Strategic and Competitive Analysis
Read the case of Star Rent-a-Car in your print Reading File and answer the questions below. Answer all four questions in one file. Develop an inventory of case facts organized as follows. (30 marks)
Facts about stakeholder preferences
Star Rent-a-Car has grown to be a successful business in Canada. This has been propelled by the existence of stakeholders interested in making the business grow. The nature of the business has presented some facts about the stakeholders and what they consider as their best opinion that affect their business. Ron, the sole manager of the business tries to shed some light about some factors his colleagues should consider about the business. He happens to have adopted a majority of the things he prefers from their late father. For example, he prefers car renting to repairing of local vehicles after the collapse of the gas station. This was his father’s idea, and in his email to the other stakeholders, he highlights other issues they should always consider. In order to tackle the growing concerns of the business, he advises his brothers and sister to venture into the car leasing than to other options because it is well established, has a larger market base and faces little competition in the local market. Sarah prefers expansion of the business to include a management system that aims at expanding the business. Other stakeholders share the same preferences of ensuring that there is continuity of the business.
Facts about the organization’s resources
The organization’s resources are a serious concern and they ignite an equal thought on what the stakeholders preferred. As a car leasing company, it has limited resources in terms of the vehicles to be used. However, a significant source of resources to this company is finances especially from other dealers. As Ron puts it, they received financing from dealerships financing division. This had a positive impact on the organization because it was able to increase its fleet of cars. It maintained between 95 and 110 cars, which was an opportune stock required to meet the growing demand by customers (Suneja 2000).
Facts about organization and structure that might impact strategy making
Several issues were of concern regarding the organizations strategic management. This is a family business, which they inherited from their father who bought it from his uncle. It portrays the notion that it is all about inheritance by the family members. Ivan was the sole owner and manager of his business, which was passed over, to his children. Apparently, the family members do not posses any management skills needed to run the business. The strategic management of a business is paramount in determining its marketing strategy. They run the business with general knowledge they have and experience from their father. Lack of management skills has cost the organization many expansion opportunities like lacks sales, marketing and advertisement strategies, business development strategies, lack of sound credit system and poor decision-making. For example, Ron’s daughter, Lori is responsible for keeping the organizations accounts. She works 25 hours a week, which is not enough to manage the company’s accounts. Sarah notes this during her study on the business, and she even commends that time was not enough to settle a bank statement (Fine, 2009).
Ron as the manager comes to the office at 1:30 and is not accountable to anyone. Lack of training to the manager’s leads to poor development and implementation of incentives aimed at boosting the business. This condition had a direct impact on the market as reflected in the organizations accounts. The reflected increase in expenditure and decrease in incomes of the business can be attributed to the poor management system of the company. It cannot develop incentives that will see profits increase and expenditures reduced.
Facts about the organization’s macro-environment
The local market provides a fundamental customer base that they are supposed to take advantage of this situation. They stick to the old-fashioned ways of running the business and do not want to adopt new ways with the changing market structure. The town is rapidly growing with more tourists coming into the town, but the stakeholders have not taken advantage of this opportunity. The town’s economy is dependent on natural resources like timber, fur and ranching activities and the organization, being the oldest in the town with customer confidence, fails to take advantage of this business opportunities to increase their profits. Ron suggested several incentives that he thought could put their business in a better position (Jones & Hill 2009). He thought of introducing the truck business to serve the small businesses that use trucks for moving purposes. He also suggested that they expand their market focus to other neighboring towns that had growing market opportunities.
The business does not have a website and therefore, cannot take advantage of tourists market. The presence of an airport nearby has tremendous opportunities and provides a superb foreign market that Star Rent-a-Car is supposed to take advantage of. Their father once turned down a request by a bigger and well-established company, Worldwide Car Rental, to become part of them in the rental business. This could have improved its customer base and expanded their market both locally and internationally. All these are market opportunities that they fail to take advantage of because the organization is run by unprofessional mangers who do not think outside the box. This is a serious hindrance to the prosperity of the business as well as their profits.
