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Why Car Rental Brands Should Be Looking To Start-ups

By: Isobar US Strategy Director, Tim Dunn

I spend a good deal of time in the car retail market, both working in the industry and, of course, as a regular business traveler. We are all very used to seeing the same names in the same airport spaces, but in terms of change, we rarely see more than gradual digitization and improvement to the customer experience.

So the car rental sector is achieving that rare thing in current climes: a resistance to the forces of innovation that have wrought havoc across hospitality, publishing, local transport, media and so may others.

But while the big brands are still sitting pretty in most people’s perceptions of the space, that’s not to say that innovation isn’t happening around the edges. And while new players are small, or still start-ups in many cases, it means now is a good time to examine how they are trying to attack the traditional business model with new ideas.

So how do you map the landscape of innovation? The best way is to state the obvious, clearly define the roles and actors within the current business model and highlight the various change vectors that can deliver new opportunities. Of course, these should ideally map to direct end-customer benefits if the new business is to be a success.

In the case of the car rental space, the current business model, in general, looks like this…

A car rental business owns a number of regular cars which it rents directly, for money, under a booking system to individuals or businesses from branded and staffed locations for set periods of time.

Each of these change vectors can give rise to a “What If…” statement, such as “What if we took payment in something other than money?” or “What if we are renting something other than cars?”

It’s fascinating to see how the new car rental players are experimenting with these change vectors to drive new business models.

First up is Drivy, a French Airbnb-style start-up that lets you rent out your car to other members when you aren’t driving it. Drivy cracked the Insurance conundrum (for their market at least), and is changing the game in a couple of ways: first, the range of cars is much broader. If you want a 1980’s Mini, a vintage 2CV, or VW California mobile home, you can get one. This change in the ownership of the vehicles means that Drivy is acting only as the intermediary between owner and driver, a model we know can scale rapidly. In the U.S. and Canada, Turo is already running a similar model.

Next is Skurt, a start-up out of L.A. that removes the need to go to a location. Taking a cue from Uber, Skurt allows you to book a rental car immediately from their app, and an agent in a Skurt-branded shirt will deliver the car you want right to your current location. For users, this avoids the inconvenience of queuing at locations, and, in many cases, that pointless Uber ride you have to take to get to your actual destination after dropping off your car. But Skurt is a smart move from a business perspective, too: the market for off-airport rental cars, where the customer experience is poor, is at least equal to the airport market. So leveraging relationships with smaller (and cheaper) off-airport providers to improve the rental experience seems like a good move. Skurt is expanding into new U.S. cities as we speak.

Silvercar is attacking the traditional model on two fronts. The obvious change vector they are counting on is the type of car available: with Silvercar, it’s an Audi A4, every time. But beyond that, Silvercar is de-frictioning the pain points of the rental experience, and promoting this as a differentiator. As with most modern start-ups, the experience is app-driven, enabling users to simply walk up to their booked car, and unlock it with the app. This convenience is married to an array of add-ons such as free Wi-Fi and GPS as standard in addition to free satellite radio.

As in any marketplace on the brink of disruption, there are numerous ways for established players to react. As we saw with Avis’ 2013 acquisition of Zipcar, a rapid purchase can “keep your enemies closer,” hedging your bets against the future.

There is the option to try to replicate the upstart companies from the ground up, but this is hard to do in legacy businesses ill-equipped to develop and deliver new offerings rapidly.

Perhaps the best option today, in a space where the incumbents still have significant runway, is to mimic the new behaviors of start-ups into the core business. In a competitive and commoditized space, it can be hard to conceive product features that will deliver more than small incremental benefits. But start-ups trying to disrupt incumbents can unwittingly act as an ideas bank for innovation, and large players would be well advised to keep a weather eye on the space, or run the risk of a genuine contender emerging to grab meaningful market share.

This article was originally published in MediaPost.

11/28/2016

Isobar US

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