Introduction
Porter's Model consists of five forces that are used to analyze the external environment of an organization. The forces include competitive rivalry, the threat from new entrants, the suppliers' power, the buyers' power and the threat of substitutes. This paper evaluates the car rental industry in the USA using Porter’s five forces.
Competitive Rivalry
The competition in the USA, car rental industry, is intense because the number of companies operating in the industry is substantial. In the last years, the fleet sizes have been expanding, and most companies in the industry focus on profitability. For example, car hire companies such as Avis, Enterprise and Hertz have been growing the fleet sizes, and their sales have been increasing (Monestime & Monestime, 2016). The competition keeps intensifying because the players in the industry are interested in attracting more clients. The companies in the industry create value by providing a wide range of amenities to satisfy the customers. Amenities such as technological gadgets and free rental services are used by companies as differentiating factors. The scramble for customers in the industry has made the companies offer unique customer services and low prices in a bid to differentiate themselves (You & Hsieh, 2014).
Threat from new entrants
The threat from new entrants in the rental car industry is low because extensive financial resources are required to start up rental Car Company. Accordingly, venturing into the car rental industry places the new entrants at a disadvantage. The car rental industry is saturated thus new comers may not excel (Monestime & Monestime, 2016). The new entrants are discouraged from venturing into the car rental industry because the chances of making profits in the industry that is very competitive are minimal. Furthermore, the severe competition in the industry among the existing firm may trigger retaliatory strikes against the new entrants (Business, 2012).
Threat from substitutes
There are substitutes of the car rental industry. For example, cabs are substitutes because of they are of high quality, and the cost of switching between them is low. Another viable alternative to the car rental industry is public transportation. Markedly, public transportation is cost efficient when compared to the rental cars. Besides, flying can be alternative to car renting because it offers performance, convenience and speed (Shaheen & Cohen, 2013). However, flying is unattractive when it comes to pricing because it is more expensive than the rental cars. It is noteworthy that car rental companies are protected against substitutes because they have implemented policies that increase the uniqueness of their operations. The customers can use shuttle bus services, taxi and trains as means of transportation. All in all, the threats from substitutes in the car rental industry are low because the substitutes do not erode the overall profitability of the industry (Business, 2012).
The Suppliers’ bargaining power
Overall, the power of suppliers in the car rental industry is low. Due to the high number substitutes, and the intense competition in the industry, the suppliers lack a great deal of influences when it comes to the conditions and terms of supplying rental cars. Normally, the rental cars are bought in bulk; hence, the agents of the rental cars influence the terms of selling the cars (You & Hsieh, 2014). Accordingly, the agents have the ability to play the suppliers against each other, and this ends up lowering the selling prices of the rental cars. Additionally, the suppliers’ power is reduced due to the lack of switching costs in the industry. In other words, the buyers do not incur any switching costs when they switch their suppliers. In addition to that, it is not easy to notice when the buyers switch from one supplier to another and as such the customers' rental choices are not affected (Shaheen & Cohen, 2013).
The buyers’ bargaining power
The buyers’ bargaining power is high/low because it depends largely on the financial resources of the buyer. The bargaining power of the buyers in the industry can be described as high and low because it depends on the financial resources of the buyer (You & Hsieh, 2014). To illustrate, if an individual intends to rent a car service, he/she would possess a low bargaining power because losing of the potential financial resources will not impact on the company’s financial resources significantly. On the other hand, it an individual intends to buy several rental cars from an automotive company, he/she would possess a high buying power. The loss of the potential sales that may yield significant revenues may hurt the automotive company (Monestime & Monestime, 2016).
Conclusion
In a nutshell, this paper has evaluated the car rental industry using Porter’s five forces. The competitive rivalry in USA’s car rental industry is high whereas the threat from new entrants is low. The threat from substitutes is low, and the suppliers' bargaining power is low as well. Finally, the buyers’ bargaining power may be high or low depending on the number of cars that are bought by the customers.
References
Business, H. (2012). “Passenger Car Rental Industry Report. Technical Report SIC 7514, HighBeam Business.
Monestime, R., & Monestime, R. (2016). The Car Rental Industry. EzineArticles. Retrieved 6 February 2016, from http://ezinearticles.com/?The-Car-Rental-Industry&id=491218
Shaheen, S. A., & Cohen, A. P. (2013). Carsharing and personal vehicle services: worldwide market developments and emerging trends.International Journal of Sustainable Transportation, 7(1), 5-34.
You, P. S., & Hsieh, Y. C. (2014). A study on the vehicle size and transfer policy for car rental problems. Transportation Research Part E: Logistics and Transportation Review, 64, 110-121.
