Baltic Car Rental Market Entry Introduction For the sake of the case, the client is assumed to be Hertz, a global car rental company present on the European and North American markets. In Europe, it is present in most EU ‘countries but has not yet entered the Baltic countries. Hertz has asked us to determine whether or not they should enter the Baltic (Estonia, Latvia and Lithuania being here considered as one market) and, if so, what should their entry strategy be. Question 1 In the introductory meeting with Hertz’s European director, he asks you how you plan to approach the problem. Give a brief description of the key areas you want to focus on to analyse the problem. Expected here is an answer along the 3 C’s where the candidate focuses on: + Market = Size of the market = Growth rate + Segmentation + Competition + How many competitors? + Respective market shares * Differentiation factors * Alternative competitors/substitutes + Consumers = Type of consumers: business, tourist, local + Segmentation + Trend in consumer demand + Capabiliies/Core strengths + Brand * Corporate agreements/Customer Loyalty programme Any framework suggested is expected to cover the basics: industry & market, competition, customer needs —v- gaps and core strengths/capabilties of firm Question 2 Based on the approach presented above, how would you go about conducting the analysis and gathering the information required? This question is to test the candidate's initiative and if they have thought about whether data is easily available or not. Expected answers would include: + Buy market and competitive research ‘Observation of competitors operations (sampling and then extrapolation) + Leverage knowledge of other European markets to determine consumer segmentation and trends in consumer demandQuestion 3 Based on the various data gathering methods suggested above, we have some data to help with the market entry analysis. Hertz is looking at a net profit target of at least £200k after the initial 3 years. So, more specifically, what data would you need to determine the equivalent market share Hertz needs to capture in the Baltic to reach the profit target in 3 years. Data to be provided Total Size of Car Rental Market in Baltic: £10m Annual Market Growth: 10% Net Profit Margin: 5% (in lieu of any details on cost structure) Calculations Market size after 3 years: £12.1m Each market share percentile equals £6,050 in net profit for Hertz To reach a target of £200k in net profit, Hertz would need about 30% market share in 3 years. Question 4 Knowing the profit target 3 years down the line, what additional information would you want to know to recommend a market entry strategy to Hertz? © Market = Market growth 10% - attractive compared to 2-3% growth in mature markets = Business segment expected to increase significantly as well as tourist segment. Local customer segment expected to drop rapidly = Competition = Avis Car Rental: 35% market share — serves primarily intemational business travellers and tourists = Local player: 45% market share ~ serves a mix of tourists and local customers = Other smaller rental companies: 20% market share — primarily local customers = Consumer = Split between business travellers, tourists and local customers. = Business travellers less price sensitive and attached to customer loyalty programmes. * Tourists are a heterogeneous group with varying degrees of price sensitivity. Growing segment with increase of low cost airlines servicing Baltic + Hertz’s Core Strengths = Strong brand image = High customer service and quality levels = Global customer loyalty programmeQuestion 6 Based on market structure and Hertz’s profit target, what strategy would you recommend them to enter the Baltic market? Candidates should have caught on that a 30% market share within 3 years is unlikely through organic growth only. Knowing the consolidated state of the market, candidates should recommend the acquisition of the local player. Arguments for the acquisition: + This represents an opportunity to get a significant market share (potentially a dominant ‘one) in one go. + If candidates mention 45% market share acquired, they should mention the high risk of altrtion as current customer base is different from Hertz's targeted customers. + It reduces the number of players in the market and, thereby, changes the nature of competitive intensity, while potentially reducing the risk of a price war + Buying out an existing player could be seen as a pre-emptive move for future global car rental firms wishing to enter the market Question 7 What would be some of the challenges to the integration between Hertz and the local player assuming the local player will be rebranded as a Hertz affiliate? The expected answer would highlight integration issues around: * Difference in existing customer base —v- Hertz's targeted customers * Local customers will move to smaller players as price sensitive and unwilling to pay premium for Hertz = Business travellers may not be impressed by service quality of local player. This would require investment in staff training to bring service levels up to Hertz standards ‘+ Significant capital investment to bring car fleet up to Hertz’s standards ‘+ Difference in reservation and computer systems requiring IT investment and training ‘+ Effort spent on integration might divert focus away from operations, resulting in potential benefit for competitors. They might gain additional market share and grow an even stronger foothold in the growing segments,