In terms of strategy making, the business does not have any short or long-term strategy to operate its business. It lacks corporate vision and mission statement as well as goals they are supposed to achieve. The mangers of the company do not have time for the business as Ron noted. He says that they are so busy with their day-to-day activities to think strategically about the future of the business. This is certainly a company bound to fail because it does not have future thoughts about the business. Only Ron has the time to run the business because he is the largest stakeholder. However, he did not have any experience and skills in running the business just as he says that their father did not involve him in strategic management decisions. After his father’s death, the business deteriorated, and its profits constantly declined (Rostin 2007).
Sarah notes that Audrey, the woman at the counter, has been employed despite the fact that she did not have any education beyond high school. She has been with the ‘human resource’ docket, where she is responsible for staffing of the company. Again, the company does not have any human resource department responsible for hiring and managing employees. As a result, it lacks professionals to work in different departments and the result is poor employee coordination. She is forced to work more in all the three locations of the business. Star Rent-a-Car’s situation confirms the fact that a business with a poor management system is bound to fail as Star Rent-a-Car is about to, because of poor management strategies (Jones & Hill 2009).
Facts about the industry structure
Some facts about the industrial structure include the companies around the town that offer a close range of services. Worldwide Car Rental is among their competitors in the industry. Infrastructure is part of the industrial structure, their accounting structures and bookkeeping methods make up some of this. For Star Rent-a-Car Company their accounting books are quite up to date reflecting the position of the company as well as its accumulated profits. Comparing it to other companies that are well established and offer better services than they do, one can conclude that the car leasing industry is competitive. The infrastructure surrounding the town is also excellent which makes it possible for businesses to do well.
An industry or market can be analyzed by different characteristics. Some of the more significant market characteristics that should be considered are technological skills required to run a business, production and operations skills necessary, capital necessities, and barriers to entry. In addition, includes seasonal and cyclic factors, current size of market, predictable market growth rate, number of competitors, level of disintegration, strength of competition, and profitable returns of the industry.
Facts about specific market characteristics
There are no barriers to entry since the market structure is not a monopoly. The town has seen more companies set up the business of renting vehicles because of its potential to accommodate more companies. There are seasonal and cyclical factors that influence the car renting market in Kelowna. The seasonal conditions of summers and winter influence the number of customers and operations of different companies in the industry. The peak season comes during the summer when temperatures are quite favorable, and more tourists fly to come and enjoy themselves. However, there is a decrease in the number of customers during winter because there are few customers who travel in due to extremely low temperatures. This forms a vital characteristic of the market that influences business operations. More important on another market characteristic is the profitable returns of the business. Star Rent-a-Car’s profit and loss statement reflect reduced profits in 2002 compared to 2001. This implies that there is a decreasing trend in profits of the company. With the kind of growing market in Kelowna town, one expects that companies get more returns.
Conduct research on the Internet to develop additional facts about the three elements of the organization’s external environment. (15 marks)
Star Rent-a-Car’s macro environment is also worthy to be evaluated. Some facts about it contribute to its prosperity as well as failure. A business’s macro environment is the main external and uncontrollable factors that influence an organization’s strategies, performance and decision-making. They may include economic factors, demographics trends, social, legal, political, and technological changes; and natural factors. To begin with, Star Rent-a-Car is behind technologically. It does not have any website despite the fact that they have existed in the business from time in memorial. Ron suggests that they engage themselves in tourists business but though do not have any website where they can advertise their business. The company is not well advertised, and cannot grow to meet the market demand because it does not have a reliable source of information about the market. Being a business that competes with other international companies in the car lending business, it is supposed to integrate an IT system that will ensure it is up to date not only about its competitor information but also the market demands and trends.
