Olympic Rent-A-Car US: Customer Loyalty Battles
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Olympic-rent-a-car is one of the US car renting company leader. The company was founded in 1976 by John Uelses, with a franchising model. The initial strategy of the company was to price lower than the main competitors. With a promotion, advertizing and franchizing strategy, the company reached to catch 7% of the market shares in 2012. By starting operating in the major airports, the company reached to extend by acquiring new smaller firms : in 2012 the company counted more than 460 rental locations across the USA and possessed a huge car fleet even if is still below the industry average.
To catch new clients and to compete with his competitors the Olympic company is using customer loyalty programs : this strategy enables long-term gains and provide also useful information about the clients. The rewarding loyalty strategy is not new and has evolved trough the years. It was developed in the early 1990’s with mass loyalty programs. This strategy was used by Green stamp company which used coupons and trading until 1960’s. In the begining of 1980’s American Airlines created the frequently flyer programs. This successful strategy was extended to all industries : it allows rewarding loyalty but also it enables identifying most profitable customers.
The US car rental industry is a specific industry that generates 24billion dollars. This business was created by 1961 by John Elis Saunders and experiences a real growth since the end of World War II. The rental car revenues are closely linked to leisure and business expenses. Since 2009 the prices have increased. Although, a key specificity of the car rental industry is that fleet size needs to match the demand to be profitable. The car rental industry is also characterized by variable pricing and data management. The largest expense is spent on fleet vehicles purchase and it represents half of the costs. So that, most of the companies tried to ad new equipements (GPS…) to gain additional revenues. Since 2012, online coupon vendors have encouraged lower prices.
The car rental industry has two distinct markets : the airport rentals that generates half of the revenues and characterized by high costs of production, and the Local rentals market which includes dealerships and repair shops and which is dominated by Entreprise.
The rental company depends also of the car rental consumers. The two consumer segments are leisure travellers and business travellers that represent almost 30% of the population. Business airport rental consumers represent a small part of the consumers but they are a very profitable segment. Although, in terms of purchasing habits, leisure travellers tend to rent cars for longer periods and business travelers tend to spend more money per day in renting cars.
The US car renting market is also dominated by few main competitors like Hertz or Avis which catch 30% of the market shares each. Between 2002 and 2012 the number of competitors has decreased and Olympic represents today 8% of the market shares.
The car rental industry depends also on the Travel Booking industry. Almost 80% of the Americans use online booking for convenience and price reasons. So that, half of the leisure travelers book rental cars online and half of the business travelers book trough rental car operators an 12% book car rental with travel operators. `
To maintain it positioning in the market, Olympic-rent-a-car company has developed a rewarding program: The Olympic Medalist Award customer loyalty program. This program, implemented in the 1980’s is based on a follower strategy. Consumers can join the Medalist program at no charge and they earn rewards (bonuses and free-rides) by accumulating credits. The Medalist consumers are divided into 3 categories : bronze, silver and gold members. As a fact, 11% of renters have Olympic loyalty card but there is a high multi-detention rate in loyalty card rewarding.
PROBLEMS AND OPPORTUNITIES :
The main problem of Olympic company concerns it loyalty reward program: how can the company build a competitive strategy in a market in which there is a strong competition and where competitors offer is very similar?
A first problem the company is facing is that even the growth rate is positive, the operating profit margin is still low. Also, the business requires heavy capital investment (important fleet) so that the company needs to stay profitable. Although, if the company eliminates it blackout days, changing it consumer strategy, Olympic would need a huge stock of cars too.
Although, the loyalty programs impact is not very relevant, even if reward members provides 21% of the revenues, only one out of ten travelers is an Olympic reward member. The company tends to position itself to catch price sensitive customers, but the loyalty reward doesn’t really affect them.
Another huge problem for Olympic rent-a-car is that company is in competition with main companies that control most of the market : 30% of market share for Hertz and 20% of the market shares are made by Entreprise. But in the last decade, there is a decreasing tendency of competitors numbers, that’s make an opportunity for the Olympic rent a car company
A first opportunity concerns the consumer target, 20% of the effective consumers of car renting are leisure consumers, however, they generate 80% of the revenues ; this evolution can be seen as a threat for the future of the company : it’s risky to concentrate most of the revenues on a specific target segment.
Another opportunity is that the company has a developed customer loyalty programs that provides lot of information about customers and can allows the company to catch new customers in the car-rental market.
OPTIONS AND ALTERNATIVES:
To face to the customer loyalty and retention problem, the Olympic company has tried to implement different options. First of all, the company can change it customer loyalty program offer by eliminating blackout days, and offering more discount bonuses and free-rides.
Another aspect the company needs to take into consideration is about the company’s positioning. The company needs to take into consideration how customers perceive brand and related services to be sure they won’t go toward competitors offer even if they offer higher prices that Olympic does.
Many different alternatives exist to face the customer retention problem. One good alternative would be to use and develop a strong customer relation management strategy. With the information collected from the customer loyalty system, the company needs to develop a customer relation service. To improve the perceived value of the brand, the company should create a very developed customer service with a dedicated customer service number and an easy way to order cars. In the airports and main retail places, the company should develop a specific office/desk dedicated to the premium customers and those who have loyalty cards. So that, the consumers don’t lose time and can enjoy of a best quality service.
Another alternative to retain more consumers in the loyalty program would be to develop different steps in the loyalty program. First, the company could offer a loyalty adhesion program freely. This could give the customer an access to some advantages such as miles that you can cumulate to get free rides. A good idea should be to offer this miles for 2 years than one, this enables the company to keep in touch and retain the customers in a longer period. A second step would be to offer the opportunity to big travellers to get an access to premium service by paying low fees monthly. This could give the access to extended services such as a premium card pass that give access to privilegied services like : “ordering cars everywhere, whenever” or offering free-rides monthly.
Another solution to catch more customers would be to extend Olympic partnerships with aircraft companies but also hotels, resorts and restaurants. The loyalty card could also give access to negociated lower prices in these places. Instead of offering free rides, the company could also offer determined price reductions : for example with 100 miles you can save 10 $ in your next travel.
At least, it seems to be important to develop support medias such as phone apps, and also offer the possibility to use your phone as your loyalty card downloading the Olympic app. This could make it easy to “stay connected” with the consumers.