The following represents an actual case study published with permission by one of our clients on the level of analysis and data values we were able to bring to their business. We count this as one of our major successes and we are honored to have worked with this company.
[name redacted] rentals
[name redacted] Rentals is a small to medium car Rental Company operating in the island of Barbados for the past 44 years. The company has had a profitable existence during this time with little or no major threats. Recent economic factors such as the turbulence in the oil and petroleum market which has seen the steady increase in the price of oil from an average of $3.18 when the company first started to 105 US dollars a barrel in 2014 however and the 2008 financial crisis has initiated a downturn in business for the company. Tourism, which the company depends on primarily as a source of income from its rentals has declined as increasing air travel costs combined with decreased spending power of international travellers has affected the Company’s profitability. The number of tourist arrivals in the island has decreased from 1,181,809 in 2011 to 1,080,086 in 2013.
The economy of Barbados itself as well has changed as a result of global financial conditions. The government reported an estimated real growth rate of -.07% an unemployment rate of 11.6% and an inflation rate of 2.3% in 2013. As a response to this declining economic reality over the recent years, the government has sought to raise taxes on all major goods and services. In 2008, the government increased road taxes on all vehicles by as much as 40%. This has directly impacted on the company’s ability to expand their fleet. These increases in taxes however have not alleviated the government’s debt to GDP ratio, which reached 94% in September 2013. Facing an economic future, which is sure to see the continued decline in the Barbadian economy and a possible devaluation of the dollar, the company, will have to make a number of adjustments to their marketing strategies if they are to survive.
In the past the company has been able to maintain a competitive advantage over rival car rental agencies by offering inexpensive rentals in the form of modified Japanese “moke” economy cars with high fuel efficiency. These vehicles incurred a minimum amount of road taxes, as the island’s road tax is associated to the size of the vehicle engine. The company has been able to maintain profitability since its costs, which include car parts; government taxes and concessions to tour operators were substantially lower than the income generated from the car rentals.
The company’s competitive strategy has been to market itself as the reliable economy rental agency offering lower priced rentals and fuel-efficient vehicles, in an attempt to gain cost leadership over its competitors.
Added to this has been the strategy of utilizing the tourism information agencies as a source of promotion and referrals in order to boost business sales. In order to accomplish this, the company has had to offer these operators a 15% commission on all rentals referrals. Combined with this is the company’s policy of offering discounts to customers seeking long term rentals averaging more than a week of up to 10% of the total cost of the rental as well as “special offers”.
In the face of increasing costs from additional taxes however the company will have to alter its strategies if it is to remain profitable and competitive.
[name redacted] now supports a fleet of 60 vehicles and is subject to the annual value added tax of 17.5% (raised from 15% in 2010) a considerable cost to its operation. Also problematic to the company’s competitive strategy in the future is the shrinking customer base, which invariably will initiate increased competitive action from other rental agencies and a lowering of rental prices in order to secure market share.
It is expected that other car rental agencies will attempt to follow the techniques used by [name redacted] in offering higher or better incentives to tour operators in order to survive the decline in the tourism sector.
In this situation [name redacted] may no longer effectively market itself as the economic alternative to car rentals on the island. Neither can it rely on a steady income obtained from referrals, as the shrinking customer base will eventually initiate a price war between the companies.
Possible strategies which the company may undertake are to lower their cost through staff reductions or reducing the size of their fleet.
At present however the company will be unable to sustain its competitive advantage as competition for a shrinking market will result in price wars as well as a race to determine who can effectively target international markets to their advantage. In such a situation larger companies with greater available resources will be at an advantage
The company’s segmentation strategy has been to focus its advertising and marketing strategies on vacationing “short stay” tourists where the broad market categories consisted of Business tourism as well as Medical Tourism. This “class” segmentation of tourist arrivals to the island had further been divided into air and cruise ship arrivals, with the latter segment being considered the least viable target for marketing. Upon analysis of the latest statistics for each of these segments however the company’s revenue base will be affected and changes will have to be made. As an example, the number of arrivals via airline recorded in February 2013 was 48,870 and the recorded number in February of 2014 was 48,144 as compared to the arrivals via the cruise ship industry, which recorded figures of 74,833 in February 2013, and an increase to 77,867 in February 2014.
