Rental businesses are quite popular in contemporary society, mostly for the simple fact that there a lot of services that the customer would use only a handful of times. Car rentals are perhaps the most popular of these rental services. This sample business analysis provides an example of business writing services at Ultius.
Overview of car rental operations
There are a great variety of rental businesses operating today and one of the most recognizable of such services is car rental. A market for car rental has existed for a long time and appears to have staying power for the future. The airline industry and rail travel are popular, but there is always a need for people to get from place to place on the ground and that need cannot always be met by their own vehicles.
The popularity of public transportation in major cities, and the difficulty of owning a car, also means that many people do not even have their own cars and so must use rental services when a car is required. Like any business, car rental has its challenges, but it is a well-developed industry and the advantages of establishing a foothold in it are considerable.
Customer satisfaction key to car rental industry
Everyone expects a rental car to be clean and well-maintained so those qualities are not definitive of a successful car rental company. The lack of them, however, would probably mean failure. What really seems to be the defining factor of success in a car company is customer satisfaction. Consumer behavior suggests that no amount of inventory, no matter how nice it is, will make a business money if the people do not want to rent it.
And because clean, well-maintained cars are expected, a significant emphasis has come around to customer service (BCS 1). An easy and pleasant rental experience is really key to success in the car rental industry. The bar continues to be raised in that regard, as well. J.D. Power, one of the leading analysis of consumer trends, announced at the end of 2012:
“Customer satisfaction with rental cars has increased for a third consecutive year, reaching its highest level in seven years.”
Considering this, one of the biggest marketing strategies of any car rental business would be to attain and maintain the highest possible customer satisfaction.
Car rental technology and scientific advances
There are plenty of technical requirements to running a successful car rental business, as well. Though it would certainly be possible to start a rental business with a handful of cars, a cell phone, and a pad of sticky notes for record keeping, such a simple organizational plan would have little chance of growth. One of the most basic expectations that customers have is that the car they want will be available when they want it.
Since the majority of the rental car business is done by reservation, it is critical for customer satisfaction that those reservations be fulfilled when the customers expect them to be (BRG). The problem with a small inventory is that, in the rental car business, it is very difficult to know when rented cars will be returned. A customer may return it early or on time or they may choose to extend their rental.
There is no way to schedule around those possibilities except to keep a fleet large and diverse enough to ensure there is always the minimum expected class and quality of car available for reservation clients (Korstanje 275). How big and how diverse that inventory is will depend on the objectives and local market of a particular company. On the other hand, specialty vehicles such as electric cars will undoubtedly come up short with demand at times.
Scheduling car rentals
Regardless of size and complexity, the next major challenge all car rental companies face is the logistics of scheduling rentals. Computers have made this particular issue almost obsolete, provided the right software can be acquired and properly implemented. Through forecast modeling and software-assisted scheduling programs which can be purposed for the explicit purpose of managing a car rental business, it is possible to overcome the difficulties of tracking and organizing a fleet of any size (Magenta).
Once a proper fleet and a method of managing it have been acquired, the only remaining component is actually running the business. Of course, there must be an emphasis on customer service at all times, but pricing is also an ongoing issue for rental car companies. Recent years have seen mixed trends, financially speaking. Car rental companies use E-commerce and scheduling software similar to Travelocity, Airbnb, and other travel companies.
Car rental companies and the impact of depreciation
Depreciation is a serious cost to rental car companies and one that must be weighed constantly against maintenance and insurance costs to determine if a car is worth holding onto or if it should be sold off. The lower the rate of depreciation, either on a specific model or in the market as a whole, the longer inventory can be put to use and the more it can be sold for when it is liquidated (Brown). Monitoring depreciation is one of the primary financial obligations of anyone running a rental car business. Rental rates must also be watched closely.
It has been shown that rate wars can be crippling to the rental car business, so it is important to the industry as a whole to be careful about pricing for the sole purpose of competition (Korstanje 277). Though it is in the interest of all car rental companies to keep the rates from dropping too low, major corporate companies can afford to make lower profit margins.
Even a business with the long history and carefully documented development that car rental enjoys still faces the same day to day challenges of business in a free market. Competition for pricing and for customer favor is the issue of the day, every day. For example, many travelers have opted out of the car rental fad and started using Uber’s service, which is often cheaper, faster, and easier than renting a vehicle.
In a way, however, the fact that the focus of the car rental market is so singular, that the standards and expectations are the same regardless of who is being rented from, there is a kind of equality that many other markets do not have. With careful attention to the basic needs of a car rental business and a watchful eye on both financial trends and popular opinion, a car rental business of almost any size is viable.
Need another example? Check out our business analysis of Fedex.
BCS. “The Importance of Customer Service at Enterprise Rent-A-Car.” Business Case Studies. N.p., n.d. Web. 22 Mar. 2013. businesscasestudies.co.uk/enterprise-rent-a-car/the-importance-of-customer-service-at-enterprise-rent-a-car/introduction.html#axzz2OIMsNliU.
BRG. “Defining Business Rules – What Are They Really?.” Business Rules Group. N.p., n.d. Web. 22 Mar. 2013. www.businessrulesgroup.org/first_paper/br01ad.htm.
Brown, Chris. “Car Rental: First Quarter Analysis and Outlook.” Business Fleet. N.p., 17 May 2012. Web. 22 Mar. 2013. http://www.businessfleet.com/blog/auto-focus/print/story/2012/05/car-rental-first-quarter-analysis-and-outlook.aspx.
J.D. Power. “2012 North America Rental Car Satisfaction Study | J.D. Power.” J.D. Power and Associates. N.p., 8 Nov. 2012. Web. 22 Mar. 2013. http://www.jdpower.com/content/press-release/uOrq8CO/2012-north-america-rental-car-satisfaction.htm.
Korstanje, Maximiliano E. “Rent-A-Car Industry: A Case Study in Argentina.” Tourismos: An International Multidisciplinary Journal of Tourism 6.1 (2011): 271-80. Print.
Magenta. “Multi-Agent Online Dynamic Scheduling Solution for Rental Car Reservations and Exchanges.” Magenta Technology. N.p., n.d. Web. 22 Mar. 2013. http://www.magenta-technology.com/case_studies/car_rental_company.html.