Olympic’s Financial Case Study Help
Q1. In analyzing the first part of this question, we evaluate on the basis of data given in the case study. The performance criteria considered are the followings.
- Financial statement (2008-2012)
- Breakdown of revenue and profit by customer groups
- Comparative change in overall market share (2010-2012)
- Comparative fleet size and their relative market share (2010 & 2012)
- Comparative geographical penetration level (2010-2012)
- Olympic’s Medalist program activity (2012)
- Loyalty program membership pattern across the industry spectrum (2012)
Financial Statement
On the basis of Olympic’s Financials (2008-2012), we find a rise in profit, operating margin and net profit (Ref: Appendix ) for 2012 over its previous year. It is a turnaround of sort from the dive in 2008 because of the recession, when all growth criteria (revenue, operating margin and profit) took a beating.
However, the profit margin still looks vulnerable and any wrong strategic move can offset the gain experienced over the last two years. Moreover, debt is on the higher side indicating considerable financial risk for the firm, especially if it fails in maintaining profit margin. Promotional expense of around 7% of revenue is acceptable considering a very competitive market that Olympic operates.
Share of customer classes in revenue and profit
From the Table 2 (Ref: Appendix ) it is clear that business traveler forms the bulk of Olympic’s customer base, both in terms of revenue and profit. While, the share of small and large business customers in contributing to revenue and rental units are fairly equitable, it is somewhat lopsided in favor of small business customers as contributor to profits and the reverse in case of contribution to number of contracts.
Comparative change in market share
Olympic registered a fall in market share of 3.2% between 2010 and 2012, which is one of the worst among its major competitors with the only exception of Hertz (Ref: Appendix ).
Fleet size and industry share
Olympic fleet size has diminished from 140,184 in 2010 to 108, 000 in 2012. Since, in car rental industry the fleet sizes can adjusted with demand trends, a depletion in its size indicates a fall in rental demands. Although, Olympic’s revenue has increased in the period, the number of bookings has been largely static and the augments is due to price rise. However, a fall in percentage share of Olympic’s fleets among its customers indicates that Olympic’s fleet size is not keeping pace with the industry trends. Even judging from internal financials a static demand and a falling supply of fleets indicate a tendency of a shortfall for pickups/drop-offs and free-rentals along with chances of blackouts.
Geographical Penetration
Olympic is placed in the fourth position in terms of number of locations it operates. However, its locations are down from 380 in 2010 to 350 in 2012 with dip of 23.8% in the period. Diminishing penetration means that all rental locations they used to operate are not profitable anymore. While, it is prudent business acumen to wind down on non-profitable segments, it also means losing operating markets impacting on annual turnovers.
In analyzing Olympic’s performance based on the customer loyalty programs, we consider the following loyalty programs and their extent of influence on performance in the context of our case study:
- Jones and Sassar: Apostle Model
- Christopher, Payne and Ballantyne: Segmented Service Strategy
- HBR’s Service-Profit chain (Heskett and Sasser)
- Gallup’s ‘Human Sigma’ @ Chain Hay Group’s 7 – circle business model
Apostle Model
The model defines 4 types of customers based on the services rendered by the provider.
Loyalist/Apostle
This category represents customers with high satisfaction and high loyalty to the organization and generally keeps coming back for their service.
Mercenary
In this type, the customer has high satisfaction but low to medium loyalty with low commitment. Therefore, despite their satisfaction from the company’s service they look for batter deal elsewhere.
Defector/Terrorist
This type of customers is characterized by low to medium satisfaction and likewise loyalty for the organization with propensity to change brand.
Hostage
Customers with low to medium satisfaction but high loyalty, being “trapped” or “unable to switch” because of high costs of changing suppliers.
Contextual Analysis
Drawing inferences from Andy’s comments, it can be ascertained that the key customer segment loyal to Olympic are the business travelers, where Enterprise is trying to make inroads.
In trying to understand the key service values associated with business travelers in their purchase decisions and what should Olympic’s strategy for other customers segments, we go to our next loyalty program.
Segmented Service Strategy
The four stages of this model are the following.
- Defining market structure
- Segmentation of customer base and customer value
- Determining segment value
- Identifying segment service needs
Market Structure
The relationship chart involving channel members, intermediaries and end-users can be summarized in the following diagram for Olympic.
Segmenting of Customer base & determining segment value
In determining the most suitable segment in terms of profit, customer retention and cost, the following value groups are considered.
- Service options
- Value sought
- Geographic
- Demographic
- Psychographic
- Benefit
- Usage
- Occasion
Olympic must evaluate each segment carefully, keeping in mind their target segment i.e. business travelers. The service options should focus on mid to high-end cars that business travelers typically opt for. The values sought by this segment usually are the punctuality, easy access to their counters in airports (there should be enough counters so that long queues of the customers is avoided), comfort and luxury, well behaved and courteous drivers with good knowledge and road sense, and easy and good booking experience.
Identifying segments’ service needs
The service needs that would be most important to business travelers can be identified as
- Speed
- Pricing option
- Responsiveness
- Information quality
- Hours of handling
- Claims handling
While speed and responsiveness of service is particularly important for satisfaction of business travelers, price takes a backseat as an important service need for them as in most cases the cost is borne by their company. Information quality and communication is important as well considering the tight schedule of the business travelers and the high level of importance attached to their maintaining of timetable.
According to Andy, Olympic’s service is competitive. If we deduce from the statement that Olympic’s performance is adequate in terms of speed, responsiveness and information, which are most important to business travelers’ expectations from car rental services, it can be deciphered that Olympic’s performance is good. However, to retain the customers it is not enough to be adequate, but the service level should exceed their expectation. Thus an over-performance is required in the three key areas of service in order to increase customer loyalty for the brand.
Conclusion
Andy is concerned of Enterprise’s customer loyalty program where they are generously doling out free rentals to its regular customers. However, the target segment of Olympic viz. business travelers is not overtly concerned of the free rentals, since their expenses on renting a car are generally reimbursed by their company. It is the service quality in the key areas mentioned that forms the biggest differentiating factors for them in choosing a particular car rental company.
Therefore, Olympic should concentrate on maintaining and improving its performance for their target segment and reduce investment in the less attractive segments, in concert with their core competencies. That means they need not compete Enterprise in providing freebees to the customers, instead they should focus on enhancing their service quality in key areas that satisfies the needs of their target group helping them to achieve customer loyalty they seek. The stats of 80% of the on-airport revenue being derived from the business travelers also vindicate our analysis of a good performance by Olympic and the importance for them for a long term relationship with their targeted business tourists. The other advantage for Olympic to target business travelers is their share of all travelers that rent cars at airports is only 20%. That means Olympic doesn’t have to increase its fleet size considerably to meet their demand, thereby, deriving substantial cost advantage over other segments.
In trying to answer the market forces likely to Impact Olympic’s performance in the future, we first consider Porter’s Five Forces industry analysis to understand the industry context the firm belongs to.
In identifying the principal factors affecting Olympic’s performance, we classify the forces according to Porter’s model.
- Rivalry
- Threat of substitutes
- Buyer power
- Supplier power
