Customer relationships managment and technology

CASE: 1 Olympic Rent-a-car U.S.: Customer loyalty battles
Company Name: Olympic Car Rental Co.

Characters: Laura Walkins(VP-Marketing) , Andy Kim(Manager CRP),Seth Bergman(Senior Financial Analyst),Eva Chan(Southwest regional Manager Sales), Marvin Fleming(OM), Sriny Vajarain,Jorge Martinez & Amy Mckeever( Franichisee operators). Theme of Case: One of the competitor company named “Enterpise Car Rental Co.”-the biggest player in the market has announced an attractive custom loyalty program. This is considered to be a paradigm shift from the traditional rewarding pattern in Car Rental market. Enterprise Car Rental Co. is already reaping the benefits from the program. Olympic Car Rental Company’s top management wants to discuss about this innovative customer loyalty program(CLP). They being a low price offering co., should they make changes to its existing customer loyalty program, as some of them believe that their CLP is not working effectively or whether they should work on lowering price of their rental cars along with aggressive advertisement & promotional activities? Car-Rental Market & Customer Loyalty Program:

Loyalty Programs provides considerable information about the customers that enables companies to maintain more knowledge & personal relationship even in long run. The history of Loyalty programs can be traced back to 1900s where S&H Green Stamp Company came out with coupons

& trading stamps. A major marketing loyalty program in 1981 undertaken by American Airlines named AA Advantage frequent flyer, in which heaviest travelers usually paid most for their tickets-meaning that American Airlines received highest revenue for rewarded miles. The U.S. Car rental industry was born in 1916 by Josiah Saunders, who had one Model T ford that he rented for ten cents a mile, classifying with ad “Automobile for Hire.” Car Rental business unlike airlines industry highly depends on the overall economic condition. Car rental fleets can be increased or decreased in response to demand factors. Matching fleet size with demand is considered to be a key element to profitability. Car rental industry was broadly divided into two:

-1. Airport rentals (Where most business & leisure travelers pick up their cars)

2. Local rentals (Business originate from local offices, including car dealership & repair shops.).Business revenue accounted for 80% of revenue on-airport rentals,while leisure was only 20%. With rapid growth of technology & internet savvy society, the emergence of third party consolidators like Expedia, Travelocity and Orbitz play a major role in providing the customers with convenience of booking & price comparisons between different Car-Rental providers. Variable pricing or revenue management, was used extensively in the rental car business to optimize profits. Car rental providers crucial expense item was its fleet of vehicles (operating cost). Performance of Olympic & Other players in Car Rental Industry:- Company’s Model is mostly Franchisee based, with initial marketing strategy being lower price then Hertz(a Competitor) along with capitalizing on the promotional & advertising front.

Olympic Co. was able to gain large airport spaces in early 2000s.Co. had also purchase new fuel efficient cars on the demands of their existing customer base.Olympic’s typical car was rented about 232 days per year, which was slightly higher than the industry average of 208 days per year. Olympic Medalist Rewards program (OMRP) had been modified several times in twenty years following Reward programs introduced by its near competitors. They also believed that they do not have much to offer in such programs as their overall pricing is lower than leading providers.OMRP was divided into 3 tiers-Bronze, Silver, Gold.

Issues & Areas of growth potential for Olympic Rent-A-Car Co.:- Olympic should focus on re-designing of its Customer Loyalty program named “Olympus Medalist reward program”. The lower pricing strategy is looked upon by the users as a Traditional marketing paradigm & on losing interest they get drifted to other competitors, who provide innovative & attractive deals, in turn building long term relationship. Keep customers from defecting: Inspite of having slight higher number of rental car usage days per year compared to the industry average,Olympic is not able to generate good revenue. Main reason is most of Olympic Medalist members belonged to several other car rental loyalty programs. Sense of momentum: Joining OMRP has no charge, unlike Enterprise Plus reward program (biggest player) where to qualify for the reward atleast 6 rentals were required. Divisibility of Reward: It can be seen in slide:3 table, that Rental days claimed for the highest tier-Gold were maximum, in spite of having less active members & less rental days during the year 2012.Also, it was easy for an existing member to move from silver to gold tier & reap its benefits just by increasing the rentals 10 more times in the entire year.

Combined Currency relationship: As seen from Slide:1 table, the Net profit margin is substainlly low.Also,it is projected that the number of business travelers will not grow in the coming years, looking at the advancement of web conferencing technology. Here, Olympus needs to divert its program rewards to their existing leisure customers belonging to affluent, giving them a feel that, the rewards program is tendered for their benefit. Moving to dollar based reward program from their traditional program based on rental days, Olympic Co. estimates that the no. of free rental days will increase from 1.45% to around 1.95% of total rentals,as more members earn reward faster, but this increase will get offset with the increase in revenue generated with no additional investment. Olypmic co. being franchisee driven, there percent commission from the franchisee owners should increase & fixed fees should be significantly lowered on annual basis.Even franchisee owners should be offered rewards on meeting their targets, which can be utility based(cash, incentives) or pleasure seeking( vacations, luxury trips).