Social, political, regulatory, and environmental factors and the strategic magnitude with other businesses already owned entail some of the determining parameters in the industry. It terms of technological skills required, the company does not have an IT system that helps it to monitor market progress and advertise their services. They use the manual ways of bookkeeping and accounting that can be better dealt with by embracing technology. The projected market growth rate is high because of the growing population that increases the number of customers and Star Rent-a-Car cannot turn a blind eye on it. The number of competitors has been growing in the recent past and the company no longer enjoys the monopoly it used to have initially.
The economic factors that affect the business are majorly determined by the town’s economic potential. As a growing town that is attracting so many activities, the economic potential of the town is vibrant. Since economic growth also determines a business’s macro environment, Star Rent-a-Car fails to take advantage of it. It is a growing town with a large number of tourists coming in to the nearby mountains to ski and hike. There is also a growing market for fresh fruits. Generally, the town is rapidly growing, and its economy is expanding too. The company is supposed to align itself to move with the growing economy in order to stay longer in the business and compete effectively with their competitors. Technology reduces business costs thereby improving the quality of services offered and consequent innovation of new strategies. These advancements can do well to consumers as well as the organization providing them.
Social factors like the population that is economically active matter and contribute to business’s macro environment. The growing population of the town and its environs show that the percentage of economically productive population is quite higher. During her study to the company, Sarah noted that the company rarely keeps employees for more than six months. This is because the pays its employees poorly and does not hire qualified people who still have the energy to propel the company to greater heights.
The companies surrounding environment also makes part of its macro environment. The climatic conditions of the town affect the business both positively or negatively. A related opinion on this relates to the September 11 terrorist attacks on the World Trade Centre. It created an unsafe environment all about America, which implied that there were, decreased number of tourists flying into the country and that Americans chose to stay indoors because they feared for their lives. This had a negative effect on many businesses including Star Rent-a-Car, which decreased number of customers and the consequent decrease in profits. Climatically conditions also make up the environmental conditions that affect the business. Kelowna is well known for its hot summers and temperate winters. The temperature conditions are quite fair during the summer and low during winter. This means that they receive many tourists during the summer and fewer of them in winter when temperatures are low.
The intensity of the competition has also increased because of the growing economy in the town and people have had a variety of companies to choose from depending on the one that offers better services. The production and operation skills required to be in the market are fundamental for the growth and survival of a business. For it to continue existing in the market, it must be in possession of the necessary skills both at professional and management levels. Because of the growing economy in Kelowna, the market continually demands that a company gets the necessary skills to ensure its going concern (Fine, 2009). Capital requirements continue to present a considerable challenge to the industry as more and more capital is needed to keep the business alive. Purchase of new car models that highly attract customers is mandatory because it is what woos customers into the company. With the increase in car leasing companies in the town, capital requirement has also grown by a substantial margin resulting in reduced revenue earnings.
Numerous factors have an effect on an organization’s business and the outcome of its operations. Some of these operations are beyond the control of the organization. The external factors that may cause the authentic outcome of the organization’s operations in prospect periods to differ materially from those currently expected or desired are; the general economic and industrial conditions of the market (Brown, 2007). Any general economic, business or industrial circumstances that cause customers and potential customers to reduce or delay their investments in the organization have a negative effect on the Company’s potency and profit margins.
International activities are another external factor that has an impact on the organization. Its future growth rates and triumph are partly dependent on increased growth and achievements in the international markets. As it is the case with the majority of international operations, the accomplishment and profitability of the organizations global operations are subject to frequent risks and reservations such as the local economic and labor conditions, political instability and government regulations. Seasonal trends experienced by the organization in the sale of its products have a significant impact too. For example, Star Rent-a-Car offers majority of its services to the local market than the international market. Social and cultural elements are crucial factors that enhance the business. Customer and geographic environment also affect the business especially in terms of incomes. The profit margins achieved by the Company vary to grater extend among its products, its customer’s tastes and business units and its geographical markets. Therefore, the general profitability of the organization’s operations at any point in time is partially dependent on the product, customer and geographic market as shown in that period’s revenues (Fine 2009).
