What the hell is this pricing tactic?

rateshaker-pricing-tactic

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 misktakes 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 clearily identify the typical mistakes done by non-revenue managed pricing tactic. 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 time of canvassing. At WeYield, we call this graph Pricing pace. It is one of the feature of our rateshop analyzer, Rateshaker.

Let’s read the story

  1. Seasonal calibration. From the left handside of the graph, we see three different pricing calibrations. The most expensive one is provided by Entreprise (purple line). They decided to start as the most expensive possible (420€ for a weekly rental). We can understand that their Yield Manage expected a 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 maximum demand possible may be because they knew that there would have any fleet constraint. Avis (red) and Hertz (yellow) positionned themselves around 280€, with was the market price average (white bar).
  2. Price update. Nothing changed much during a month. But suddenly, just before Autumn school vacations, we noticed some price updates. Entreprise reduced his price by -15% while Sixt while inscreasing 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 Entreprise ? Did they realize that they were not getting any booking 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 mastress 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 much cars as expected. Anyway, they reacted in a smart way two months before.
  3. Price fall. Suddenly, the crazy price dropping game started. On the 6 of December, Entreprise 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 Entreprise 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? Entreprise decided to follow Avis and adjusted its price by new -40% price reduction to beat Avis.

What can be learnt from this?

  • Entreprise due to a lack of analytics or yield expertise or tools or everything combined, positionned its price at a too expensive level, twice as much as the market and was forced to reduce it by almost -70% in three months. It is easy to imagine the frustration of the clients who booked in September at 420€ and then have realized that they would have got their rental at 135€ at last minute three month later. An alternative may come for their Revenue Management Systems (RMS) which set the early booking price at a high level to push the Broker demand away ?
  • Sixt certainly faced a capacity issue that was not known early September. At the time the prices were broadcasted for Christmas vacations, the Yield Manager got the information that the fleet would be enough to serve all the demand. But far too late (early December), the capacity shrunk and he/she was forced to stop the sales.
  • Avis was certainly not tracked at all. The Yield Manager loaded its prices for Christmas vacations and may have not pay any attention at all the demand trends. The lack of attention generated a sudden reaction (mid-December) causing a price drop due to lack of demand.
  • Europcar, Hertz and Thrifty remain stable, following their pricing tactic.

Conclusion

This erratic pricing behaviour is just crazy and triggers a last-minute behaviour of the customer. Which is exactly the opposite of what Yield Managers want to achieve! Eventually droping 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 that the cheapest but what the hell pulling down the market dividing the price by two? If there was not any demand for the past three months, suddendly, 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 Car Rental industry.