Ask Operation Management Expert

Case Study: Markov Analysis

Rentall Trucks

Jim Fox, an executive for Rentall Trucks, could not believe it. He had hired one of the town's best law firms, Folley, Smith, and Christensen. Their fee for drawing up the legal contracts was over $50,000. Folley, Smith, and Christensen had made one important omission from the contracts, and this blunder would more than likely cost Rentall Trucks millions of dollars. For the hundredth time, Jim carefully reconstructed the situation and pondered the inevitable.

Rentall Trucks was started by Robert (Bob) Renton more than 10 years ago. It specialized in renting trucks to businesses and private individuals. The company prospered, and Bob increased his net worth by millions of dollars. Bob was a legend in the rental business and was known all over the world for his keen business abilities.

Only a year and a half ago, some of the executives of Rentall and some additional outside investors offered to buy Rentall from Bob. Bob was close to retirement, and the offer was unbelievable. His children and their children would be able to live in high style off the proceeds of the sale. Folley, Smith, and Christensen developed the contracts for the executives of Rentall and other investors, and the sale was made.
Being a perfectionist, it was only a matter of time until Bob was marching down to the Rentall headquarters, telling everyone the mistakes that Rentall was making and how to solve some of their problems. Pete Rosen, president of Rentall, became extremely angry about Bob's constant interference, and in a brief 10-minute meeting, Pete told Bob never to enter the Rentall offices again. It was at this time that Bob and his lawyer discovered that there was no clause in the contracts that prevented Bob from competing directly with Rentall.

The brief 10-minute meeting with Pete Rosen was the beginning of Rentran. In less than six months, Bob Renton had lured some of the key executives away from Rentall and into his new business, Rentran, which would compete directly with Rentall Trucks in every way. After a few months of operation, Bob estimated that Rentran had about 5% of the total national market for truck rentals. Rentall had about 80% of the market, and another company, National Rentals, had the remaining 15% of the market.

Rentall's Jim Fox was in total shock. In a few months, Rentran had already captured 5% of the total market in a few short years. Pete Rosen even wondered if Rentall could maintain 50% of the market in the long run. As a result of these concerns, Pete hired a marketing research firm that analyzed a random sample of truck rental customers. The sample consisted of 1,000 existing or potential customers. The marketing research firm was very careful to make sure that the sample represented the true market conditions. The sample, taken in August, consisted of 800 customers or Rentall, 60 customers of Rentran, and the remainder National customers. The same sample was then analyzed the next month concerning the customers' propensity to switch companies. Of the original Rentall customers, 200 switched to Rentran, and 80 switched to National. Rentran was able to retain 51 of their original customers. Three customers switched to Rentall, and 6 customers switched to National. Finally, 14 customers switched from National to Rentall, and 35 customers switched from National to Rentran.

The Board of directors meeting was only two weeks away, and there would be some difficult questions to answer---what happened, and what can be done about Rentran? In Jim Fox's opinion, nothing could be done about the costly omission made by Folley, Smith, and Christensen. The only solution was to take immediate corrective action that would curb Rentran's ability to lure customers away from Rentall.

After a careful analysis of Rentran, Rentall, and the truck rental business in general, Jim concluded that immediate changes would be needed in three areas: rental policy, advertising, and product line. Regarding rental policy, a number of changes were needed to make truck rental both easier and faster. Rentall could implement many of the techniques used by Hertz and other car rental agencies. In addition, changes in the product line were needed. Rentall's smaller trucks had to be more comfortable and easier to drive. Automatic transmission, comfortable bucket seats, air conditioners, quality radio and tape stereo systems, and cruise control should be included. Although expensive and difficult to maintain, these items could make a significant difference in market shares. Finally, Jim knew that additional advertising was needed. The advertising had to be immediate and aggressive. Television and journal advertising had to be increased, and a good advertising company was needed. If these new changes were implemented now, there would be a good chance that Rentall would be able to maintain close to its 80% of the market. To confirm Jim's perceptions, the same marketing research firm was employed to analyze the effect of these changes, using the same sample of 1,000 customers.

The marketing research firm, Meyers Marketing Research, Inc., performed a pilot test on the sample of 1,000 customers. The results of the analysis revealed that Rentall would only lose 100 of its original customers to Rentran and 20 to national if the new policies were implemented. In addition, Rentall would pick up customers from both Rentran and National. It was estimated that Rentall would now get 9 customers from Rentran and 28 customers National.