Do a situational analysis (SWOT) of the current strategy to identify what you feel are the key issues in the case. (25 marks)
Conducting a situational analysis better known as a SWOT analysis can help identify the strengths, weaknesses, opportunities and threats to the business. SWOT analysis is an instrument for auditing an organization and its environment. It is the immediate stage of preparation and helps marketers to focus on critical issues. The internal factors consist of strengths, weaknesses while opportunities and threats make up the external factors. For it to succeed, the following factors should be considered (Youngman 1998).
Be pragmatic about the strengths and weaknesses of your organization when carrying out the SWOT analysis. The analysis must draw a difference between the current position of the company and where it will be in the future. It should be specific and subjective to the organization, avoid complexity and over analysis and apply it in the organizations competition structure.
In relation to the case, an analysis on Star Rent-a-Car Company on its strengths reveals the following that it is located strategically in Kelowna town and this makes it ideal to many customers to access its services. It has a strong local market that has won the confidence of many people around the town. It has a large asset base in terms of the vehicles that are used in the daily operations. The company also uses much of the required labor force from the family. This places at the cutting edge of minimizing cost thus enhancing revenue earnings. The company has also operated for sometime and being the pioneer company in the business, the company is ahead of its competitor in terms of branding. The legacy by their by their father also gives them the advantage of being aware of most of the market trends in the industry.
An analysis on its weakness reveals that there is a lack of marketing strategies, as it does not have the expertise to market its operations, lack of an effective and professional management system to look after its operations. They lack the competitive strength needed to develop and implement strategies of the company. It lacks continuity in terms of the people it employs who cannot work for more than six months. There is a lack of morale of the employees and commitment on the side of leaders. They also offer poor-quality services compared to other well-established companies due to poor technology (Fine, 2009). Additionally, the fact that it is a family business makes most of the employees to lazy around. This greatly seen by Ron’s behavior of coming to work at 1.30 while the other girl only stays at office for only three hours. This is a weakness that limits the level of company’s performance.
External factors like opportunities reveal a fast growing market that is technologically based, lack of joint ventures and mergers that can help propel the business and increase profits. It is also faced with new entrants into the market especially the international market. The possibility of existence of holiday and sporting events also presents an opportunity to the company for making higher profits. In addition to this, the company may train its employees to acquire the basic skills to run the company in an efficient manner. This will ensure the company has qualified employees who can steer the company to greater heights. Acquisition of new fleet of cars may also propel the company to greater heights in terms of business activities. The growing population n the area together with the economy presents a wider market base thus assuring of constant business operations. The improving economy also provides an opportune moment for the company to expand its business.
Potential threats include increased number of competitors in the local market, lack of access to channels of distribution due to lack of technology and access to information that its competitors have. The services offered by the competitors are of better quality than what they offer (Brown, 2007). The entrants may use technology that is more superior to Rent-a-Car’s and this will obviously means that they may be outcompeted in the business. Additionally, the current situation in the company where quacks are managing company’s accounts is a lethal threat because the do not have the skills to carry out proper valuation. A company that depends much on family labor is also a threat because it is not easy to predict the commitment to work and this places the company in a precarious position of managing its workforce.
As a consultant, prepare a five forces industry analysis, a competitor analysis, and a customer segmentation analysis that would provide an appropriate foundation for Star-Rent-a-Car to develop its strategy. (30 marks)
Michael E. Porter of Harvard Business School developed five force industry analyses in 1979. As a consultant, I have prepared the following five-force industry analysis to help Star-Rent-a-Car develop its strategies. Three of them refer to external forces while two are internal.
Threats of new entrants and barriers to entry
New firms enter a market with profitable markets that yield high returns. This leads to many new entrants, which eventually will diminish profitability for all firms in the industry. The possibility of new entrants and incumbent rivals pose threats to the industry. This leads to more competition and later on reduced profits. Literally, the market should be free where anyone can enter or leave the market without any constraints. This will maintain normal profits in the industry and avoid other firms from making super normal profits. In the real sense however, industries have unique characteristics that determine the profit levels of firms in the market and restrain additional rivals from entering the market. These are barriers to entry. The dynamics in this industry requires this company therefore to prepare it self and whether the challenge of new firms entering the industry.
