WeYield team of experts, David Cretin and Emmanuel Scuto, share seven tips on how to address the negotiation.
After the last edition of ITB in Berlin, some of our clients have been asking our pieces of advice on how to handle the volume rebate scheme they received from their broker partners. Due to their power, some of these intermediaries have found it nice to ask for a more financial contribution. Volume rebates have been there for years with Tour Operators. But now, they are used by more and more Brokers to empower their control over the car rental suppliers.
Our clients have received a nice email describing with gentle words how the new bonus scheme will apply this year. Any possibility to refuse or delay the answer? Yes, but the business may suddenly shift to a competitor if the answer is negative. Can the rental operator afford it?
Currently, the Brokers are either given commission on the retail price or are taking their markup on top of the net rate. The level is around 20% except during specific promotions where the ratio can be higher.
As a matter of fact, due to silly pricing strategy conducted by some of the car rental operators to catch more demand either anywhere in the world, retail prices have been reduced as low as 1€/day or 20€/week (it works the same in USD or in other currency as stupidy has no frontier). Then the customer is squeezed by operational staff for an hour at the rental counter to purchase all possible ancillaries in order to recover the loss of revenue not collected at the time of booking.
As pricing is set by the rental operator, we have to admit that the Brokers on a retail model are also losing a bit of revenue: if the rental is pre-sold at 20€ a week, 20% commission does not leave a lot of revenue to sustain their marketing and their IT platform. Some brokers found a way to avoid getting that low: they charge a minimum commission that could be 20 to 25€ per rental as a minimum revenue guarantee. That could have shaken the retail prices to move up again to a better financial equilibrium, but no. Some operators continue to play this stupid game. And the Brokers to find a new revenue stream.
Their volume rebate computation is pretty simple. Out of x rentals provided last year, the rental operator will now have to pay a rebate of y€ per confirmed transaction. What for? No club. “You pay or you go!” At WeYield, we suggest the following: if the car rental agrees to pay extra money, it has to be for something additional in return.
The volume rebate scheme is usually set on a per-year basis no matter if most of the transactions will be concentrated on the high season, during which the rental supplier does not need additional volume and is not keen to lose some profit.
A yearly objective of transactions cannot be accepted. The volume rebate should be split by month of arrival and not by month of reservation.
It would eventually possible to increase the rebate during the low season to improve market share directed to the rental supplier and to reduce it during the high season when it does not make sense to reduce the margin.
As a consequence, not all regions nor stations require an additional volume of activity.
It is possible to reduce the volume rebates for regions that do not require any additional volume and increase it for regions to boost.
Most of the brokers have sent a volume of business done the previous year and proposed to set x€ per transaction are done. This means that ALL volume will then be sliced by 3 to 5€ even though this volume can be made again. “You pay. Period”
The volume rebate scheme should be triggered above a certain level of transactions agreed. As soon as x number of transactions are done, the car rental supplier is willing to pay y€ for the additional rental confirmed and driven.
It is easy for the Brokers to push for a “per transaction” basis. This enables them to avoid any stupid pricing impact: they get the bonus no matter if it is a 200-euro rental or a 20-euro one.
The rental supplier should change the bonus scheme on a revenue basis. In this case, the Broker has to sell ten times more volume at 20€ than at 200€ to reach the target. Eventually, it would be possible to pay a bit of extra on top if the quality of revenue increases (boost of revenue per transaction).
One of the key drivers of business is the quality of the service provided by the rental supplier. Clients get more educated and know how to manage a car hire. If the operator invests a lot in the quality of the service, its customer rating will improve, impacting significantly the conversion ratio. One of the main operational issues to handle all papers required before the rental starts to speed up the process at the counter.
So, to balance the bonus scheme implementation, the rental supplier should ask for the driver's full details including email, mobile phone, and license details to improve the quality of the service given on site.
It is a matter of fact that fleet cost has been increasing for the past years and the revenue quality has been reduced. And when rental prices go down, the last opportunity to generate some profit is to sell insurance at the counter. For the broker, the insurance is both an ancillary and a marketing weapon to catch clients. Thus, what is left to the rental operator to sell? Few insurances (difficult to sell as the customer believes he is fully covered already), baby seat, and the second driver (when it has not been offered by the Broker).
Balance the volume rebate program by getting a guarantee to sell your insurances at the time of departure.
A normal relationship (personal and commercial) is based on a mutual understanding and respect of the counterpart in a win-win perspective to build long-term profitable links. When these foundations are broken, the relation becomes unbalanced and the parties move to an offensive-defensive approach with at least one looser at the end. For decades, car rental operators have let the brokers grow and become giants. Now they have the appetite of a monster and may digest the operators. It is time to fight!
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