Markov Analysis Case Study

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