Car rental agency

Keys to Managing High Rates and Declining Satisfaction – Rental Operations

While conditions don’t appear to be improving anytime soon, in the meantime rental companies need to optimize communication and manage customer engagement to stay relevant, says JD Power.

Photo via Tumisu from Pixabay

The lack of vehicle supply, coupled with rising demand over the past year, has upended the traditional economics of the rental car market. Staffing shortages have further complicated the rental landscape, creating gaps in service that have led to a significant drop in customer experience.

Overall customer satisfaction with car rental companies based at North American airports declined significantly in 2021 as a global shortage of new vehicles led to a 58% price increase, according to JD research Power 2021 North America Rental Car Satisfaction Study. The study found that the average daily rental charge quoted by customers had risen to $90.40 by summer 2021. As of August 2020, more than half of consumers surveyed by JD Power said they had paid $40 per day or less for a rental. , with only 21% spending more than $70. As of August 2021, those categories were reversed, with more than half paying more than $70 per day for a rental.

Given the economic trends driving the car rental market, the outlook for customer satisfaction doesn’t appear to be improving anytime soon. The combination of high prices, long wait times and poor service left renters feeling like they weren’t getting their money’s worth. Satisfaction with rental costs and fees dropped from 815 (on a 1,000 point scale) in December 2020 to 763 in August 2021, a significant reduction of 52 points.

A rock and a hard place

While these drastic price increases undoubtedly diminish brand image and long-standing customer relationships, rental companies find themselves caught between a rock and a hard place. The cost of restocking inventory increases as automotive supply constraints continually manifest. New vehicle purchases will have to come from lower sales volume, leaving margins as the only source to secure the vehicles needed to ensure availability in the future.

The most significant effect of these market dynamics is to fundamentally change the points of connection between rental companies and tenants. Where there used to be a nuanced relationship between renters – especially business travelers – and big brands that offered luxury vehicle choices and the ability to skip the lines to choose their rides, Events of the past two years have further trivialized the market.

Currently, the price of rentals is the defining metric that matters most to travelers of all rental types. As a deciding factor, price is gaining in importance as reputation, past experience and recommendations have become less important.

According to JD Power metrics, prices rose 58% in 2021, while satisfaction fell 52 points.  - Source: JD Power

According to JD Power metrics, prices rose 58% in 2021, while satisfaction fell 52 points.

Source: JD Power

Commodification is the enemy of differentiation. As a result, rental fleet leaders are exploring what steps they can take to weather the next few years of supply and labor shortages to restore relationships that rekindle loyalty.

Three things to consider

  • Selective price segmentation. While avoiding commoditization is a strategic imperative for rental brands, tough choices will have to be made around price rationalization. In this context, it will be important to look even more carefully at the different customer dispositions with an eye on future behavior. The industry has already made the distinction between leisure travelers and business travelers. It may be wise to further analyze and segment markets for pricing strategies that will sow the seeds of future loyalty.
  • Optimize the supply chain. Every dollar counts when it comes to building up a war chest to replenish the vehicle supply. This is the undisputed key to better serving the market of tomorrow. Leaders may want to explore now how to invest in end-to-end digital supply chain engagement with new and used suppliers to increase margins. This can help offset price cuts for preferred customers looking for reasons to stick with regular brands.
  • Transparency matters. That’s why effective digital engagement on the demand side of the equation is poised to separate the leaders from the rest of the pack. If rental companies can’t provide the inventory and selection that travelers want, they can at least provide an accurate picture of what’s available to introduce a higher level of certainty to a frustrated traveling public. Investments in digital engagement strategies that connect used vehicle inventory to customer relationship management will enable truth in pricing and availability that is sorely lacking today.

Global pandemics and unprecedented geopolitical disruptions will continue to introduce uncertainty into the supply of new and used vehicles for the foreseeable future. While organizations may find it increasingly difficult to anticipate and plan for supply, they can at least optimize communication and customer engagement. Rental companies that win the expectation management game by introducing even small levels of consumer control are likely to fare better than those that don’t when it comes to protecting brand reputation. Reputation, after all, has a limited lifespan.

This article was written and edited according to ARN editorial standards and style. The opinions expressed do not necessarily reflect those of ARN.