In the last fiscal quarter Universal really placed most of its energy on increasing net profits. As done in previous quarters, increasing net profits was done by strategically increasing rental costs in areas where Universal had increased market share (Tampa and Miami). This strategy has worked successfully in all four quarters. This strategy has allowed the company to maximize its’ weekday and weekend capacity utilization to 100% consistently. Maximizing utilization was one of my primary objectives from the start and I’m happy to see that the company managed to hit the max from June to September.
My other primary objective was to maximize profits. When I began working for Universal in October the company's accumulated profit for that month was $0.
Here's how Universal completed the year fiscally:
Monthly Net Income
July --------------- August ----------------September
$102,557,707 ----$119,844,191 -----------$138,603,364
With a yearly accumulative profit of $138,603,364, I would argue that Universal did fairly well given where the company was in October. I would also argue that this was a good year to be managing Universal. Although the company 12 months ago was struggling, this allowed for new management to come in and observe the situation with new perspectives. It definitely was not an easy year to be managing Universal, but I think the challenge equaled the reward. With this year's increasing elasticity of the market, this allowed for more business opportunity and big sales...who wouldn't want to manage a business in this setting?
After reviewing this year's sales I do feel that there are several areas of opportunity/improvement that should be considered as we head into the next fiscal year. The most important aspect we should consider is increasing our fleet sizes to meet market demand. We lost a considerable amount of sales by not meeting customer orders. This could have been easily resolved by steady implementation of a larger fleet added per month (again, I did not have this option in the simulation). Second, Universal should strive in making more promotional activities. Some of the promotional offerings mentioned earlier in this blog included offering lower prices during non-peak seasons, extended mileage travel, no late return fees or offer a no empty tank fuel charge upon rental car return. These options are all plausible choices that consumers may find very appealing and it doesn't cost the company and overwhelming amount of money. Universal should also increase brand equity by implementing brand management strategies. Given Universal's stellar performance and the steady increase in market demand Universal should increase marketing in several media applications. Some of the applications that should be considered include, airport advertising, e-advertising, short well-informed TV commercials and newspaper ads. By advertising in these key traffic areas, Universal is sure to increase brand equity and bound themselves for future success.
I'm looking forward to another year!
Saturday, July 24, 2010
Friday, July 23, 2010
Quarter #3 (April - June)
As mentioned earlier in this blog Universal has market share advantage in both Tampa and Miami. Although Orlando had equal market share as the competitor, Universal still managed to set competitive prices by predicting changes in supply and demand. In April, Universal increased both weekday and weekend costs in Tampa by $2 per share while keeping costs in Orlando and Miami neutral. In May and June Universal aggressively increased both weekday and weekend costs across all three rental car regions given the increase in rental car demand. We were sensitive to Orlando’s pricing and only increased cost by a $1 or less. This pricing strategy allowed Universal to hit 100% capacity utilization in both weekday and weekend rentals (June).
Another part of the business we began to take notice in is the differences between weekday and weekend demand.
Here is how our Quarter #3 financials looked:
Capacity Utilization:
------------Weekday------------------Weekend-----------
April ---------97%----------------------100%--------------
May----------98%----------------------100%--------------
June---------100%---------------------100%--------------
Monthly Net Income:
Accumulated Profit:
-----April -------------May -------------------June-----
$57,736,030 -------$71,520,922 ------------$86,449,950
Again, we are seeing big monthly increases in profit. This quarter our average monthly profit was $14.5 million (almost $5 million more per month than Q2). Universal successfully made these gains by increasing capacity utilization and setting competitive costs. Also the increase market demand has benefited the company exponentially. Universal will now need to focus on increasing fleet sizes to ensure they are filling the maximum rental orders (unfortunately I do not have the option of increasing fleet sizes - different simulation set-up). The strategic implementation of adding fleet vehicles must be done by careful consideration of current market demand and unfilled orders. By having a clear understanding of these two variables Universal can begin implementing fleet vehicles on a monthly basis. If Universal can effectively manage the addition of fleet vehicle they can easily maximize market share, exceed the competition and gain a new level of status quo.
At this point I would like to take a few moments and discuss some of the differences Universal has noticed between weekday vs weekend demand. As previously mentioned the demand for rentals has steadily increased since June. This increase has affected both weekday and weekend demand. Taking a closer look at the number or orders for rental cars on weekday vs weekends we can see that weekend orders are in much higher demand than weekday orders. We calculated this simply by dividing the number of days (weekday (5) weekend (2)) by the total number of daily orders. This information is important to Universal because it allows us to think and make decisions regarding marketing strategy. One of the items to consider is excess fleet on weekends. What special promotions could Universal offer clients during weekend travel? Perhaps, Universal could offer lower prices, extend mileage travel or offer no empty tank fuel charges upon rental car return. These options are all plausible choices that consumers my find appealing.
