Question

Revenue Management saves the business: the case of the National Car Rental

The story:​ National Rental Car faced disastrous possibilities. In 1993, General Motors had considered liquidating or selling the unprofitable business. National and their 7500 employees had just one chance. They had to make the business profitable and prove that the car rental business was worth saving.
National quickly brought in the help of specialists to assess the situation, understand the business and quantify revenue potential. Using the information gained from the evaluation, National began a revenue management system that would centralize their capacity management, pricing and reservations control.
The challenge​: Before National began using the Revenue Management System, it did not have the proper communication tools in place to be able to react to the industry’s changing environment and faced different issues
National did not pursue leisure weekend customers and remained solely focused on the business and corporate renters who paid fixed rates and only traveled during the week leaving most rental car companies with large fleets of idol cars on the weekends thus missing out on potential opportunities. National was not able to adjust for increased or decreased car demand as It planned its car fleet in one-year cycles as opposed to shorter cycles more often, which led to failure in meeting changing customer demand and tremendous number of missed opportunities. National’s pricing strategy also was not dynamic and was often linked to competitors pricing who were more flexible at making short-term pricing changes.
By using revenue management system, National was able to create a plan that would improve revenue per car, revenue per day, and utilization levels, thus could realize and sustain revenue improvements.
Questions:
1. Based on the above what are the problems National company had before applying Revenue management system? (30pts)

2. What conditions of the car rental industry encourage National company to implement revenue management practices? (35pts)
3. Using the information gained from the evaluation, how do you think the implementation of the revenue management system solved the problems of National and saved the company. (35 pts)

Answer 1

1. Based on the above what are the problems National company had before applying Revenue management system?

Answer:

The challenge​: Before National began using the Revenue Management System, it did not have the proper communication tools in place to be able to react to the industry’s changing environment and faced different issues National did not pursue leisure weekend customers and remained solely focused on the business and corporate renters who paid fixed rates and only traveled during the week leaving most rental car companies with large fleets of idol cars on the weekends thus missing out on potential opportunities. National was not able to adjust for increased or decreased car demand as It planned its car fleet in one-year cycles as opposed to shorter cycles more often, which led to failure in meeting changing customer demand and tremendous number of missed opportunities. National’s pricing strategy also was not dynamic and was often linked to competitors pricing who were more flexible at making short-term pricing changes.These are the problems that the national company had before applying the revenue management system.

2. What conditions of the car rental industry encourage National company to implement revenue management practices.?

Answer:

By using a revenue management system, the national company understands that a car can improve revenue, daily revenue and usage levels, while at the same time focusing on its capacity management, pricing and reservation control. So that revenue improvements can be identified and sustained.It is for this reason that the national company is encouraged to implement revenue management practices.

3. Using the information gained from the evaluation, how do you think the implementation of the revenue management system solved the problems of National and saved the company.?

Answer:

By using a revenue management system, the national company understands that a car can improve revenue, daily revenue and usage levels, while at the same time focusing on its capacity management, pricing and reservation control. So that revenue improvements can be identified and sustained. For these reasons, I feel that the national problems were solved and the company was saved.