Tip #1 How to negotiate with brokers in car rental (vEN)

You are listening to Revenue Machine, the podcast dedicated to Revenue Management in Carrenville. We have created it to enhance your January zone. I'm Emmanuel Skuto, the founder and CEO of Rebuild and a Revenue Machinist. My ambition is to give knowledge and share experience in order to get inspiration. To do what? To reach a new level of performance, but also to have a better clarity and more freedom in the way you do your job every day. In this podcast, we are going to discuss about brokers and their predominant presence in the Carrenville business. During autumn and spring, this is usually the period of the fair seasons. With the IFTM in Paris in September, the WTM in London in November, then in winter you have the FITO in Madrid and followed by the famous and the world event ITB in Berlin. We can also continue with the Dubai ATM in April. These events are a great opportunity to negotiate new deals or adjustments of the contract between the Carrenville you guys and these brokers. In order to give you some different points of view, I would like to share my perspective. We are going to discuss about the context of the relationship of these two parties. Then what are the main approach differences between those two guys, the brokers and new Carrentals, and also how we can share some tips in order to help you balancing this relation. Before we start, I would like to make a small definition in order to clarify exactly what we are talking about. In the online business, originally there was first the OTA, namely also the acronym for the online travel agency. These online companies are made to allow consumers to book various travel related services directly via internet. Usually there are certain parties between agents in order to resell trips, hotels, cars, flights, vacation package, and they provide organized trips or these vacations. The broker is another online operator but is only dedicated to one service. In the hotel you certainly know booking.com, which is the most famous. In the car industry, we have the rental cars, we have the car trolling, we have the auto, discover, etc. Then on the other side we have the car rental. It is an operator who is managing fleet to be rented. This car rental can be either a franchisee of an international brand but can also be independent in his own country or territory. Now let's try to frame the history of these two industries because I think it's super important to understand what is the origin. As you may know, the car rental business is more than 100 years old now. Six has been created by Mr. 6 in 1912. Mr. Jackub in US created a car rental business in 1918 that is sold to Mr. Erts in 1923. Mr. Ev is created his famous brass in 1946. In France, in Europe, let's say how Louis Matey created a car rental business that became Europe car in 1951. These car rental activities, the brick and mortar, are super all business. They are well established and they have a great operational expertise. Then for sure, the OTA history is much more recent. If you remember, Microsoft created Expedia in 1996. OTA was founded in 1954 but really as boom under the supervision of E-MAT Caledy in US in 1997. Also another big guy came with last minute in 1998. But something changed in this context in this history which was September 9 in 2001. The famous 9/11 terrorist attack in the US. That blocked totally the world of travel especially the US guys who were not traveling anymore. Let's say that the travel industry has frozen. Simultaneously, these long established car rental business became to be run by investors. Except for enterprise and seeks to remain a family on business, all the others came on the stock market and being ruled by investors. In order to do what, I mean their new tactic was really to reduce the cost to its maximum but also to organize a debt-sequioritization. In this environment of cost shrinking, the car rental kept reducing as well its marketing. So with the development simultaneously of this online travel agency, it was a good way to start subtracting their marketing in order to reduce their cost, to also work with high volume to guarantee cars to be rented. Mostly, I strongly believe that originally it was to maximize the financial ratio and please the stock exchange. So then we come to the end of the 2010 and the big revolution came with the development of the smartphone with the launching in 2007 of the iPhone, as the beginning of a new era in the mobile booking that boosted the online transaction and the importance of marketing to acquire new customers directly. Now, let's focus on the differences between the broker and the car rental. I mean the differences, for sure, they are not doing the same business but it's mostly the way they see their business and their constraint. They have one common interest that's for sure to sell the maximum activity and maximize their market share against their competitor, no doubt about that. The car rental defied against each other to put maximum cars on the road and the broker defies against each other in order to get the maximum market share and the most volume. So the first very different point of view of perspective of these two business is that the broker they sell booking at a reservation date. They mean that they want to drive the maximum volume on their site to convert all the queries that are coming in in order to boost their conversion ratio. So for example, they want to sell the maximum volume in spring for the summer season and they do not really care which car rental will deliver the service. As long as for sure they have a good service, they have a selection of suppliers, they have listed. But for them, it's really important that they do not lose any opportunity to convert a query that will enter on its