Another part of the business we began to take notice in is the differences between weekday and weekend demand.
Here is how our Quarter #3 financials looked:
Capacity Utilization:
------------Weekday------------------Weekend-----------
April ---------97%----------------------100%--------------
May----------98%----------------------100%--------------
June---------100%---------------------100%--------------
Monthly Net Income:
Accumulated Profit:
-----April -------------May -------------------June-----
$57,736,030 -------$71,520,922 ------------$86,449,950
Again, we are seeing big monthly increases in profit. This quarter our average monthly profit was $14.5 million (almost $5 million more per month than Q2). Universal successfully made these gains by increasing capacity utilization and setting competitive costs. Also the increase market demand has benefited the company exponentially. Universal will now need to focus on increasing fleet sizes to ensure they are filling the maximum rental orders (unfortunately I do not have the option of increasing fleet sizes - different simulation set-up). The strategic implementation of adding fleet vehicles must be done by careful consideration of current market demand and unfilled orders. By having a clear understanding of these two variables Universal can begin implementing fleet vehicles on a monthly basis. If Universal can effectively manage the addition of fleet vehicle they can easily maximize market share, exceed the competition and gain a new level of status quo.
At this point I would like to take a few moments and discuss some of the differences Universal has noticed between weekday vs weekend demand. As previously mentioned the demand for rentals has steadily increased since June. This increase has affected both weekday and weekend demand. Taking a closer look at the number or orders for rental cars on weekday vs weekends we can see that weekend orders are in much higher demand than weekday orders. We calculated this simply by dividing the number of days (weekday (5) weekend (2)) by the total number of daily orders. This information is important to Universal because it allows us to think and make decisions regarding marketing strategy. One of the items to consider is excess fleet on weekends. What special promotions could Universal offer clients during weekend travel? Perhaps, Universal could offer lower prices, extend mileage travel or offer no empty tank fuel charges upon rental car return. These options are all plausible choices that consumers my find appealing.
Wednesday, July 21, 2010
Quarter #2 (January - March)
After completing my first quarter at Universal the company and I had a new market understanding. With market share advantages in both Tampa and Miami we were able to reap in more of the business in these areas. By adjusting the cost per rental by just a few dollars - we made substantial profits.
We also gained a clearer understanding of our competitor’s behavior. The competitor in most cases simply wanted to match prices. If I increased costs, they increased costs. If I were to define this competitor I would categorize them as hesitant. In no way did the competitor show aggressive behavior by slashing prices, increasing fleet size etc. to increase market share. We used the competitor’s lackadaisical methodology to our advantage.
Here’s how our numbers turned out for quarter #2:
Capacity Utilization
-------------------Weekend------------- Weekday
July -----------------66%------------------- --85%
August -------------- 69% ---------------------88%
September-----------74% ----------------------95%
October-------------- 85%------------------- --100%
November----------- 88% ---------------------100%
December ------------91%-------------------- -100%
January--------------- 93% --------------------100%
February-------------- 95%-------------------- 100%
March -----------------96%------------------- -100%
As you can see careful management tactics were in place to ensure that we maintained capacity utilization. Careful price checks and comparisons were made month to month to ensure we used our capacity to our full advantage. This quarter we successfully increased our weekday capacity to 96% while maintaining our weekend capacity at 100%. These are big accomplishments given where we came from in October. In this situation I thought that managing surplus was more important to maintain. Although the company has a history of both stock-outs and unsold inventory, I chose to manage unsold inventory more closely as my overall goal for the business was to increase profits.
Here is a brief look at our monthly net income for this quarter:
Revenue from Weekday Rentals --- -----$38,718,752 ---- $38,247,044 -----$39,930,941
Revenue from Weekend Rentals --- ----- $11,600,269 --- $11,817,666 ------$12,904,906
Total Revenue --------------------------$50,319,021 ---- $50,064,710 -----$52,835,847
Variable Costs ---------------------------$18,311,988-----$18,164,098------$18,389,041
Weighted Average Profit Contribution ---$32,007,033 ----$31,900,612 -----$34,446,806
Weekday Contribution ---------------- $25,431,735 -------$24,960,027 -----$26,643,924
Weekend Contribution----------------- $6,575,298 -------$6,940,585 --- ---$7,802,882
Vehicle Inventory Costs------------------$13,644,110 ----$13,644,110 --- --$13,644,110
Net Profit Contribution ----------------- $18,362,923 ---- $18,256,501------$20,802,696
Other Fixed Costs -----------------------$8,944,024 -----$8,944,024 -------$8,944,024
Net Income------------------------------$9,418,899 ----- $9,312,477 -------$11,858,671
Accumulated Profit ----------------------$24,285,754 ----$33,598,231------$45,456,903
As you can see from our financial report Universal continues to increase profits on a month to month basis. This quarter our monthly accumulated profit average was a whopping $10.5 million. Although Universal is on the right track there is still room from improvement.
