Date: March 10, 2013
Subject: Competitive Advantage, Car Sharing and Strategic Approach: Assessment, Impact and Recommendations
To: Andy Taylor, CEO From: Jason Gonzales, VP Strategy ______________________________________________________________________ Introduction
This memo addresses three key issues: Enterprise Holdings’ current competitive advantage, the impact of the car sharing business on the structure and profitability of the car rental industry, and how the company should approach the car sharing business. I’ve developed my recommendations using the tools and frameworks of corporate strategy.
Competitive Advantage. Enterprise possesses two key competitive advantages: 1) economies of scale through our position as industry leader with 6,000 locations and 850,000 vehicles and; 2) Ecars and ARMS, our proprietary closed-standard technology platforms. These advantages have created high barriers to entry for our competitors and have allowed us to capture more value through higher prices to our customers.
The Impact of Car Sharing. Car sharing is a close viable substitute and reduces our ability to capture value in the form of high prices; because the customer can exercise choice this enhances his bargaining power. The availability of close substitutes reduces prices and therefore decreases profitability.
Enterprise’s Strategic Approach. The car sharing market is a growing market that Enterprise must address. Enterprise should utilize its existing fleet and location assets, best practices, and economies of scale to further develop WeCar into a loosely affiliated brand while extending its hallmark pick-up and drop-off service to WeCar.
Competitive Advantage: Source, Sustainability and Scope.
Source. Enterprise derives it competitive advantage through a mix of products, services and market position. With over 6000 locations, 850,000 cars, industry market share of 48%, proprietary IP technology that streamlines processes, reduces costs, and erects exit barriers for our largest customers care, position us as the industry leader. These advantages, combined with an employee- and customer-centric values, operational best practices, and a deep incentive-based teamwork culture, form a unique set of value creating activities that makes Enterprise difficult to imitate.
Sustainability. Over the past twenty-five years, Enterprise has made several investments in the form of “hard commitments” which have enabled it to fend off threats from potential rivals. Our successful, proprietary Ecars and ARMS technology has enabled us to become enmeshed in our largest customers’ business processes. Additionally, these technologies have reduced transaction costs for our biggest customers and created barriers to exit (i.e. high switching costs, for instance, if Geico Insurance decided to switch to Avis). These hard commitments, layered with strong IP protection, enable the company to secure and defend a lonely position on the strategy frontier.
Our “unique mix” of competitive advantage enables us to create and capture value better than our competitors--competitors that must rely on generic differentiation strategies to avail themselves in the market.
Scope. Unfortunately, not all our advantages extend to other key markets like airport and car sharing. Airports serve business and leisure travelers who demand convenience, speed and in-and-out service. Car sharing serves the urban dweller who doesn’t own a car. Ecars and ARMS are closed-standard technology platforms built for our insurance customers; these technologies create zero advantage for us in other markets, particularly airports, where consumers face a wide degree of choice among our competitors, Hertz, Avis-Budget and Thrifty-Dollar, which are perfect substitutes.
We acquired Alamo-National to expand our presence in airports. However, acquiring a car sharing company as a...