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What the hell is this pricing tactic?

Day-to-day demand drill-down computed with fleet constraints and market situation should give the Car Rental suppliers the most profitable output.

Emmanuel Scuto
December 23, 2015

As any Revenue Manager in any industry, we are struggling to bring the most advanced intelligence in our analytics in the smartest way possible. Day-to-day demand drill-down computed with fleet constraints and market situation should give the Car Rental suppliers the most profitable output. But it is without taking into consideration human erratic mistakes and/or lack of tools to pilot the activity.

In the above illustration for a 7-day rental in Economy car departing on 26 December 2015 in a key airport in France, we can clearly identify the typical mistakes done by non-revenue managed pricing tactics. To understand better the reading of the graph, the x-axis shows the market survey dates run from early September 2015 till yesterday for all competitors available at the time of canvassing. At WeYield, we call this graph Pricing pace. It is one of the features of our rate shop analyzer, Rateshaker.

Let’s read the story

  1. Seasonal calibration. From the left hand side of the graph, we see three different pricing calibrations. The most expensive one is provided by Enterprise (purple line). They decided to start as the most expensive possible (420€ for a weekly rental). We can understand that their Yield Manage expected high demand and/or a lack of fleet, justifying to start that expensive. On the opposite, Sixt (orange) started at a very low price to catch the maximum demand possible maybe because they knew that there would have no fleet constraint. Avis (red) and Hertz (yellow) positioned themselves around 280€, with was the market price average (white bar).
  2. Price update. Nothing changed much during a month. But suddenly, just before the Autumn school vacation, we noticed some price updates. Enterprise reduced its price by -15% while Sixt while increasing its own by +30% in two steps. For the three other players (Avis, Hertz, and Europcar in green), nothing really changed. But what happened at Enterprise? Did they realize that they were not getting any bookings at all? Not a surprise when they were trying to sell twice as much as the market. For Sixt, it may be the result of a better internal data analysis: either at this low price, their mistress of bookings was taken and they got enough at this contribution, or they got the information from their Fleet Manager that they would not get as many cars as expected. Anyway, they reacted smartly two months before.
  3. Price fall. Suddenly, the crazy price-dropping game started. On the 6 of December, Enterprise reduced its price by another -30%. A week later, Thrifty (light blue line) and Avis followed with respectively a -15% and -40% price falls leaving Enterprise at 240€ while Avis was at 140€. Surprisingly enough, Sixt, which was moving up to reach the market price, stopped its sales on the 06 of December.
  4. Price destruction. Guess what? Enterprise decided to follow Avis and adjusted its price by a new -40% price reduction to beat Avis.

What can be learned from this?

Conclusion

This erratic pricing behavior is just crazy and triggers a last-minute behavior of the customer. Which is exactly the opposite of what Yield Managers want to achieve! Eventually dropping the price to be the cheapest could be a valid option as long as the market is not broken. It could make sense to be 5 or 10% cheaper than the cheapest but what is the hell pulling down the market dividing the price by two? If there was not any demand for the past three months, suddenly, a price fall will not create one. It will just dilute the small revenue expected and spoiled the demand for the other suppliers. Last but not least, internally, sharing precise information between Fleet and Yield enough in advance is crucial to set the prices in a proper way, avoiding to close the sales.

Let’s make a wish in this Christmas period: may Santa Claus offer intelligence for all the Car Rental industry.

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Emmanuel Scuto

Expert in Revenue Management and Pricing in the Car Rental industry for 20 years, I aim to share my optimization experience with our customers throughout the world. I am specialized in revenue maximization, pricing strategy, yield management, reporting based on AI.

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