We also gained a clearer understanding of our competitor’s behavior. The competitor in most cases simply wanted to match prices. If I increased costs, they increased costs. If I were to define this competitor I would categorize them as hesitant. In no way did the competitor show aggressive behavior by slashing prices, increasing fleet size etc. to increase market share. We used the competitor’s lackadaisical methodology to our advantage.
Here’s how our numbers turned out for quarter #2:
Capacity Utilization
-------------------Weekend------------- Weekday
July -----------------66%------------------- --85%
August -------------- 69% ---------------------88%
September-----------74% ----------------------95%
October-------------- 85%------------------- --100%
November----------- 88% ---------------------100%
December ------------91%-------------------- -100%
January--------------- 93% --------------------100%
February-------------- 95%-------------------- 100%
March -----------------96%------------------- -100%
As you can see careful management tactics were in place to ensure that we maintained capacity utilization. Careful price checks and comparisons were made month to month to ensure we used our capacity to our full advantage. This quarter we successfully increased our weekday capacity to 96% while maintaining our weekend capacity at 100%. These are big accomplishments given where we came from in October. In this situation I thought that managing surplus was more important to maintain. Although the company has a history of both stock-outs and unsold inventory, I chose to manage unsold inventory more closely as my overall goal for the business was to increase profits.
Here is a brief look at our monthly net income for this quarter:
Revenue from Weekday Rentals --- -----$38,718,752 ---- $38,247,044 -----$39,930,941
Revenue from Weekend Rentals --- ----- $11,600,269 --- $11,817,666 ------$12,904,906
Total Revenue --------------------------$50,319,021 ---- $50,064,710 -----$52,835,847
Variable Costs ---------------------------$18,311,988-----$18,164,098------$18,389,041
Weighted Average Profit Contribution ---$32,007,033 ----$31,900,612 -----$34,446,806
Weekday Contribution ---------------- $25,431,735 -------$24,960,027 -----$26,643,924
Weekend Contribution----------------- $6,575,298 -------$6,940,585 --- ---$7,802,882
Vehicle Inventory Costs------------------$13,644,110 ----$13,644,110 --- --$13,644,110
Net Profit Contribution ----------------- $18,362,923 ---- $18,256,501------$20,802,696
Other Fixed Costs -----------------------$8,944,024 -----$8,944,024 -------$8,944,024
Net Income------------------------------$9,418,899 ----- $9,312,477 -------$11,858,671
Accumulated Profit ----------------------$24,285,754 ----$33,598,231------$45,456,903
As you can see from our financial report Universal continues to increase profits on a month to month basis. This quarter our monthly accumulated profit average was a whopping $10.5 million. Although Universal is on the right track there is still room from improvement.
Tuesday, July 20, 2010
My first quarter (October - December)
As a District Manager, my main responsibility is to maximize profitability through strategic pricing of inventory. Universal Florida just experienced one of the worst quarters of both “stock outs” and “unsold inventory”. Although Florida is experiencing exceptional growth, Universal’s operational profits are far below the company average. In order to gain a better understanding of why Universal was struggling in these areas we reviewed, analyzed and re-built our cost structure.
We began rebuilding our cost structure by utilizing a break-even calculator. Using the break even calculator we successfully managed to more accurately forecast our costs and sales. We did this by reviewing the following: Fixed costs - costs that are the same regardless of how many rentals are sold and Variable costs - recurring costs that we absorb with each unit sold. With a solid understanding of these two variables and an idea of current general economics we were able to successfully set competitive prices.
Given Universal Florida’s poor sales record yet increasing economic growth, my team and I decided that “priced-based costing” was a suitable strategy for our profit growth plan. Price-based costing allows us to start with a price consumers are willing to pay when they have competitive alternatives. If competitive prices are low we simply whittle down cost to meet that price. This way if we experience new competition, we can lower our prices yet still turn a profit.
Here is how our numbers looked in our first quarter:
Capacity Utilization
July --------45%
August -----46%
September -51%
October ----62%
November --70%
December --76%
With an average weekday price increase of $2 per rental and an average weekend increase of $3 per rental we were able to increase capacity utilization at +8% per month. A good start but there is still room for more opportunity.
