Tourism is growing rapidly. So does air travel. Car rentals cannot but catch up in pace. Companies may offer coupon codes, holiday sales, and special deals to make car rentals even more tantalizing. Increasing population and pollution are further pushing the car rental segment towards major shifts. The segment is among the most profitable industries in transportation.
Once upon a time car rentals were much less appealing to customers. A customer had to fill out too many forms and verify his or her ID every time they rented a car. The major shifts we’ve just mentioned have brought major changes. Sometimes, all it takes is to verify the ID once. These tools are proven efficient for making car rental more cost-efficient.
Car rentals are on the rise
What earns more trust than data? Let’s look at some statistics to gain a general overview of car rentals. The car rental segment is expected to cross the bar of $81.32 billion by the end of 2022. We can go even further in projection. The long-range forecast for the car rental market suggests a market volume of around $116.40 billion by 2026. The annual growth is projected to level at 9.38% between 2022 and 2026. Such a considerable leap forward points out an ice-cold fact. Car rentals are growing rapidly.
There are many driving forces for car rentals. The specific set of factors depends on the country or region. But we can define the essential ones. Tourism is the crucial driving force. The tourism industry is substantially growing. For many countries in the Med (Spain, Italy, Greece, Turkey, etc.) the tourism industry is vital for their economies. Even the countries that don’t primarily rely on tourism (the United States is among them) actively engage in tourism promotion. They try to catch the wave. As the number of tourists increases, the demand for rental cars increases as well.
Car rentals on the rise explained
We live in a fast-paced world. Demanding jobs, errands, and a monotonous routine can push us to pack the travel bag and set off on an adventure. For beach-hotel kinds of people renting a car doesn’t sound like a viable idea. However, a lot of travelers would love to see as many sights as possible within the few trouble-free weeks they can spare once a year. The only way to go to so many places in a limited time, without hassle, is by a tourist’s own means of transportation. Taking your car overseas isn’t a cost-efficient option, at all. But renting a car is.
Though being the main driving force, the increased demand in car rentals can also be attributed to:
- Corporate travelers growing in numbers. They make the demand for luxury executive car rentals. Many car rental companies focus on executive car rentals only thanks to the lucrative benefits this segment is delivering.
- The rate of car ownership among millennials is low. Car maintenance is getting costly. The awareness of human-driven climate change is growing. Millennials gravitate towards minor electric means of transportation (e-bikes, e-scooters), public transportation, car rental, and car-sharing. They only want to use a car when they absolutely need to.
The proper pricing of car rental business
The pricing of a car rental depends on many factors, starting from the target market, the amount of prime investment, rate of return, employee wages, fleet insurance, maintenance costs, etc. Whether a car rental business takes off or not also depends on market conditions, force majeure, and some industry-specific nuances you cannot control. Let’s apply statistical data once more time and see what it shows.
A car rental company holds a car for 2 years before replacing it with a newer model. If a car has been used for at least 72% of the time within the given time span, the car pays off. And the business is considered profitable. A brief overview of the factors affecting a car rental pricing policy will help to gain insight into the premise of the proper pricing in car rentals.
1. Target market
It could be budget cars for tourists or luxury executive cars for corporate travelers. The target market defines the prime investment. The economic car segment gets an initial investment of $50,000. For the premium car market, a prime investment of $500,000 is highly expected. Besides, the life shelf of a premium car is much shorter than an economic one. Holidaymakers are likely to be content with a 10–15-year-old SUV or a small hatchback. Executives may need a brand-new car or one not older than 1-2 years. The car rental rate for a premium car is much higher than for a budget one.
2. Maintenance costs and car lease
Purchasing a fleet isn’t necessary. Striking a deal with a car lease company is a viable alternative to a bulky initial investment. However the cost of leasing vehicles will determine the minimum rate of return. Maintenance costs vary depending on the target market. Economic cars require much less maintenance and repair than premium ones. The latter must be replaced much more often than the former.
3. Fleet insurance
It doesn’t matter whether rented cars cruise wide traffic-empty highways or highly dense urban settings. Fleet insurance is a must-have feature of the car rental business to protect the cars from accidents, theft, damage, etc. Having the right car rental business insurance not only safeguards your fleet but also shields your business from potential financial liabilities. In a highly competitive industry, such coverage is a crucial component that ensures the long-term sustainability of your car rental enterprise.
4. Marketing
Not until customers have become fully aware of a car rental brand will the business begin to make smooth progress. Social media campaigns, directed advertising, SEO optimization, etc. are worth a lucrative investment. Growthink has conducted car vendor SEO research into keyword ranking and backlink efficiently. In the list of 10 top Google SEO and SEM, Enterprise takes the lead.
5. Discount policy
The discount policy is an integral part of the broader marketing policy. Personalized discounts play a decisive role in premium car retail since the target market is mostly based on regular customers. Budget car rental benefits from holiday deals and sales discounts for selected cars. Models that aren’t popular among customers may offer tantalizing discounts.
Final words
The car rental industry is making swift progress nowadays thanks to an increase in the number of tourists and commercial travelers. The reduction of the car ownership rate among millennials also boosts demand for cars offered for rent. The pricing policy of a car rental company depends on many factors. The essential ones include target market (budget or luxury cars), marking strategy, maintenance costs, and car lease, insurance, and discount policy. Enterprise car rental takes up a leading position in terms of the efficiency of a marketing strategy.
