In this web-exclusive Q&A with Tómas Hafliðason of recently established Nice Cars in Iceland, which offers specialized 4WD vehicles for travelling through the snow, Hafliðason speaks on dealing with uneven seasonal demand, how customers use the website and narrowing in on effective marketing strategies.
No more than 20 vehicles.
One location in the Reykjavik capitol area, where Nice Cars provides drop-offs and a VIP pick-up service to the international airport Keflavik and in the Reykjavik area.
How did the business start?
Three of us established Nice Cars: my father, me and one of our travel buddies. We love to travel and have been enthusiastic travelers for more than 30 years and have visited all parts of the country. We have mostly traveled to the middle of Iceland, where there are great wilderness areas without any inhabitation. This has required specialized vehicles and we modified 4x4 trucks ourselves to do the job.
Our foreign friends started to visit us and travel with us, and soon friends of their friends also liked to come along. We realized that there might be a market for car rental that was not traditional rental, but one that would offer the real Icelandic experience and offered only 4x4 trucks. It just makes no sense to visit Iceland and rent a small Toyota Yaris, even though the most common rental car type is the smallest 2WD cars. There are severe restrictions where you can drive these cars and many guests have found out that they are driving in restricted territory when something happens. Then they are liable for the cost of damages because insurance will not cover the cost.
We thought also that our travel experience could be useful for our visitors — we know the country very well and could share our experience with our customers. Our idea was to make a car rental model that would offer service like we would like to receive if we were visiting Iceland.
What are your primary sources of rental customers?
The Web is absolutely the primary source of our rentals. We are a small rental company and we do not have a big budget for large marketing campaigns. The Web is therefore a very good medium for us to obtain customers.
The usage of our website, though, has been very different from what we initially thought. We viewed it as very important for us to have a full-blast booking system on our website, and that our customers could finish their orders through the website. The outcome has been that very few customers actually use the website that way. Instead, customers view the cars we have and read through our information, but when it comes to booking, most people either call us or use the email option. This has changed our strategy.
Even though we still have our online booking system, we have put much more emphasis on ways to give our customers on how to contact us directly. For example, we now use Skype, and have set up a direct phone number in the UK, so our UK customers can call us with a local call — and without even knowing they are using Skype. We find that our customers like this service, and next season we plan to add more countries with this service.
Are you pursuing new sources of business/customers? What are they?
Yes, we have found that many of our customers are afraid of driving big cars with bigger wheels, but they really would want to do so. Our plan is to offer convoy tours, where a driver from our company will drive ahead of the customers and assist vehicles driving in the snow or crossing rivers. These convoy tours will be in the fall, early spring and during winter time. This is the season were we have the fewest bookings, so we hope this can even out our income between the seasons. We are currently getting about 70% of our bookings during the summer season.
We have also added more of cars that are not modified, but still 4x4. We see that many people do like to get these cars as well. We have even found that customers like to mix vehicle types, in that while the highly modified trucks are expensive, people like to take cheaper cars for part of the journey and then use the modified trucks to explore the Icelandic highlands. We still only offer 4x4, as we think you need to have 4x4 any season of the year in Iceland.
How has the car rental market in Iceland evolved in the past 10 years? 20 years?
The market has gone in a circle in the last 20 years. The big brands were not so interested in the Icelandic market 20 years ago, so most of the operators were independents of different sizes. As tourism grew in Iceland, though, more of the big international brands appeared on the Icelandic market. Then about 10 years ago these brands dominated the market while the independent rentals were weak and few. In the last 10 years tourists have doubled in Iceland, so there is space for more small rental companies like ours and many others. There are now about 130 rental companies in Iceland, with about 10 of them from the big international brands.[PAGEBREAK]
Describe your marketing efforts and what has the payback been so far?
Besides from the website, our Facebook page has had the best payback. We really did not believe in it to begin with. Our idea was that a Facebook fan page would not get the right attention — that is we thought it would be too difficult to find people who were thinking about visiting Iceland and who would be interested to rent a 4x4. For the first few weeks I was the only one who liked our page and a few of our friends. So we started to use Facebook ads, and this was really not a great success either and after the first two weeks we had not added any new likes to our page.
We then realized that we needed either to close it down or do some drastic changes, and after reviewing some of the more successful pages, we realized it would be best to set up a static page with fun information and arrows suggesting people to like us. We also found out that we could change the Facebook ad to specify it for people who have said their interest was Iceland. From that point there was no return, and since then 50% of people who have visited the page have liked us.
Probably the thing we believed the most in but has not turned out that well at all is Google AdWords. The bid for car rental keywords is just so expensive. For many car rental or booking websites, they can assume that customers who books cars with them will be returning customers and therefore can spend more on obtaining each customer. Our experience is that visiting Iceland is a more unique experience, and recurring customers are not that frequent. This reduces the price we can pay for each obtained new customer and reduces the amount we can pay for the keywords. We have therefore limited our usage of Google AdWords to very specific words with strong geographic connection to Iceland, 4x4s and lower competition.
