Case Background

Hertzs lead in the rental car business had been slipping; from a market share of 40% in early 1980 it
had slipped to 38% in the second half. The price increase in June 1980 had led to decrease in volume
from leisure & small business area. Further over the years despite growth in Hertzs revenue it has
seen a decline of 20% in net income in 1980 compared to 1979.
With a new pricing plan in place, hertz is looking forward to strengthen its position as a market leader
but at the same time the top management is skeptical and wishes to have a contingency plan to go
back to previous pricing if required.
Industry- This industry represented approx. $2.5 billion worth of business annually. The industry is
highly sensitive to market conditions and a slowdown in economy impacted the car rental industry as
it led to decline in air travel and airport rentals accounted for 60% of revenues.
Major Customer segments: Leisure, Large and small commercial accounts and individual business
customers
The industry comprised four major national car rental companies and many seller companies which
dealt primarily on a regional as opposed to national level.

Figure 1 Market Share in Car Rental Market
Avis- Operated mainly through licensees (50% of the outlets), Company obtained 3/4
th
of its business
at airports and major effort was to gain wider distribution, largely through franchising.
National Car Rental- Was over 50% licensee operated, as can be seen in the above figure was at 3
rd

place in the market place.
Budget Rent -A- Car Unlike the top three was almost totally a franchising operation. The corporate
policy was to price lower than Hertz in every market, no matter what. This company had the highest
return on equity and the fastest growth rate in volume
Others Were much smaller in operations. There has been a recent growth of regional firms like Ugly
Duckling Rent- A Car, Rent- A Wreck etc. These firms charged about one half to one third the
price per day of the major firms.
Threat for new entrants in this industry- Low
1. Lack of airport space for rental agencies, Hertz have 40% share in the space
Hertz
40%
Avis
24%
National
20%
Budget Rent a car
12%
Others
4%
MARKET SHARE
2. Large Capital Investment
3. Government Regulations
Hertz as a company & its management
Believe in high quality & reliable plans , priced higher than others in market
Was a $1.3 billion company, wholly owned subsidiary of RCA Corporation
Engaged in the business of renting and leasing automobiles and trucks to customers in US
(81% of the business) and in more than 100 foreign countries (19% of the business)
Well established with approximately 40% market share
Had approximately 4300 rental and leasing car locations worldwide; 75% company owned
and 25%licensed independently. (90% of Hertz revenue was generated through company
owned offices)
Management at Hertz
We can consider Hertz to be well managed company as they follow a particular functional hierarchy
in their organization with well-defined span of control. They run a lean management with respect to
personnel which help them to take decisions quickly. They believe in very little paper work and thus
prevents wastage of time by keeping memos to a minimum level. While making decisions they stress
the importance of having representatives from all divisions and departments as it encourages the
employees to work hard and more productively if they are involved. Also anyone can leaves a
meeting knowing what is expected of him or her, when and why , thus a kind of autonomy is given to
everyone while following a culture of working together. So we can consider Hertz to be well managed
company.
The only flaw we see in the whole management procedure is the lack of documentation at times which
may create a problem while reviewing & monitoring at a later stage.
Interacting Allocating Monitoring Organizing
Actions Generally direct interaction was
done in meeting. Use of memos
and other paper work was
minimal
In meetings the
representatives from
all the divisions
participated and
everyone leaves the
meeting knowing what
is expected of him/her.
So allocation was
proper
Trust factor was
present. Everybody
knows what he/ she is
doing. Self-
monitoring.
Organizing was good.
(Proper hierarchy was
followed). Lean
organization w.r.t
personnel, Marketing
decisions were
implemented quickly