Complete the Rental Trucks Case using Markov Analysis.

Excel Spread Sheet

Executive Summary

Tree Diagram of Work

You will use the attached template as a starting point and do the following:
- Using the case information, develop the vector of initial state probabilities reflecting current market shares.

o This will be entered as your starting values in time period 0 in the cells outlined in red
- Develop two transition matrices -- one for business as usual and one for the new policies

o These will be entered in the transition matrix cells outlined in red
- The formulas in cells B6:D20 will populate once you enter the inital states and transition probabilities.

Prepare an Executive Summary with recommendations. Be sure to address the following questions (which differ slightly from those at the end of the case).

4. What will the market shares be in one month if these changes are made? If no changes are made?

5. What will the market shares be in 3 months with the changes? Without the changes?

6. If market conditions remain the same, what market share would Rentall have in the long run? How does this compare with the market share that would result if the changes were not made? How many periods does it take to reach long-run equilibrium?

7. Generally, though no cost or benefit dollar estimates are given, based on market share changes does it appear that the changes in business policy could potentially be financially defensible?

Attachment:- Assignment.xlsx

Operation Management, Management Studies

  • Category:- Operation Management
  • Reference No.:- M92204206
  • Price:- $35

Priced at Now at $35, Verified Solution

Have any Question?


Related Questions in Operation Management

Conflictdefine functional versus dysfunctional conflict in

Conflict Define functional versus dysfunctional conflict in a work group and explain how you can increase functional conflict and decrease dysfunctional conflict. Develop a response that includes examples and evidence to ...

For this assignment you will need to find 2 articles in

For this assignment, you will need to find 2 articles in business that can help describe what are IT strategic initiative being undertaken by an organization are like. Choose a different organization for each of the arti ...

Coping with problems joe is a little nervous he has just

Coping With Problems Joe is a little nervous. He has just been transferred from another plant to take over a production line. Production is down and there is a serious problem with absenteeism. To make matters worse, the ...

Over 30 years ago michael porter identified a holistic

Over 30 years ago Michael Porter identified a holistic approach to understanding how competitive forces shape strategy. He posited that the only way to truly insulate an organization from underlying economic volatility i ...

You are the contracting officer for an air-to-ground

You are the contracting officer for an air-to-ground missile development program. A contract for pre-production models of the missile was awarded by your predecessor and the contractor is behind schedule. In a program me ...

The ikea case provides an excellent opportunity to apply

The IKEA case provides an excellent opportunity to apply strategic management concepts to a large privately-held company that is expanding into India. IKEA is a Netherlands-based Swedish company with a presence in 44 cou ...

Can you answer for me the following questions about social

Can you answer for me the following questions about social loafing and the three main causes of free-riding. 1. Give a description of the phenomenon of social loafing. 2. Give a description of the phenomenon of free-ridi ...

1 analyzing the bridgestonefirestone and ford motor company

1. Analyzing the Bridgestone/Firestone and Ford motor company, is it sufficient to use the ISO/QS 9000 standards as the main basis of vendor/product selection? 2. What position to these cars company ( 1. Volkswagen, 2. F ...

Research the effect of primary and secondary seat belt laws

Research the effect of primary and secondary seat belt laws on the occurrence of motor-vehicle injuries and fatalities. Explain how epidemiologic studies influenced the development of current seat belt laws. Describe how ...

Please provide a brief paragrap of the key takaways from

Please provide a brief paragrap of the key takaways from each of the following topics: Designing Clear Visuals in business reports Designing Successful Documents and Websites Writing Winning Proposals

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Why might a bank avoid the use of interest rate swaps even

Why might a bank avoid the use of interest rate swaps, even when the institution is exposed to significant interest rate

Describe the difference between zero coupon bonds and

Describe the difference between zero coupon bonds and coupon bonds. Under what conditions will a coupon bond sell at a p

Compute the present value of an annuity of 880 per year

Compute the present value of an annuity of $ 880 per year for 16 years, given a discount rate of 6 percent per annum. As

Compute the present value of an 1150 payment made in ten

Compute the present value of an $1,150 payment made in ten years when the discount rate is 12 percent. (Do not round int

Compute the present value of an annuity of 699 per year

Compute the present value of an annuity of $ 699 per year for 19 years, given a discount rate of 6 percent per annum. As