Monthly Net Income
Revenue from Weekday Rentals -----$12,864,074------- $12,864,074------- $12,584,420
Revenue from Weekend Rentals -----$2,489,222-------- $2,830,573 --------$2,971,493
Total Revenue----------------------- $15,353,296 -------$15,694,647 -------$15,555,913
Variable Costs -----------------------$6,278,379 ---------$6,449,054------- $6,561,964
Weighted Average Profit Contribution $9,074,917 --------$9,245,592-------- $8,993,948
Weekday Contribution ---------------$7,830,306-------- $7,830,306-------- $7,550,652
Weekend Contribution -------------- -$1,244,611--------- $1,415,287--------- $1,443,297
Vehicle Inventory Costs --------------$4,942,801--------- $4,942,801-------- $4,942,801
Net Profit Contribution ---------------$4,132,116---------- $4,302,791 ---------$4,051,148
Other Fixed Costs --------------------$3,295,201 ----------$3,295,201--------- $3,295,201
Net Income -------------------------- $836,915------------ $1,007,591 ---------$755,947
Accumulated Profit ------------------ $0------------------- $1,007,591--------- $1,763,538
In October we simply wanted to get a feel of economic conditions and competitor pricing so we lowered the price of rentals just below the competitions. This price changed allowed us to increase capacity utilization however, it did not benefit our net income. To make up for October's losses we increased prices in our higher market share divisions (Miami and Tampa). These price increases allowed us to make $1,763,538 to finish the quarter.
New strategy - keep prices slightly higher than the competitors in Miami and Tampa - we have more market share!!!
We began rebuilding our cost structure by utilizing a break-even calculator. Using the break even calculator we successfully managed to more accurately forecast our costs and sales. We did this by reviewing the following: Fixed costs - costs that are the same regardless of how many rentals are sold and Variable costs - recurring costs that we absorb with each unit sold. With a solid understanding of these two variables and an idea of current general economics we were able to successfully set competitive prices.
Given Universal Florida’s poor sales record yet increasing economic growth, my team and I decided that “priced-based costing” was a suitable strategy for our profit growth plan. Price-based costing allows us to start with a price consumers are willing to pay when they have competitive alternatives. If competitive prices are low we simply whittle down cost to meet that price. This way if we experience new competition, we can lower our prices yet still turn a profit.
Here is how our numbers looked in our first quarter:
Capacity Utilization
July --------45%
August -----46%
September -51%
October ----62%
November --70%
December --76%
With an average weekday price increase of $2 per rental and an average weekend increase of $3 per rental we were able to increase capacity utilization at +8% per month. A good start but there is still room for more opportunity.
Monthly Net Income
Revenue from Weekday Rentals -----$12,864,074------- $12,864,074------- $12,584,420
Revenue from Weekend Rentals -----$2,489,222-------- $2,830,573 --------$2,971,493
Total Revenue----------------------- $15,353,296 -------$15,694,647 -------$15,555,913
Variable Costs -----------------------$6,278,379 ---------$6,449,054------- $6,561,964
Weighted Average Profit Contribution $9,074,917 --------$9,245,592-------- $8,993,948
Weekday Contribution ---------------$7,830,306-------- $7,830,306-------- $7,550,652
Weekend Contribution -------------- -$1,244,611--------- $1,415,287--------- $1,443,297
Vehicle Inventory Costs --------------$4,942,801--------- $4,942,801-------- $4,942,801
Net Profit Contribution ---------------$4,132,116---------- $4,302,791 ---------$4,051,148
Other Fixed Costs --------------------$3,295,201 ----------$3,295,201--------- $3,295,201
Net Income -------------------------- $836,915------------ $1,007,591 ---------$755,947
Accumulated Profit ------------------ $0------------------- $1,007,591--------- $1,763,538
In October we simply wanted to get a feel of economic conditions and competitor pricing so we lowered the price of rentals just below the competitions. This price changed allowed us to increase capacity utilization however, it did not benefit our net income. To make up for October's losses we increased prices in our higher market share divisions (Miami and Tampa). These price increases allowed us to make $1,763,538 to finish the quarter.
New strategy - keep prices slightly higher than the competitors in Miami and Tampa - we have more market share!!!
HBS - Pricing Simulation
Hi, my name is Jay Gordet and I am the District Manager for Universal Rental Car. I joined Universal 12 months ago with the intention of increasing capacity utilization and boosting net income. When I first started working for Universal in October 2009, the Florida district was struggling. My first month on the job I noticed that Universal was only utilizing 45% of its weekend capacity. Universal’s poor capacity utilization lead to poor orders which resulted in an accumulated profit of $0. I knew that serious changes needed to be made in regards to price, capacity utilization and fleet sizes if Universal expected to be a prominent competitor in the Florida rental car business. In this blog I will be giving you an inside look at the pricing decisions that were to made which geared Universal into the multi-million dollar business it is today.
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