This indicates that a change needs to be affected by management as to the concentration of marketing strategies in that industry. These figures represent a shift away from the mode of travel of people from the airline industry, which announced further increases to flights to the region.
Segmentation, Targeting and Position
The company in response should choose to revise its segmentation strategy to accommodate this development and a further subdivision created based on geography as the island’s major source of Tourism has always been the United Kingdom. Despite the ailing Tourism industry the island recorded an increase of arrivals from the UK market of 10.7% from February 2013 to 2014. Exploiting the market from cruise ship arrivals from the UK will depend on the company’s ability to advertise to the English market in an effective manner. Suggested strategies are direct advertising on UK travel websites as well as forging alliances with cruise lines, which travel to Barbados. Focused targeting on the British Market however will require a redirection of funds and a new marketing mix designed to target the British Market.
The company at present has been positioning itself as a family company, which offers an affordable product with great service earned through experience in the business. The company’s website markets the company as
“…a small, family owned company that has been around since 1970…… We’ve gone past “experienced”
This form of Psychographic marketing and [name redacted]’s position as a customer friendly organization with experience has been successful in as it synchronizes with the expectation of customer focus held by visitors to the island and blends well with the tourism sectors ethos which seeks to promote comfort through service excellence for extra regional vacationers. The strategy also seeks to differentiate the company as a less formal organization from its competitors who market strictly along the lines of efficiency and productivity. In a future, which is most likely to see the continued shrinking of the tourism sector, [name redacted]’s current market position may be the most effective as customers are likely to search for value for money as well as a company with which they can feel comfortable. To significantly alter its marketing mix or reposition itself may jeopardize customer retention and increase its costs.
The company has chosen to brand itself, as Barbados’ most friendly economy car rental company. Its chosen name “[name redacted]” along with its logo of a medium sized economy car wearing a formal top hat is designed specifically to communicate the idea of affordable quality and style. Its product offering comprises mainly Japanese fuel-efficient vehicles termed “run-arounds” with a smaller fleet of four “All Purpose Vehicles” for larger families and groups. The company constantly reinforces its “customer friendly” brand image by offering helpful tips on car renting in Barbados, openly posting their rates online and on other promotional material. This “transparency” is designed to create trust between themselves and their customers.
The company also always engages its customers through the use of interactive customer feedback. Customers, visiting the company’s website are graced with the history of the company as well as encouraged to take part in online quizzes where there is a possibility to win prizes from the company, such as free extra days on their rentals. This marketing strategy continually keeps the customer engaged not only with the service but also with the company itself Thereby fostering customer intimacy. The overall effect is that customers psychologically commit to the company’s brand through the assurances of friendly service at an affordable price, which creates repeat business for the company.
This family centred branding can only help in a shrinking economy as psychologically, existing customers will seek comfort and return to the company which they are familiar and with whom they have good experiences. Altering its brand in terms of image position or brand position would be risky to customer retention, also the company already established itself as the affordable and dependable brand which works to their advantage in a declining economic future.
The company may however want to reconsider its approach to the subject of transparency as a technique for building customer intimacy should the economy shrink further. In particular, the possibility of a price war with larger companies in order to secure market share would mean that online posting of their rates would constitute an invitation for rival companies to engage in direct and aggressive competition with the company. If these companies’ marketing resources and product offerings are greater and more diverse than [name redacted] then this would create a problem for the Company in terms of future customer acquisition.
In a depressed global economy the natural tendency of the customer is towards conservative spending. This is also true in the tourism industry. In such an environment customers will likely seek the best value for money, which means that there will be increased comparisons being made by customers regarding their choice of Rental Company.
