US Airport Car Rental Value Brand: Market Strategy and Revenue Optimization

This case highlights our ability to work across functional boundaries and with outside information technology suppliers, focus senior management on relevant issues, and implement actionable predictive analytics capabilities in response.

The new owner of a value tier airport car rental brand which serves primarily leisure and independent business travelers at major US airports, asked us to review its capabilities in the following areas:

  • Business/Marketing Strategy
  • Revenue management and pricing
  • Brand positioning
  • Digital marketing
  • Distribution and channel management

This brand had recently been spun off from a major vehicle rental holding company as part of a Federal Trade Commission consent decree. No longer serving its role as the value alternative within a multi brand portfolio, upon its divestiture the brand needed to stand alone and stake a viable position among a multitude of competing brands in a very crowded and mature marketplace. Further, the brand lacked sufficient infrastructure to support it and to afford its new owners a chance to generate acceptable financial returns.

We discovered several key issues for resolution, among them:

  • Lack of brand awareness and almost no customer loyalty as measured by repeat rental activity
  • Insufficient capabilities/value proposition in place to cultivate or build repeat business
  • Reputation for below average customer satisfaction
  • No strategy in place to strengthen its direct distribution channels, i.e. branded web site
  • Limited presence in negotiated rate segments and opaque channels, i.e. tour wholesale and OTAs such as Hotwire and Priceline
  • Resulting overdependence on online travel agents and published retail rate products
  • Engagement in “always first” dynamic pricing practices, often causing the industry retail rate umbrella to collapse during off peak periods
  • Vulnerability to adverse selection by high risk and high mileage customers
  • Unusually high no show rates and close-in cancellations, forcing pricing managers to respond in many instances with ultra-low published retail rate changes to move distressed inventory
  • Inability to disguise retail pricing moves in the electronic distribution marketplace
  • Lack of confidence in fleet plans and forecasts, causing knee jerk reactions in pricing strategies
  • Net Promoter Scores at unacceptable levels

We employed internal and external data sets to generate breakthrough insights that helped pinpoint business base weakness, provided guidance on what the desired customer base required from both a pricing and service standpoint and enabled a micro target audience acquisition strategy. Key actions and resulting business benefits include:

  • Introduction of a new brand position that directly supported a change in service delivery through the use of a real time front line initiative that empowered staffers to fix any and all issues at the time of rental
  • Stabilization of a long-term decline in direct channel business, by working with internet search and technology partners to attract more shoppers to the branded web site
  • Implementation of an innovative B2B program delivering “best rate guarantee” and expedited service delivery to drive premium business travel
  • Improvement in ability to quickly track/identify and address customer service “pain points”
  • Increase in repeat business through the implementation of a new and innovative rewards program
  • Increase in Net Promoter Scores by 50% + in less than 6 months
  • 20% reduction in the no-show rate, by working with channel partners to introduce “form of payment required” products and to strengthen related terms and conditions
  • Reduction in salvage, damage and liability incidence/severity through adoption of modified rental rules, particularly those involving local renters and use of debit cards
  • 20%+ improvement in revenue per day and a double digit increase in revenue per available unit, brought about by strengthening the revenue management function and the pricing tools and new rate products introduced by it, all within a two-year period.

Global Car and Truck Rental Company: Product/Segment/Price Optimization and Financial Performance Improvement

This case highlights our ability to successfully navigate highly complex business, organizational and data environments in leading the implementation of high impact, fact based financial actions

The newly elevated president of this mid-tier vehicle rental company reached out to us to take a broad-based look at improving marketing and operations performance, primarily within its US network of company owned 1,000+ vehicle rental locations. The brand operates in a dual corporate and licensee environment, offering both car and truck rental services to leisure, tour, corporate and government customers. It also provided reservation, marketing, sales and customer support services to its global licensee network. It served both airport and local renters.

The brand was known as a “best value for the money” alternative in the daily vehicle rental marketplace. It enjoyed a special preferred relationship with one of the “Big 3” US auto manufacturers, and worked closely with the automaker to develop unique product alternatives, such as the industry’s first premium vehicle offering [Lincolns and Jaguars] at everyday pricing, and later with pickup trucks.