website. On the other side, the car rental operates ourselves utilization on the day of on rent. So his first concern is really to put all the cars that he has purchased on the road every day of summer if we take this example. And if the fleet is higher during this period, due to the fact that this fleet is higher in summer, therefore it's super stress. Because it's either a big check in order to finance, let's say, his fleet. Therefore it costs him a lot of money and you want to make sure that he will get the maximum volume in front of the supply that he bought six or eight months before. So he wants to boost his utilization ratio on the on rent date. And second concern, I would say, is really to maximize the cost. the revenue per vehicle that we call the revenue per unit RPU in order to compensate the bank loans and the operational cost. So the first main difference between a broker and the current operator is that the broker max, let's say looks for the maximum volume to be booked on his website to cover his acquisition cost while the car rental wants maximize the utilization on the road in order to cover the operational cost. The second main difference is like the broker expect the minimum selling price possible in order to get the maximum conversion. So it will enable him to make the maximum profit but they want to optimize this part. If the price is too low, they will ask the car rental a minimum fee to back them up. So sometimes you will see crazy prices like five euros a day, ten euros a day. They don't care about that because at the end, they will send an invoice to the car rental setting that I want to have many minimum 25 euros per rental. On the other side, the car rental expects maximum selling price in order to generate profit. So we can see that already at this level, there is a misunderstanding. We do not have the same vision. Once his volume at the minimum price in order to get maximum conversion, the other one wants the maximum volume at the maximum price possible. The third difference between the broker and the car rental is the broker wants maximum number of car rental suppliers. When I mean maximum, I'm a bit exaggerating. The thing is that they want to make sure that they will always display some offers to be converted. So the worst fear is not to get availability because otherwise, they will not be able to convert any transaction. The car rental on its side want the maximum source of segments and not only broker because in it to maximize the profit and sometime if the broker remains, let's say, bring not enough margin, it's important that we can compensate by with, let's say, other segments that cooperate individuals direct, local supplier or car replacement, etc. in order to maximize the margin. The fourth main difference is linked to the technology. The broker has a super or developed super sophisticated algorithm in order to manage the display of the car rental suppliers. And usually, or really often, we can say that it's pretty opaque. They have some few rules that are understandable. For example, if you on StopCell, you may disappear or you may be dropped down into the display to the second page or very at the bottom. On the other side, car rental in general have a very low revenue management expertise. Sometimes not supported also by a very good operating system. So they pretend they do because they change their price, but in fact, they are far from having a sophisticated revenue management if we compare to the hotel industry or the air industry. The last and the fifth difference between broker and car rental is really linked to the power of the broker. They play now a big, let's say they play with the treasury. So because they collect the money at the reservation time, they sometimes delay the payment to the car rental operator. At the end of the transaction, but on time two to three months later, after the transaction has been closed. So it's really like the retail food. You know those big retail chain that they are playing with the treasury. While on the other side, the car rental, he has to pay sleaze for the fleet as well as the operational cost every month. So that that's not balancing the relation and gives a lot of power of the broker to control the car rental operator because they control the money. So as we can see now, I understand better with those differences, there is no common interest in the way the brokers and the car rental are seeing their business. The only element is like they want both high volume, but the brokers became inevitable in the business. So the question is what to do to balance this relationship on the car rental side? So now I would like to share some of the tips we have at wheel. This podcast has been recalled in after the season 2022, meaning after two years of COVID and a lot of regulations, a lot of lockdowns that dramatically hit the broker performance. Because they get far less business and now they have to generate cash in order to recover. Some of them have been very badly hit and putting them on a very difficult financial situation. On the car rental side after two years of COVID, these operators have faced a lack of supply. First, they have less cars available or these cars available due to the ship and the industry, but let's say the manufacturing constraints are much better equipped, so much more expensive. And on the car manufacturer side for sure, car rental business is a low contribution to their bottom line. Therefore, they are reorienting their sales to the most contributing segments, which is their direct sales. This is revenue management, in fact. So what happened during the summer 2022? In fact, in autumn 2021, when the negotiation started with the car manufacturers, the information that you collected was that the fleet was supposed to be shranked. So price will increase