars and trucks each year. A significant proportion are purchased from American car companies like Ford, General Motors, and Chrysler -- making rental car companies some of their most important individual customers” (Maxfield).  Not only do they buy the cars from these suppliers, but they also sell them back under repurchase programs when the vehicles’ rental life is over.  

Customer loyalty is another high barrier to entry.  Businesses in the rental car industry not only have general retail customers but also have various accounts that are their customers such as corporate business accounts, dealerships, body shops, and insurance companies.  These loyal relationships are significant because all of these accounts refer their customers to the trusted rental car company of their choice.  The top rental car companies are constantly competing for this referral business and it is a substantial part of their marketing mix.  In my experience, all accounts in my area always sent their referrals to Enterprise Rent-A-Car, with Hertz usually being the second (and unfavored) option.  Switching costs are also going to be high because these accounts will want to stick with their preferred company that they trust. This customer loyalty is also present with retail customers.  Regular customers that rent often will only choose Enterprise (or National and Alamo) and won’t even consider anyone else.  Enterprise has a strong brand reputation and a number of loyalty programs, again making the possibility of the customer switching pretty low.