Another thing that has been successful is news releases. Even though the news releases did not contain ground breaking news, they have still received good attention and great contacts. We have also focused on search engine optimization (SEO) for our website, and worked with a local SEO firm to improve our search results. Some of the efforts have worked, while others were a waste of money. We are still on the first page when you search for car rental in Iceland, something we think is great with 130 domestic car rentals and many foreign websites fighting for those places.
How do you buy cars (lease, repurchase, buy)?
We buy our cars. Most of our fleet is modified second-hand trucks that are difficult to finance with other means than buying them. We have been working with a local car dealership to help us find good cars. This usually takes a long time for each vehicle, as we search for good vehicles that have been well-modified and are in good condition.
How do you sell your cars? (sell back to dealers, used car lot, auction?)
There is not a big tradition for auctions here in Iceland, so we have to sell them the traditional way. This is one of the things that just takes time, but we have been lucky. The season for modified trucks is the winter season, while our season is the summer. We have been able to buy while the price is low after the season and sell in the beginning of next winter season.
What are your biggest challenges with fleet?
Maintenance is the big issue for us. Our primary cars are 4x4 that have been modified. There is much more strain on modified 4x4 vehicles than unmodified cars. Our cars are also not only used on the straight highways and asphalt roads. We have also put much effort in having our cars in good shape, we believe that not only will the customer be happier with well-maintained cars, but in the long run it will cost us less when we do not need have to spend as much in road assistance.
There has also been a challenge to have the right type of cars available. This is little bit more complicated than with regular rentals. We are not only considering types of cars, but also how much the cars have been modified. People are renting by type of car and also the amount of modification. While in regular rental you could offer a more expensive car, this can prove difficult with modified trucks, as people are reluctant to take a more modified truck and do not want to change to a less modified, as they may have planned it in accordance to their trip.[PAGEBREAK]
What are your popular rental vehicles?
Even though we started by focusing on highly 4x4 modified trucks, we soon changed our policy to offer all types of 4x4. Even though we thought we would be renting out more of our monster trucks, the main type has been Pathfinder or similar types of slightly modified trucks. People like to have a car that is safe to drive in Iceland, and can take them to the highlands were they can cross rivers.
What car rental companies are your competition?
Most of the big brands are present here on the market and count for about 90% of the market. Several independent rentals have also started to offer modified trucks, though no other is offering only 4x4 rentals. For us, there is also great competition in other means of transport, as people are selecting between other means of transport, such as choosing between a bus tour and other private tours.
Are there a lot of independent car rental companies in Iceland?
There has been an explosion in the last 2 years in independent car rentals in Iceland. The big brands increased their prices last years, which has given the smaller independent car rental operators a chance at competing with them. While they are the traditional choice, more tourists are searching for better prices.
What types of counter products are popular?
The usuals are of course child seats and GPS. For us, the fishing poles have also been popular as there are many lakes and rivers that people can catch trout in, but are not allowed to bring their own gear in to the country. Finally, we offer a mountaineers package, with rope, shuffle, gas can and mountain equipment that has been very popular.
How long do you keep cars in fleet?
We don’t have a set time for each car, but we keep good eyes on each vehicle and its conditions. This means that each vehicle has operation time between 2-3 years in our fleet, depending on prior condition and treatment during rentals.
How did you survive the Recession? And what is that economic climate like currently for you in Iceland?
Great! We have our own currency (the Icelandic Krona) that collapsed, so you can say that you can buy twice as much for each dollar now in Iceland than before the Recession. There has been an explosion in visitors to Iceland after the Recession. The big brands have however kept the dollar price, so their price is high relative to the independent rentals (far too high).
What are your biggest challenges right now in the business?
Probably the biggest challenge is the gas price. Like any other rental this has affected our visitors. Most trucks have big engines and are expensive to drive, so customers are thinking much more about this and looking at other cheaper options.
What does the car rental market over the next 5 years in Iceland look like?
We are very optimistic for the next five years. While we are a small rental company with personal service — and we want to stay that way — we see some consistent growth.
Do you have any legal threats that are challenging how you do business?
It was actually surprising as to how little was needed to establish a car rental company in Iceland. We expected much more paperwork, but it was just about proving that we have insurance and no criminal record. Any car can become a rental car without any special inspection or gear. We are pretty sure this will change in the next few years, and there are some indications of this happening. The big brands have demanded more restrictions and based it on incidents where people have been traveling on 2WD cars in conditions they really should have used 4WD. Our biggest threat is that because many of our cars are modified, new regulations could be limited to unmodified trucks.
Any new laws or rules you must abide by?
No, there are now new laws or rules. The laws have been the same for more than a decade.
Where do you think the biggest growth potential is in your business?
We see that our biggest growth will come with evening out the seasons. Our seasonal fluctuation is far too much, and causes a lot of trouble. We need to build infrastructure that can take care of the summer season fleet that is not utilized during the winter time. We have many ideas as to how to increase the traffic for the other months and our main efforts will be on increasing our sales during other seasons than the summer seasons. Besides from the convoy tours I have already mentioned, we have been working with other travel companies to offer winter trips and give our guests chances to visit places on snow and sleep in special huts we have in the inhabited areas in the center of our country.