Enterprise Case
Enterprise Rent-A-Car has dominated the rental car market by focusing on delivering quality service and convenience at low prices to the home-city market. In comparison to the other major car rental competitors who focus on the “suits and shorts” customer base (business and vacationers) by basing most of their offices in airports, Enterprise focuses on the needs of families and local communities. The typical example of such family needs usually involves the temporary replacement of the family car during time of repair. To effectively service their customers’ needs, Enterprise has built up a robust set of resources, capabilities and activities that meet such customer requirements.

Throughout the many years Enterprise has conducted business, the management team – the Taylor family – has ensured the firm is highly invested in a number of valuable assets. Enterprise has numerous small branch locations located all over America. It is estimated that 90% of America’s population lives within 15 minutes of one of the 3,100 Enterprise office locations. This expansive network of branch locations provides their customer base convenience that no other company can currently rival. To service their enormous branch network, Enterprise has chosen to buy and sell its own fleet of vehicles. Maintaining autonomy of the acquisition and sale of its own vehicles allows Enterprise to leverage volume purchasing power when negotiating with auto manufacturers. When decommissioning vehicles, Enterprise utilizes 30 retail sales lots to sell vehicles. In converse to their main competitors, who are contracted to sell back cars to the auto manufacturers, this provides Enterprise great selling power when decommissioning cars. Moreover, by selling their own fleet, Enterprise is able to keep the average vehicle on the road 6 months longer than other rental companies, squeezing out more revenue dollars from an older fleet. A substantial amount of the company profits can be attributed to their success in buying, selling, and maintaining their fleet at low cost relative to their competitors.

The workforce is one of the most important assets of Enterprise due to the extent at which they impact the firm’s profitability greatly. Enterprise hires only college graduates which are usually in the bottom 50% of their class. This hiring process specifically targets motivated, outgoing, and competitive students. The fraternal culture amongst the Enterprise workforce helps to align the incentives of each employee with the performance of each branch. And while there is very high turnover amongst the lower echelons, this is actually a part of the overall HR strategy. The employees that do stay with Enterprise gain a sense of accomplishment as the majority of management has had a similar firm experience. It is known and accepted that all team members must pay their dues to be promoted and compensated. Each branch is incentivized using a standard quality index called ESQi. If the branch doesn’t exceed average performance, then there are no promotions granted to that specific branch. Because the workforce is so young and gregarious, they are a perfect fit for maintaining and creating new relationships with local repair shops, insurance companies and the general community. Furthermore, their employees’ communication skills uniquely qualify them to communicate with angry or impatient customers who are in desperate need of a car. This “caboose” workforce coupled with the expansive network of locations has resulted in great capabilities around managing customer relationships.

The technology practices of Enterprise are also an important asset of the company. Their robust technology platform tracks the detailed requirements for car maintenance, service history and location. This detailed level of data provides branch managers with key information used to share resources across locations, resulting in optimal (leaner) inventory of vehicles for each location. Additionally, their technology platform provides an integrated solution alongside the network of insurers whom they work closely with. The ARMS system is used by insurance providers to ensure rental availability and provide rates to prospect customers, facilitating an integrated referral and reservation process.

Enterprise has made the conscious decision to stay out of the airport market altogether and instead chosen to be located in numerous smaller locations embedded in neighborhoods and communities across the country. With this decision comes a major trade-off which has resulted in Enterprise missing out on the revenues to be gained in the airport market. However, being embedded within the community has allowed Enterprise to develop capabilities that other rental companies cannot attempt. Enterprise uses their position to interface closely with their alliance companies and customer base. Local Enterprise employees often drop in on garages and insurance offices to provide coffee and donuts to those who solicit Enterprise as a preferred vendor. In some cases, Enterprise keeps employees onsite at dealerships to direct customers to the rental cars (which are situated at the dealers) as needed while their car is being repaired. Nearly 1/3 of Enterprise’s revenue comes from these preferred vendor alliances. In regards to staying close to the customer, Enterprise touts their ability to drop cars off at the customer’s house or place of business. Furthermore, this close proximity to customers enables Enterprise to side-step large expenditures on advertising and marketing.

While the Enterprise HR strategy is hard to imitate and has been very successful, it comes with many tradeoffs. By taking on the risk of hiring the “caboose” college grads and only promoting from within, Enterprise is limiting the caliber of potential future legions of branch and corporate management. But this creates an independent environment in each branch where employees work their hardest to maximize profit. Enterprise has aligned the incentives of their motivated workforce to be branch-focused. Each and every location has autonomy to make decisions about serving their local clients. The positive result in this is that each and every branch strives to optimize profits, resulting in great overall company performance. However, it should be noted that this autonomy sometimes empowers the branch managers to push back against corporate-level overhead and projects.

By being the only major rental company located away from airports, Enterprise is able to serve their niche market with a greater perceived “B” while incurring lower “C”. The higher “B” to the customer is delivered via higher customer service and convenience (e.g. friendly staff, delivery to home, availability at repair shops and dealerships). The lower cost to the customer is achieved through streamlined technology and aggressive fleet management (volume buying and timely reselling on the open market). In the home-city market, these aspects have enabled Enterprise to dominate against other competitors for the last 20 years in regards to profitability. In regards to the airport market, a higher ‘B” is simply difficult to achieve as all companies are located in the same place, making it very hard to differentiate themselves. Also, many of the Enterprise customer requirements are not needed in the airport market. On the cost side, low costs are difficult to achieve because of the large concession fees which eat into the margin of the airport rental car companies. Airport fleets are enormous, making lean inventory management across locations difficult and therefore less of a competitive advantage. Lastly, unlike Enterprise, the airport rental car companies are put into a position where they are forced to market their brands to stay competitive, which increases their overall costs.

The market ZipCar is serving is very small and niche and completely different than Enterprise’s core customer segment. The typical Enterprise customer would be uninterested in renting a car for merely a few hours. Conversely the ZipCar customer places high importance on the convenience of a very short rental duration. This market only exists in large metropolitan urban locations (Chicago, NYC, London, etc). Even if ZipCar greatly expands, the amount of potential customers it would steal from Enterprise seems fairly limited as there is little overlap between the customer segments. Before deciding to enter the residential car sharing market, Enterprise should look internally at their own resources and capabilities and determine whether or not they can be leveraged to provide a competitive advantage in the new market. The HR strategy Enterprise uses would be of little use in the fully automated residential car sharing market. Furthermore, Enterprise has little experience in marketing, which will be integral when entering the new residential car sharing market. Lastly, Enterprise’s typical branch location does not overlap with the typical successful residential car share location (suburban vs. urban). In summary, it appears that ZipCar is likely a none-threat to Enterprise in the near-term as the two groups of core customers are dissimilar. Furthermore, with the exception of car rental technology and scale, none of the resources or capabilities Enterprise currently holds would be greatly advantageous when entering this new market space.