If competitors decide to target international markets directly via online advertising then customers will be more informed as to the quality of product they should expect in a vehicle and will make decisions based on more cognitive parameters dealing with price and quality assessment rather than on humanistic parameters.
This change in customer behaviour will clearly be problematic for [name redacted]’s current position, as customers will more likely to be swayed by the lowest prices as opposed to psychological factors associated with the “personality” of the company. [name redacted] will then have to weigh the option of engaging in a price war with its rivals against its rising cost of operation.
Other expected developments in customer behaviour will be the tendency to gravitate towards the familiar when making purchase decisions on one hand and experiment with their options on the other. Existing customers may tend to stay with a reliable company based on their experiences with that organization, however in an economy where all rentals companies may be forced to drop their prices, customers who have chosen a company based on price will now have greater choice between companies and may “experiment” by choosing other companies especially if these organizations posses the resources to market directly in the customer’s home country.
In addition, new customers will now have bargaining power over local companies as the market continues to shrink. Companies will be forced to offer greater deals to customers or face a loss of business.
Adapted marketing strategies which are familiar to a foreign market are more likely to attract customers. In targeting more developed countries for example, [name redacted]’s most successful rival Stoutes Rental has chosen to update their site to a format closely associated with tourism in Europe while still communicating a Caribbean feel to the site. The site offers online booking arrangements, which are completely automated with a flash presentation depicting families on vacation in Barbados. This web format is patterned along international standards for tourism and offers customers the added value of convenience.
It also adds to the appearance of professionalism to customers with bargaining power who can now choose between rental agencies. Since most of the vacationing families will likely be professionals in their own lives, a company’s web presentation is likely to appeal to this segment of the market.
It must be taken into consideration as well that most choices concerning vacation destinations and expenses traditionally lie with the head of household and marketing techniques should be adjusted to target these individuals, especially in an economy which is in decline.
Opportunities for Growth
Analysis of the company’s current position using PESTEL parameters reveals that it may not be currently equipped to survive further increases in costs from taxation or engage in a massive international advertising campaign against its more capable rivals. Despite this fact however the company may survive and grow by altering their strategy of business.
First, in order to keep abreast of the competition for the existing market the company may choose to follow the lead of its rivals and invest in technological advancements in order to capture market share. This would include refurbishing its website as well as offering the convenience of online bookings for its vehicles. Another alternative would be to positioning itself as the first car rental company in the region to create a Smartphone application for its services. These developments would not only capture the market for the professional and technologically adept segment of the market who appreciate such conveniences but it would also effectively reduce the number of commissions paid to tour operators for referrals which is a major cost to the company thereby lowering the company’s cost of customer acquisition.
An additional method the company may consider in developing a survival and growth strategy is to create and exploit new markets. For example the offering of short term leasing arrangements to local Barbadians on cars during the company’s “slow season may create additional revenue. The company can then use this additional income to offset their rising costs. It should be noted that tourism is a seasonal activity in Barbados which is at its highest between the Months of October to December. It is therefore advisable for the company to cultivate a new customer base during the months where revenue will not be as high.
This new market could be expanded to providing “run-arounds” for Barbadian locals with disposable income who desire to have weekend excursions with their families. Indeed cultivating a local market would ensure the company remains liquid throughout the year as well as developing new non-commission and unofficial referral market from locals who rent these vehicles and who work within the tourism industry.
as a means of fully utilizing the company’s resources, the company may consider
extending its brand by adding a service of its own tour operators where
visitors can rent not only the vehicle but be provided with a tour operator and
driver. This would increase the convenience to the customer of being able to
experience the island without the hassles of getting lost and the paperwork
associated with added insurance cost. This service combining car rental with
tour operating would be unique to the island and would assist the company in
offsetting its wage bill to its employees as well as creating a new niche
market within the sector.