The threat of substitute products or services
Existence of products from outside the boundary of common products or services increases the tendency of customers to exchange alternatives. A threat to these products from outside exists when demand is affected by changes in prices of a substitute product or service. As more substitutes become available, demand becomes more elastic because customers have more choices. A close related product blocks the ability of firms to increase prices. Some of substitutes in this industry are the use of aircrafts and helicopters for transport services. This will provide an alternative to the affluent customers and this will act as a reductive for to the success of the company.
The strength of buyers is the impact that customers have on a production industry. Generally, when customer power is strong, the relationship in the production industry is a situation where a market has many suppliers and one buyer. Under such market conditions, the buyer has authority to set the price (Khan 2002). In a situation where consumers have limited buying power, the profitability of the company is greatly reduced to the extent that it may drive other companies from the business. In this scenario however, the economy of the town has been improving and this translates to increase in customers’ buying power. This may act in favor of the company by cushioning it from the looming competition.
Labor, raw materials and other supplies are what production industry needs. This demands lead to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to generate the products. Powerful suppliers can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry’s profits (Brown 2007). The company is acting as a supply to this transport industry and its ability to meet the demands of the company is determined by its strengths. Adoption of just in time service delivery may also act to the advantage to company because of the customer satisfaction that will arise. The company may also decide to improve the quality of services that it offers thereby securing a customer base that guarantees satisfaction.
The intensity of competitive rivalry
The intensity of competitive rivalry forms a substantial determinant of the competitiveness of an industry. It can be achieved through sustainable competitive advantage and, innovations, proper advertising measures and the level of advertisement, strong and competitive strategies, and web design for product visibility. This forms a basis for the company to diversify its car renting services in order for it to remain competitive in the market. There is also a need to focus on enhancing customer loyalty and this can only be achieved if the company ventures in offering quality services. The services should be extremely exclusive and satisfactory to the extent that it is hard for customers to rival car renting companies.
Competitor analysis in marketing and strategic management is an evaluation of the strengths and weaknesses of current and potential competitors. The examination provides both an offensive and defensive strategic framework through which opportunities and threats can be identified. It can help to identify strengths and weaknesses of the organization, identification of your competitors and the intensity of the competition, devise ways to improve your services and products in order to stay ahead of your competitors and finally the improvements you need to make on your marketing approach. It will also help to reveal the following about your products; the products that compete with yours, their advantages they have over the competitors, their disadvantages in comparison to others and an actual view of buyer’s perception about your products.
Customer segmentation is the act of dividing an organizations customer base into groups of individuals that are related to specific ways applicable marketing. They may include age, gender, respective interests, and their spending habits. Using segmentation allows companies to target groups effectively, and allocate marketing resources to best effect. All these may help Star Rent-a-Car improve on their strategies (Brown, 2007). In this case, the company is serving a wider scope of customer base. Most of the customers are holidaymakers who come to the area to enjoy themselves. The customers also are of all age groups and this is a clear indication that the market is wide.
Brown, M. G. (2007). Beyond the balanced scorecard: improving business intelligence with analytics. Michigan, Productivity Press
Fine, L.G. (2009). The SWOT Analysis. Seattle, U.S., CreateSpace.
Jones, G. and Hill,C. (2009). Strategic Management Theory: An Integrated Approach. Stamford, U.S., Cengage Learning
Khan, A. (2002). 501 Stock Market Tips and Guidelines. Nebraska, iUniverse.
Rostin, A. (2007). The Influence of Differing Market Characteristics on Lufthansa’s Strategies and Operations. Frankfurt, GRIN Verlag
Suneja, V. (2000). Understanding business: a multidimensional approach to the market economy. London, Routledge
Youngman,I. (1998). Competitor Analysis in Financial Services. Cambridge, Woodhead Publishing
Strategic and Competitive Analysis