By Doug Stoddart, the CEO and founder of Bike Rental Manager
After navigating through the pandemic and dealing with rising inflation, rental businesses are facing uncertainty as to what the future will hold for their industry.
With fears of an economic downturn, consumer confidence has fallen to the lowest levels since records began. As customers have proven to prefer subscription models rather than one-time purchases during poor economic circumstances, according to Doug Stoddart, CEO of Bike Rental Manager, this could be an opportunity for firms operating on a rental business model to regain their footing this year.
Customer retention is the priority
Rental models offer ongoing relationships with customers, as opposed to the traditional business model where customers make a purchase and may choose not to return to the brand again. Here, minimising customer churn is key for rental businesses to survive during a slow season since customer acquisition costs far outweigh customer retention costs.
To aid in minimising churn and ensuring customers feel heard by businesses during this period of economic uncertainty, organisations should be reaching out to speak directly to their customer base. Businesses have an opportunity to understand what their customers’ needs are during the recession and whether the product/service they provide is meeting these needs. This gives businesses a chance to identify how they can adopt/tweak their offering to suit customers’ needs during a slower season if their research shows customers’ requirements have shifted.
If businesses notice a significant increase in the number of customers cancelling their subscription during periods of economic uncertainty, they may choose to give clients the option to pause their rental subscription for a set period of time. Although this means a short-term loss for the business while customers aren’t paying, in the longer term it will aid in retaining customers and building loyalty to the brand. Since the cost of new customers is far greater than retaining customers, this strategy will support the business as the recession hits.
Opportunities to upsell to existing customers
With the ongoing relationship between customer and brand which rental models allow for, businesses have an opportunity during a slower period to upsell and cross-sell additional products and services to their audience.
According to Marketing Metrics, the probability of selling to an existing customer is 60-70%, in comparison to the probability of selling to a new prospect which is 5-20%. Businesses have an opportunity to unlock an additional source of income without drawing in new customers – by targeting their existing customer base with new products.
Businesses should use available data on which products their customers are currently interested in as an insight to decide which new products to present to this audience.
Use promotions to support the rental offering
Part of the reason why rental and subscription models can perform better than traditional business models is the removal of the transfer of ownership. With a traditional business model, the sale is made via a payment which results in the ownership of the product being transferred to the purchaser. During a recession, consumers typically feel like spending less as their confidence drops, making it harder for a business to persuade customers to part with the full payment.
With a subscription or rental business, consumers are parting with a much smaller sum of money each time. To entice new customers to trial the rental model during a slower season, businesses should try introducing promotions via email campaigns. With tools such as Mailchimp, businesses can create groups and segments to send relevant and personalised promotions to recipients.
Reinvest into the business
A recession offers an opportunity for businesses to identify and reduce non-essential costs. Brands may have costs which were previously necessary to run their operations in the past, due to improvements in their way of working, they may no longer be necessary to run the business. By cutting costs such as these and being conservative, businesses can come back stronger as the market improves.
It is important, however, for rental businesses to avoid cutting costs which are essential to providing a positive customer experience. While this may seem beneficial in the short term, it could increase customer churn and prove detrimental to the business in the long run.
As costs are cut, rental businesses can use savings to reinvest into the business since research from Deloitte suggests companies who reinvested during the last recession showed a higher growth rate during the recovery period. Brands should, therefore, focus on investing in opportunities which improve the customer experience and therefore retention, to support long-term growth.
Doug Stoddart is the CEO and founder of Bike Rental Manager. He started his career with Andersen Consulting, before going on to work in the highly demanding Investment Banking sector. After leaving his corporate IT career to open a bike rental shop, Doug went on to build Bike Rental Manager, taking it from a one-man band to a full team covering three continents.