While the brand consequently enjoyed broad appeal, it found itself increasingly squeezed on the high end by the top three car rental brands, and on the low end with upstart entrants who served principally airport customers from low cost off airport locations. Furthermore, it encountered increasing difficulty managing the multidimensional complexity inherent in its global dual operating/licensee model.

Upon taking the helm, the president inherited an organization staffed by longtime car rental managers, and decided it was time to tap the thinking of those who could bring a fresh, unique and structured perspective to the table.

The brand was repositioned to compete directly with the top-tier leaders, offering the same quality service and vehicles for less. To generate risk free trial the service promise was backed up with a satisfaction guaranteed claim. This repositioning allowed the brand to go after large global corporate accounts that flattened out the seasonality and generated a more consistent revenue base.

This base of business allowed the Revenue Management organization to optimize retail pricing on a day in/day out basis. Revenue Management also worked closely with the Financial Planning and Analysis team and other functions to identify and implement several performance improvement initiatives, among them:

  • Sharp reduction in car class substitution rates, by aligning fleet mix to customer demand
  • Introduction of market and channel financial models using activity based costing concepts,
    allowing management to identify high profit segments to grow, and low profit ones to rationalize
  • Development of a negotiated rate pricing model used by the corporate sales force to help
    sign more profitable corporate and tour business
  • Application of predictive analytical techniques aimed at quantifying impact of key variables that
    drive rate per day
  • Introduction of rigor in identifying key risks and opportunities against revenue forecasts
  • Reduction in exposure to adverse selection in high risk customer segments, such as local
    renters, high-mileage local weekend renters and underage drivers
  • Focus on completion of a 25 basis point financial turnaround of the loss leading New York operation

These and other actions helped the president and the senior management team produce an earnings turnaround equivalent to 8% of revenue within a twelve month period, thus positioning the company for its subsequent sale. Also noteworthy is the participation of one of our professionals in an equity road show that helped the new owners raise almost $200 million in equity capital needed to complete the transaction.

Leading Global Travel Distribution System: Business and Market Share Stabilization

This case highlights our ability to leverage multiple internal and external datasets to build actionable predictive analytic capabilities in helping our client successfully defend its core business market share

One of our principals was asked to review subscriber pricing and distribution strategies for one of the largest worldwide electronic distribution systems for air, car, hotel and cruise reservations and tickets.

The corporate entity that owned and operated this global distribution system (GDS) had recently been spun off from its prior owner, and was in process building a new organizational infrastructure. However, under the terms of its spinoff it was still obligated by contract to use the US sales force of its prior owner on an exclusive basis. Externally, the company faced new challenges, especially involving predatory pricing practices that three upstart competitors began to engage in, to quickly grab share away from our client’s US business.

On the technology side, the company was widely known for offering a functionally superior product set to its subscriber base. At the time of its spinoff, in an effort to preserve its product competitive edge, the company was in the midst of rolling out a new wave of innovative but expensive enhancements to its hardware, software and network infrastructure. It hoped to pitch the resulting functional and performance benefits to subscribers in such a way as to offset offers of steep discounts by the upstart competitors, and thereby retain its most productive accounts without resorting to deep pricing cuts of its own. But by relying on an outside sales force that was largely unfamiliar with and not focused on the sale of advanced turnkey information services, it faced an uphill battle in stemming the subscriber share losses it was already facing.

On top of all of this, the company relied on the outside sales force to manually estimate and track its subscriber share. This was a tedious process which was further complicated by the sales force’s lack of attention and conflict of interest in reporting credible numbers back to the company. Further, the company had no mechanism in place to systematically audit the share numbers produced by its outside distributor.

Our principal worked successfully with marketing, sales, customer support, finance and the outside sales force to help bring a four year consecutive string of share losses to an end during the company’s third year as a standalone entity. Among the many projects led by our principal that contributed to this result:

  • Employed predictive analytics and secured third party sources of market data, to independently estimate the company’s subscriber market share in real time, at a highly granular and actionable level of detail
  • Applied activity based costing techniques to develop an updated financial model for use by the outside sales force to evaluate the profit impact of new and existing business
  • Introduced performance based subscriber pricing concepts, allowing the company to successfully defend its most profitable accounts
  • Created an exception approvals structure whereby deals proposed by the outside sales force that fell below certain financial performance hurdles would require elevated levels of review and approval

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