and normally the capacity would be reduced. So at that time, car rental operators decided to set their price at a high level for the summer 2022. Also, they did it because summer 2021 was super good and they expect as many people to come, as well as high willingness to pay for the drivers. But in spring 2022, finally, the fleet arrived with much more units that what was expected. And when this fleet has been delivered, let's say, along the spring, finally, it came in many countries that there was at least the same supplier other year before and sometime a little bit more. So that generated that triggers a lot of stress for the car rental. And because they are missing some of the car rental operators that do not do revenue management, do not have any B.I. except their data coming from their operating system. In fact, they have a lack of data expertise and internal information about the market, except the Rachel. Sometimes they do the Rachel only. So it means for them, it means that it's enough. And so the GM, the manager was super stressed being oversupplied. And what we saw is like after June or July, the price started to drop like crazy. Due to this price drop, what happened also this summer is like we saw a high level of cancellations. Some, so what I call it, we yield the high volatility for the customer. So some of these cancellations came from the direct consumers. But mostly they came from the brokers. We have seen in some countries an increase of of consolation by 25%. more than the year before. And what they did, in fact, they just rebooked the transaction that was originally confirmed in order to increase the difference between the retail price they sold to their direct consumer and the money they will spend at the car rental and kept the money for them. And when you have a high level of consolations like this, we are putting more stress, this is generally more stress to the general manager. And so triggering a new price drop that we call a price war in order to put the remaining fleet, some of them have been cancelled on the road. So we saw from spring to summer some pricey that were divided by two or by three in three or four months. That was a disaster. Overall, the season was good because the level of price were much better than 2019. But this trend is super, super stressful for the operator. So what we yield can suggest, what I can suggest is for to use the data you have in the system and do not set prices on expectations. But on real data, it's not because summer, we expect summer to be good that the price should be put high if we have a lot of uncertainty on the fleet on the total demand. So with the tools we develop, our clients can really look at their portfolio, if they are advanced or late, they can also identify their macro-demand level that we use the analytics to do that in order to measure the number of passengers that have booked the destination. But it's super important to get focus on the data not on belief. Then on the broker side, we have to monitor precisely and track their activity by on-rand date. Do not let these guys drive you by reservation date or total volume. If you come to a fair and they said, "Oh, thank you. Next year we are going to increase the volume by 10% and we will deliver more reservation in summer. You don't really need this because if they concentrate this new volume on the first two weeks of July, you will not have enough supply or you will need to buy more cars just to cover this shorter period of time and you will be stuck then with idle cars that will be seated for nothing." So as a conclusion, the apps we have developed are made to track the activity, to compare the trends and detect alerts, forecast demand, measure the performance of all customers. When I mean customers, I do not mean drivers, I mean really the debitors, the companies that are doing the business to you and all cars, controllers, C-MNs, any corporate account, bank, etc. But we can also help you to set the budget to prepare yourself's action plan. Meaning by that, what do you want to achieve in performance for next year? In order to play with these elements, in order to set an objective, you will be much clearer and straight with your brokers in order to accept or not their volume in the way you control. I would like to share a tip that I got from one client. He has been requested by a big, big broker, not to say the first one, that now it's time to validate some and to accept some volume rebate. And my client said, "No, I will not." And the guy said, "The broker said, 'But you have to.' He said, 'No, I'm not.' So, but you will. He said, 'No, I will not.' So by starting this point, now they are entering into the detail of saying, "Okay, it could be that we are going to accept some volume rebate, but it has to be uncertain durations, some certain car groups, and certain departure dates." Because negotiating some volume rebate on a volume that will come anywhere on the date that you don't need anybody to sell, that is stupid. So if these guys, the brokers are super good and they can drive some business, good, let them, let's use them for the shoulder period or even the low period and give them more volume rebates on this part. But shrink or compress their volume rebate during high season because you don't need them. But they need you, otherwise they will not have access to the capacity. You reach the end of the revenue machine podcast. Give us five stars if you like it. That's the only way to be seen in the magma of podcast. You can also forward this podcast to two other people you love. We yield team is available to help parental operators who are frustrated by the data they have and the data they would like to have. But also the one who wants to be guided along their revenue management transformation process. Contact us. Bye bye.