Reaction to the new policy
Hertz new pricing program had mixed reactions from various segments of the market they
were operating in. Not everyone was pleased with the new pricing policy.
Licensees - Many licensees in the industry felt that rental companies would be taken
advantage of. They thought the introduction of no mileage with a no mileage cap was not
going to help the industry
Travel agents - They were delighted with both the ease of administration and customer
reactions to the new program.
Customers: They feel that this is more affordable. They know what they have to pay ahead of
time. This makes them plan their trip in an easier way.
Sales Reps: They felt that guaranteed pricing was a major step forward for the company. With
a flat rate charge, company travel budgets are easier to predict. It certainly makes selling
easier.
How good is the No-mileage strategy?
The pros and cons of the no-mileage strategy adopted by the Hertz Corporation can be stated as
follows:
PROS
[Link]. Points Explanation
1
Economical
rates than old
time plus
mileage criteria
The earlier strategy involved rent based on two parameters i.e. the
amount of time for which the vehicle is booked as well as the no. of
miles for which the vehicle was used. However in this scenario the
customers did not perceive high value for money which resulted in a
loss of market share. By introducing no-mileage strategy the company
will cut down on the rental cost and acquire larger market share.
2
Faster customer
services
By adopting no-mileage strategy, the hertz corporation representatives
and independent travel agents are able to deliver customer services
more quickly as calculation of overall charges is simple and final
amount can be communicated to the customers well in advance. Thus
planning a trip is easier for the agent as well as customers.
3
Increase in
market share
and sales
volumes
By increasing the rental prices, the company lost majority of its market
share to the competitors in 1980s. Majority of the lost market included
small business and leisure customers. At the same time sales volumes
also decreased as customers were switching to other alternatives. No-
mileage strategy will help to gain positive customer perception about
the value delivered by the company, thus attracting lost market
segments back to the firm and increasing sales volumes.
4
Higher customer
satisfaction
The customer satisfaction will increase as customer will already have
an idea about the total rental expenses before the start of the journey as
company is highlighting a Guaranteed Pricing concept. Also there
will be no waiting time for the customers who are members of the #i
club of the company thus enhancing the satisfaction among existing
clients.
5
Move difficult
to copy
Competitors dependent on licensees which are against unrestricted no-
mileage pricing
CONS
[Link]. Points Explanation
1
Exploitation of
the plan by
customers
Some customers will take undue advantage of the plan and would over
use the vehicle as there is no mileage cap on the usage. Thus without
the mileage charge the company would be bound to pay for such
extreme usage through lower margins and worn out automobiles.
2
Shorter
replacement
cycles
Since the customer may indulge in extreme usage of cars, this may
result in faster wearing out of the cars and will force the company to
replace the vehicle quickly through 80% resale procedure.
3
Less significant
for large
business clients
This plan will deliver a less significant impact on large business clients
which forms a major part of revenue generation for the company.
4
Drop in Average
RPT
Discussed below in financial implications
5
Friction with
licensees
7 percent did not participate in the programme
6
Switch back to a
time + mileage
model
Difficulty to change pricing at a later stage, consumer gets confused

Looking at pros, we can state that No-Mileage strategy will help Hertz Corporation to acquire lost
market share and drive sales volumes. This will also enhance the positive perception about the brand
in the minds of customers as being value for money and will increase the customer satisfaction
quotient.
The No-mileage plan could be a step forward for the company to gain competitive advantage in the
industry but at the same time it may be risky as this may lead to losses for the firm in certain deals.
As we have seen at both the pros and cons of the strategy the following table discuss the financial
implications of the plan at 100 miles, 200 miles & 500 miles if driven by customer (Example of Los
Angeles):
For 100
Miles
Previous
Rate (in $)
Previous
rates after
discount
(in $)
New Rates
@ 25
%hike
(in $)
New Rates @
25 %hike after
discount (in $)
New Hertz
Rate (in $) Difference in rate (in $)
56 33.6 70 42 30 12
57.6 34.56 72 43.2 35 8.2
60.8 36.48 76 45.6 43 2.6
62.4 37.44 78 46.8 46 0.8
For 200
Miles
Previous
Rate
(in $)
Previous
rates after
discount
(in $)
New Rates
@ 25
%hike
(in $)
New Rates @
25 %hike after
discount (in $)
New Hertz
Rate (in $) Difference in rate (in $)
84 50.4 105 63 30 33
86.4 51.84 108 64.8 35 29.8
91.2 54.72 114 68.4 43 25.4
93.6 56.16 117 70.2 46 24.2
For 500
Miles

