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Car rental market entry
strategy
Topic
Difficulty
Growth strategy
Intermediate
Market analysis
Style
Interviewer-led (McKinsey
style)
Market entry
Market sizing
Mergers & Acquisition
Operations strategy
Valuation
The client is CarRentalCo, 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. CarRentalCo 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.
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Comments
This is a case study example to help you prepare for your interviews at
McKinsey & Company or Bain&Co. Go through the exercises and practice
the case with a partner who can challenge your thinking and give
feedback.
Since this is an interviewer-led case, the interviewer should guide the
candidate through the interview.
Short Solution
In order to achieve the profit margin targets a high market share is
needed(+30%)
An acquisition of an existing competitor is the best option
Among the existing competitors a big local player is the best option
There are seleval integration factors that need to be evaluated before
the integration
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Paragraphs highlighted in blue can be verbally communicated to the
interviewee
Question 1: In the introductory meeting with the 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
analyze the problem.
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
Capabilities/Core strengths
Brand
Corporate agreements
Customer Loyalty program
Question 2: Based on the approach presented above, how would
you go about conducting the analysis and gathering the
information required?
a) Client information: Any internal report or interviews conducted with the
management of the company
b) External information: Market reports, internet
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c) Consulting firm information: Any internal info from the consulting firm,
reports, expert interviews
Question 3: Based on the various data gathering methods
suggested above, we have some data to help with the market
entry analysis. CarRentalCo 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
CarRentalCo needs to capture in the Baltic to reach the profit
target in 3 years?
Ask for if there is more info on the market, like size, if there is data related to
margins, etc. Then you would receive the following:
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)
With such info you can calculate what is requested:
Market size after 3 years: €12.1m
Each market share percentile equals €6,050 in net profit for CarRentalCo
To reach a target of €200k in net profit, CarRentalCo would need about 30%
market share in 3 years.
Question 4: Analyzing the competition of the market and knowing
the targets, what should be the best market entry strategy? How?
i) International Car Rental: 35% market share – serves primarily
international business travellers and tourists.
ii) Local player: 45% market share – serves a mix of tourists and local
customers.
iii) Other smaller rental companies: 20% market share – primarily
local customers
Organic growth is highly unlikely to get to the market share targets.
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Therefore, an acquision is the best option.
International can rental does not look a good option to acquire since
they are direct competitors
The smaller companies do not seem a good option due to high
complexity and still lower market share than the target
Local player seem the best option. We will probably have enough cash
for the acquisition and the 40% will be more than enough for the target
Question 5: What are the main challenges of the integration?
Difference in existing customer base vs CarRentalCo’s targeted
customers
Local customers will move to smaller players as price sensitive and
unwilling to pay premium for CarRentalCo
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 CarRentalCo standards
Significant capital investment to bring car fleet up to CarRentalCo’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
Question 6: What is your final recommendation to the client?
Entering the baltic market is recommended and an acquision of a local player
is the best strategy.
The market is growing and its a good opportunity
The local player acquisition ensures the €200K target in profit for year 2
This acquisition simplifies the M&A process since it only requires one
acquisition with a 40% of market share
There are several challenges that we need to address for the integration
related to the existing customers, IT systems or company culture.
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