When It Comes to Rental Cars, Consumers Are Most Loyal to This Brand

Customer loyalty is hard to come by in this $24.5 billion industry, but one company manages to consistently drive past its competition and keep consumers loyal to the brand.

Aug 17, 2014 at 12:30PM

Source: BlueWaikiki.com, Flickr.

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?


Source: Dailylifeofmojo, Flickr.

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.

Source: Jeffrey Beall, Flickr.

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.


Source: Gail, Flickr.

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.


Source: Andrew Baddeley, Flickr.

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.

This auto industry trend is turning into Warren Buffett's worst nightmare
A major technological shift is happening in the automotive industry. Most people are skeptical about its impact. Warren Buffett isn't one of them. He recently called it a "real threat" to one of his favorite businesses. An executive at Ford called the technology "fantastic." The beauty for investors is that there is an easy way to ride this megatrend. Click here to access our exclusive report on this stock.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Ford and Facebook. It also owns shares of Hertz. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers