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A Standard Leader Blocks the Price Leader Competitor

Enterprise Rent-A-Car is an astute, well managed company. They have grown to the number one position in automobile rental by using their management skills to beat the likes of Hertz, Avis and National. Now they are starting to close the door on a growing low-end, Price Leader, set of competitors. A Price Leader is a competitor or product that offers below industry-standard performance for a very low price. More than 50% of a Price Leader competitor's total unit volume is usually sold at price points below the Standard Leader product.

This low-end, Price Leader, part of the business is car sharing. This is a club-like service where members join and then rent cars by the hour in locations close to their home or business. The leader in this industry is Zip Car Inc. This company has 250,000 members and 8500 corporate clients. Zip Car, as well as most of the industry, exists only in the larger cities in the United States.

So what has Enterprise done to stunt the growth of Zip Car? It has gone after the largest customers in the industry, in big geographic markets, with a comparable product. (See the Symptom & Implication, “Low end products are gaining share of the market” on StrategyStreet.com.) Enterprise has created WeCar branches at several partner businesses around the country. It plans to deal only with the largest customers, businesses. By contrast, Zip Car gets most of its business from consumers, a costlier market segment to serve. It currently has WeCar locations at Google’s office in San Francisco, Washington University in downtown St. Louis and at sporting goods retailer, REI’s offices in Kent, Washington. The company has been attracted to this car sharing price point because it is a booming business in an otherwise slow-growth industry.

In the long term, it is likely that the industry’s Standard Leaders, including Enterprise and Hertz, will be the leaders in this low-end price point. (See the Perspective, “When Product Mix Matters”, on StrategyStreet.com.)

Posted 10/27/08

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