A lack of vehicle supply paired with the uptick in demand during the past year has upended the traditional economics of the rental car market. Staffing shortages have further complicated the rental landscape, creating gaps in service that have resulted in a significant decline in the customer experience.

Overall customer satisfaction with North American airport-based rental car companies declined significantly in 2021 as a global shortage of new vehicles caused prices to increase 58%, according to the J.D. Power 2021 North America Rental Car Satisfaction Study. The study found that the average customer-cited price-per-day rental fees rose to $90.40 by the summer of 2021. In August 2020, more than half of the consumers surveyed by J.D. Power said they paid $40 a day or less for a rental, with only 21% spending more than $70. By August 2021, those categories were inverted, with more than half paying more than $70 a day for a rental.

Given the economic trends underpinning the car rental market, the outlook for customer satisfaction does not look like it will improve anytime soon. The combination of high prices, long wait times and poor service have caused renters to feel like they are not getting a good value for their money. Satisfaction with rental-related costs and fees plummeted from 815 (on a 1,000-point scale) in December 2020 to 763 in August 2021, a significant 52-point reduction.

A Rock and a Hard Place

While these drastic price increases undoubtedly diminish brand image and long-standing customer relationships, rental companies find themselves caught between a rock and a hard place. The cost of replenishing inventory rises as automotive supply constraints continuously manifest themselves. Making new-vehicle purchases will have to come out of a lower sales volume, leaving margins as the only source to secure the vehicles necessary to ensure availability in the future.

The most significant effect of these market dynamics is fundamentally altering the connection points between rental companies and renters. Where once there was a nuanced relationship between renters — especially business travelers — and the major brands that offered choices on luxury vehicles and the opportunity to skip the check-in lines to pick their rides, the events of the past two years have further commoditized the market.

Currently, the price of rentals is the driving metric that matters most to travelers across the renting spectrum. As a deciding factor, price is rising in importance as reputation, past experience and recommendations have become less important.

Commoditization is the enemy of differentiation. As a result, executives in the rental fleet are exploring what actions they can take to make it through the next few supply- and labor-constrained years to re-establish relationships that rekindle loyalty.

Three Things to Consider

• Selective pricing segmentation. If avoiding commoditization is a strategic imperative for rental brands, then hard choices will have to be made around rationalizing pricing. In this context, it will be important to take an even harder look at different customer dispositions with an eye on future behavior. The industry has already made the distinction between leisure and business travelers. It may make sense to further analyze and segment markets with an eye toward pricing strategies that will sow the seeds of future loyalty.

• Optimize supply chain. Every dollar counts when it comes to building a war chest to replenish the vehicular supply. It is the undisputed key to more effectively serving tomorrow’s market. Executives may want to explore now how to invest in end-to-end digital supply-chain engagement with both new and used suppliers to expand margins. This may help to offset price reductions for preferred customers who are looking for reasons to remain loyal to accustomed brands. 

• Transparency matters. That is why effective digital engagement on the demand side of the equation is poised to separate leaders from the rest of the pack. If rental companies cannot provide the inventory and selection that travelers want, they can at least provide an accurate picture of what is available to introduce a higher level of certainty to a frustrated traveling public. Investments in digital engagement strategies that connect used vehicle Inventory to customer relationship management will enable a truth in pricing and availability that is sorely lacking today.

Global pandemics and unprecedented geopolitical disruptions will continue to introduce uncertainty in new- and used-vehicle supply for the foreseeable future. While organizations may find it increasingly difficult to anticipate and plan for supply, they can at least optimize communication and customer engagement. Rental companies that win the expectation management game by introducing even small levels of consumer control will likely fare better than those who don’t when it comes to protecting brand reputation. Reputation, after all, has a finite shelf life.

This article was authored and edited according to ARN editorial standards and style. Opinions expressed may not necessarily reflect that of ARN.