Depending on the circumstances, renting a car while on vacation can be a pleasant experience that enhances your enjoyment, or a horror story that's told for years to friends and acquaintances.
For car rental companies the problem with this all-too-common scenario is that too few people tell their friends or take to social media when good things occur during the car rental process. I might be among the few exceptions, having taken to Facebook a number of times in the past to proclaim my satisfaction with the quality of a rental car I'd received. What's more often the case for rental companies is that consumers take to the interwebs to voice their displeasure about a poor customer service experience or unhappiness with their rented vehicles.
For car rental companies, it means that they don't have much room for error. They need to execute on their strategies to attract customers, following through with their promise to take care of the consumer, and provide reliable cars that people are excited to drive. It sounds easy on paper, but it's no easy task -- and should a company falter, it could miss out on its chance to claim its piece of an industry that brought in $24.5 billion in revenue in 2013.
It's also not very easy to figure out what companies are and aren't good at meeting or exceeding customer expectations. Thankfully, we have Brand Keys and its proprietary Customer Loyalty Engagement Index to help weed out the brands that customers love. Brand Keys' survey examined 555 brands across 64 categories, including the rental car industry, in order to determine which were the best within their industries at driving brand loyalty.
Why brand loyalty matters
Why is brand loyalty important?
From the perspective of car rental companies, brand loyalty is extremely valuable. In order to get new customers through the door and into rental cars, companies often have to offer special deals and pricing. These deals often come with lower margins, so while they're vital to bringing in new customers, they're not so great for long-term profitability or growth. That is unless the company in question can transform price-conscious consumers into loyal, lifelong customers.
In total, Brand Keys examined seven car rental providers, including Enterprise, Alamo, and National, which are all privately owned by Enterprise Holdings, Hertz and Dollar (also operated by Hertz), and Avis and Budget, which combine under the Avis Budget Group (NASDAQ: CAR ) umbrella.
If you had to venture a guess which of these seven car rental companies topped the list in brand loyalty, which would you choose?
Got your pick?
And the winner is...
If you said Avis, you've hit the nail on the head, or should I say put the rubber to the road.
The selection of Avis as the leading brand for customer loyalty among car rental companies shouldn't be a shock, at least to those who follow Brand Keys' annual surveys. Avis' top ranking in 2014 marks the 15th consecutive year that it has led the sector in brand loyalty. Budget, which is also owned by the Avis Budget Group, brought up the middle of the pack, below both Enterprise and Hertz. If you were curious about the loyalty bottom feeders in this sector, it was a tie between Alamo and Dollar.
So what is it about Avis that makes consumers flock to this brand? Let's take a closer look.
Why Avis drives customer loyalty
Perhaps one of the biggest differentiating factors in recent years has been Avis Budget Group's rapid adoption of, and improvements with, its mobile and web interfaces. The customer is witnessing growing mobile-based functionality, and the ability to easily search for and book vehicles from their smartphone.
What's going on behind the scenes in Avis' information technology department is equally as impressive, and also great news for consumers who value their time.
Avis is in the early stages of implementing a multi-phase, demand-fleet pricing initiative which automates and optimizes a number of elements in the pricing process. As noted during the company's second-quarter conference call, it's also expanded its non-core luxury fleet of vehicles and displayed these high-margin vehicles more prominently on its website. In other words, Avis is utilizing its technological capabilities to the fullest and it's making consumers' browsing and renting experiences potentially easier than what its peers can offer.
Another piece of the puzzle to its success is keeping its fleet full of newer vehicles that consumers want to drive, as well as removing from its fleet vehicles that are quick to depreciate. To that end, Avis Budget Group has been utilizing indirect channels to dispose of rapidly depreciating vehicles, such as online auctions, and has partnered with direct-to-consumer sales website AutoNation to further improve turnover. Conversely, it's been utilizing manufacturer repurchase programs to boost capacity during peak usage periods to ensure it has enough vehicles to satisfy summer and holiday crowds.
I would opine that another factor to its success in the loyalty department is Avis' targeted customer. While the Avis Budget Group is comprised of Avis, Budget, and the recently purchased Payless, and every company is working toward the same collective goal, each unit tends to have its own target audience. Payless targets lower-income and highly price-conscious consumers; Budget tends to attract that middle-of-the-road customer; and Avis' bread-and-butter is the more affluent rental customer. The thing about upper-income individuals is they're less sensitive to price and economic fluctuations, positioning Avis to be a loyalty leader in practically any economic environment.
Adding to this point, Avis' multiple tiers of membership rewards keep repeat customers loyal to the brand and give customers of all levels an opportunity to feel as if they're being rewarded for choosing Avis. The "My Avis" membership allows anyone to sign up and enjoy perks, such as discounts on future rentals, as well as quicker access to reservations. The "Avis Preferred" membership is designed for frequent travelers and allows them to skip lines and head straight to their rental cars. Finally, the "Avis First" membership is invitation only and offers upgrades and other exclusive benefits to those who have 12 or more paid rentals in a year, or who rent for 35 or more days in a year. This tiered reward platform is unique, and a driving force behind keeping its customers loyal.
The Avis advantage
With Avis maintaining its dominant position among car rental companies, it's no surprise that revenue grew by 10% in Q2 (9% if you exclude the Payless transaction), EPS jumped 36%, and pricing improved for a sixth straight quarter. As long as Avis continues to lean on technology to improve its customers' experiences and sticks with its unique rewards platform there's little reason to believe Avis Budget Group's share price couldn't head even higher, and that Avis won't earn itself the top honor in the car rental category once again next year.
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