Car Rental Industry & Elasticity

The rental car industries as well as other industries within the travel market are challenged with developing a pricing strategy that will maximize profits for the firm. In our analysis of three firms, Hertz, Avis and Budget, our team used qualitative and quantitative methods to develop an understanding of their pricing strategies. We wanted to determine which company has the best overall pricing strategy. Furthermore, these methods helped us develop recommendations involving segmentation and brand differentiation that will help these rental car companies insure greater profitability through pricing that will minimize consumer surplus. Our examination of the three rental car companies and their pricing strategies begins with industry and financial analysis, continues with a discussion of yield management, and then moves on to review two approaches to determine if market segmentation will lead to increased profits for the automobile rental firm. Finally we will propose some tactics that the automobile car rental company could use to further segment the market and increase profits.

An interview with a Cendant executive enhanced our industry knowledge and shaped some of our thinking about the industry. The qualitative knowledge gained from these discussions set the foundation for our quantitative approach to determine the best pricing strategy and recommendations for improving profitability in the rental car industry. From the interview with John Barrows, VP of Communications for Cendant, we found the following comments important to our analysis of the car rental industry and Cendant's strategy with respect to pricing:

• Mr. Barrows believes that the pricing strategy for Hertz is very similar to Avis and Budget. He challenged us to research whether Hertz also prices car rentals based on country of origin. Based on Mr. Barrows' suggestion, we discovered different pricing for country of origin using the foreign websites of Hertz.
• Cendant's pricing strategy for