Previous
Rate
(in $)
Previous
rates after
discount
(in $)
New Rates
@ 25
%hike
(in $)
New Rates @
25 %hike after
discount (in $)
New Hertz
Rate (in $) Difference in rate (in $)
168 100.8 210 126 30 96
172.8 103.68 216 129.6 35 94.6
182.4 109.44 228 136.8 43 93.8
187.2 112.32 234 140.4 46 94.4
*Discount Assumed 40%
According to our calculations & comparison of old revenue at 100 miles, 200 miles & 500 miles with
revenue at new rates , the company loses a significant profit as the number of miles driven in a day
increases (in comparison to new rates @25% hike).
The benefit of this new pricing can be observed only if there is a steep rise in volume of customers.
For Ex For a customer driving only 100 miles in a day a revenue of $210 is possible with five
customers with old pricing (42*5) but with new pricing seven customers (30*7) will earn such
revenue. Similarly, for 200 miles double the number of customers are required to achieve a similar
revenue.
Keeping the above cons in mind Hertz should implement this pricing strategy cautiously and a
contingency plan should be in place in case the volume benefits are not observed by this move.
Contingency Plan
In case the new pricing strategy does not deliver the required volumes to offset the low margins we
will have to shift to previous pricing policy or differentiate with a new plan. We believe that going
back to old pricing would be a step back for Hertz (as competitors low prices are biting our market
share), what they can do in case of failure of new pricing is:
1. No-Mileage with Miles Cap Another method that can be used is to put a cap on miles driven
in a day as we have seen as the number of miles increase our margins get lower. For 100
miles in a day there will be no charge but beyond 100 miles there can be variable charge per
mile
2. No-mileage for minimum days There could be plans where no mileage plan is implemented
if customer takes car on rent for a week
3. No-Mileage for certain hours One of the biggest cons is the exploitation by customer by
driving full quota of miles in a day. If we come up with no mileage rentals for say 12 hours it
will ensure this is taken care of
4. Weekend Special As most people have leisure trips over the weekend, there could be
weekend special program. Weekend rates starting from $9.99 per day when you rent from
Friday through Monday at participating neighbourhood locations. Special rate includes 100
miles per day.


5. Partner offer Special offers As Hertz is located at the airport they could partner with airlines
for e.g. Jet airways and give more exciting offers. JetPrivilege members who rent a car with
HERTZ at participating locations in USA can earn Double JetPrivilige Miles and more
savings. This offer could work well for corporate accounts.

6. Differentiation with other Services Full to Full Plan & Insurance plans (Source
[Link]) Services like full fuel tank at a subsidized rate & insurance coverage at
low cost can be provided
We believe that Hertz should go in the market with multiple plans discussed above to suit each
customer segment & requirement. Further, adding stipulations would mean we are being similar to
competitors but ancillary services (point 6) can help us to differentiate in the market & break the
general perception of car rental services as undifferentiated package of service.
What should Bidwell, Coch do?
The company has been always proactive & on the move. Ben Bidwell must prepare the company for
any major hitches that happen due to this new pricing policy.
Implementation of new pricing
Ben Bidwell along with Craig Koch must closely monitor the new plan implemented and allocate
required resources for the same. If there are any small glitches they need to be smoothened out
quickly and effectively. The demand-supply gap anticipated must be taken care of by adding new cars
to fleet.
What if volumes are not achieved?
In case the plan doesnt seem to be working the top management must not get carried away
(emotionally attached) by early success & try to implement new pricing anyhow instead of pulling out
of the plan & controlling damage (In case required). The top management Bidwell, Coch &
Bingman must come up with a plan b as the new model of pricing plays on high volume & low
margins which can be risky. The plans discussed by us can be used by the organization & appropriate
marketing communication plan must be developed-like a tagline You have travel requirements, we
have customized plans.