How to measure yield management performance in car rental ?

Measuring the performance impact on company’s bottom line when yield management techniques are implemented is a permanent goal.

Like Nessie of Loch Ness in the Scottish Highlands, some said that they saw it but nobody can prove it. Fortunately, it is easier to prove great benefit of the Yield Management implementation on your bottom line than to take a picture of the world famous monster.

On this first example, I have decided to focus on market segmentation. In a commodity market like the Car Rental industry and especially in a leisure destination, it is not a secret to say that most of volume is generated by the brokers (AutoEurope, BSP, Traveljigsaw, CarTrawler, etc). But this channel is pretty expensive when we combine the commission paid on the retail price paid by the customer to the various fees to be add-up : reservation fee, central billing, airport tax, etc. For our example, we are taking the following assumptions (all based on a total booking estimate excluding vat and airport tax) :

Royalties and fees 5%
Reservation fee 1€/day
Central billing fee 5%
Broker retail commission or net margin 20%

 

 

 

 

So now, let’s assume that the market segmentation for a total of 100,000 rental days is split as follow before the implementation of a proper Yield Management:

100,000 rental days Local Network Direct broker Retail broker
Days split 40% 20% 0% 40%
Gross RPD 30€ 33€ 26€ (33€-20%) 32€
Commision and charges 1,65€ 4,47€ 1,45€ 11,07€
Net RPD 28,35€ 28,54€ 21,94€

 

 

 

 

 

 

In the above example, the following decision has already been taken:

  1. Push Direct business first
  2. Then, make sure the direct price on the local website is just a bit cheaper than on the .com site managed by the Franchisor
  3. Last but not least, the rate parity is applied through all other channels (Network and Brokers on retail)
  4. There is no direct contract with any Broker yet

So now, based on this results, it is clear that a new distribution channel tactic needs to be decided to push more the Direct sales, idealy Local and then via the Network. So after having organized the data to make sure we get the correct picture of current situation and that we will be able to track the results of the action, we have decided to:

  1. Push the Direct local reservation throught the local booking engine. This requires first to maintain a cheaper price but also to invest a bit of money in a propre SEO campaign
  2. Reduce a little bit the share of volume coming from the Franchisor.
  3. Start to negotiate direct contract on a net rate model with some Brokers
  4. Strongly reduce the volume of Brokers on a retail rate using inventory controls

 

100,000 rental days Local Network Direct broker Retail broker
Days split 53% 18% 3% 26%
Gross RPD unchanged 30€ 33€ 26€ (33€-20%) 32€
Commision and charges 1,65€ 4,47€ 1,45€ 11,07€
Net RPD 28,35€ 28,54€ 24,95€ 21,94€
New days split +13000 -4000 +3000 -12000
Total commission impact +21000 € -17900 € +4300 € -133000 €

 

Neither increasing the total volume of days, nor changing any price (no customer pays one euro more), the net result for the company is a saving of -125,600€ on the total Commission and Charges paid. It worth the implementation of the Yield Management techniques. You would be able to say “I did not see Nessie, but I can say that Yield Management for Car Rental is a great contributor to my company margin!”

By the way, the above results are a real study case after 2 years of WeYield support.