Tip: how to increase RPD without increasing prices

For me, this is a crucial question: how can I improve my performance in a highly competitive environment?

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Note: these recommendations are aimed at rental companies who are in direct competition on the same site. They are located in airports, car rental centers or train stations.

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Definition demand is considered inelastic or rigid when the sales volume or conversion rate does not fall in the face of a price increase (or a high price). Demand becomes elastic when it is highly sensitive to any price variation.

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What to look for

1. periods to identify opportunities
   We need to study the dates when usage was, is or will be very high. Why do you do this? Because that's when the opportunity to convert walk-in customers is greatest.
   It's a good idea to start by analyzing the last reference period. For example, if I'm looking at Thanksgiving 2024 or Christmas 2024, it's important to check that the event fell at the same time the previous year. For certain religious holidays, such as the end of Ramadan or Easter, there is a 15-day difference every year. In the case of Thanksgiving, it took place on the weekend of Nov. 23 to 26, whereas in 2024 it will take place from Nov. 28 to Dec. 1.
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2. check the utilization rate achieved on the previous event. The recommendation I'm about to make only makes sense if you've been forced into a very high utilization rate. Otherwise, when there's still availability, there's no need to optimize: we'll take it all.
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3. Check the proportion of refused walk-ins and last-minute bookings. If there were no walk-ins in a very busy period, it's because there was nothing left to rent, or because the available stock didn't correspond in price to what the customer was looking for.
   There is a distinction to be made between these two types of customer: 
   
   
   • Walk-ins are the segment that often makes the biggest contribution, as they need a car on the day because they haven't made a reservation. They are therefore price inelastic.
   • Last-minute customers should normally be price inelastic. The problem is that car rental companies often tend to lower their prices the closer the departure date, resulting in a price war that spirals downwards. But that's not what this tip is about today.

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What to analyze 

If, at the previous event, the utilization rate was maximum or very high, and the number of W-ins was low or non-existent, you've probably missed some sales opportunities at the counter.

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This is a pity, as the RPD can often be 15 to 20% higher than when pre-booking via a broker or even directly.

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The first thing to do is to extract all the transactions that affected these highly constrained days, and sort them in descending order of contribution. By contribution, I mean the maximum impact on margin. Indeed, a long lease that passes through the observed event can be a major contributor. So be careful not to exclude from the analysis all rentals with a low average RPD price. 

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On the other hand, the list may include bookings originating from a channel with very high commission costs, or from a broker with a low contribution rate, i.e. 

• very low net price
• or one that charges you marketing fees or discounts at the end of the year
• Or pays you less than others, which impacts your cash flow
• Or whose customers have a higher damage rate
• Etc

Finally, if you could do without these customers, your margin would increase.

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What to decide

1. Check with operational teams what they are capable of selling in walk-in. And define a shared objective. They'll be happy to be involved in the optimization process, and so will be all the more inclined to participate in the effort.
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2. Identify the sources of customers you don't want or that you want to reduce
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3. Take action through higher prices (not always possible) or more restricted access to inventory (stop-sell on the categories most in demand for that particular customer)
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4. Tefine a target utilization rate at which to stop selling.
   Ex: if I was able to finish this day at 90% last year, I'll stop sales at 70 or 75% this year by vehicle category (especially those most in demand).
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5. Reduce the price differential between my most popular and least popular categories, to make the latter more attractive for pre-booking.
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6. slow down pre-bookings to conserve last-minute stock

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I can hear you now: a bird in the hand is worth two bees in the bush. Okay, but you need to dig a little deeper into the details of your optimization to hope to obtain a different result (change your pricing behavior). 

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Impact

There are several highly beneficial impacts

1. An increase in performance without having to raise prices. In Yield Management, it is very profitable to sort demand when it is high (peak period). This is one of its fundamental principles
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2. Easier car inventory management. With no pressure to fill up, there's no need to chase after vehicles.
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3. Fewer downgrades (for a customer, it's an upgrade, but for us, it's a loss of additional revenue opportunities). In fact, thanks to better management of capacity allocation, the remaining stock is sufficient to compensate for imponderables and enable sales for walk-ins
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4. An increase in counter sales bonuses for staff, who can finally sell at a higher price for the company
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5. An improvement in customer satisfaction, for whom we offer a solution even though he/she hadn't reserved anything before arriving.

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What to remember

Key strategies include analyzing past utilization rates, identifying missed opportunities, and adjusting inventory access. 

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By targeting high-demand vehicle categories and slowing down pre-bookings, companies can maximize walk-in sales, increase margins, and boost customer satisfaction.

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This approach reduces price sensitivity, enhances fleet management, and enables staff to offer higher-priced options, driving overall performance without direct price increases.

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Photo credit: from Walls.io on Unsplash