Hertz is hurting, but it doesn’t have to.
Ahead of the company’s earnings report that was due out May 10, Hertz warned it expects U.S. car rental revenue to fall by as much as 3.5 percent in the first quarter due to intensifying pricing pressures. The news dragged shares immediately down by more than 11 percent.
No doubt these are difficult times for Hertz and its competitors, including Avis and Enterprise. Excess rental capacity has forced the industry to slash prices, which is cutting into revenue and profits.
Yet there’s a better road for rental car companies to travel, and they need look no further than their main supplier, the automotive industry, for answers.
Similar Pricing Challenges
Like the automotive industry, car rental companies are in the commodities business. They all have the same inventory, the same loyalty programs, and similar pricing. And everyone knows that competing on price is difficult with any commodity.
However, when it comes to rental car companies, pricing is outright ridiculous. On any given day, consumers must sort through roughly 2,300 price points – the result of competitors offering artificially high or low prices simply to mess with one another.
So if competing on price is next to impossible – and obviously unprofitable – what can car rental firms do? The answer is to follow the lead of automakers and dealers, who have turned to after-market sales and an improved customer experience to pump up revenues.
Car rental companies can borrow a chapter out of the automotive industry’s recent book on improving the customer experience while simultaneously offering consumers targeted bundled products and services.
For example, one major U.S. auto dealer created an innovative, dynamic customer experience by making customers feel empowered and shortening their time at the dealership. The dealer also made targeted customer product offers based on previous customer purchases, the vehicle being purchased and customer driving patterns, and it utilized bundled pricing strategies that decrease prices for strategic product penetration and increase prices for higher value products.
Using a bespoke analytical solution, the auto dealer was able to recommend the optimal products to a customer early in the sales process and by integrating them with a cutting-edge iPad application.
Shared Road Forward
Instead of the traditional sales pitch, which focused on subjectively selected and priced products, predictive analytics were used to identify “customers like you also bought” product recommendations. Then, customized product bundles were dynamically created and presented to each consumer based on the products and parameters of their individual deal and probability of purchase. With these advanced analytical models in production, the auto dealer stands to garner tens of millions of dollars in profit gains.
This is the same road rental car companies should follow. The result is likely to be – rather than today’s depressing earnings reports – organic revenue growth and a profit windfall.