The Rental Game is Now a MATCH OF WITSBy Joanne Costin
Article Date: 12-01-2009
Copyright(C) 2009 Associated Equipment Distributors. All Rights Reserved.
…and a measure of good old fashioned beating the bushes. In this altered market, it’s time to re-examine your strategy and plot your next move.
Once called "recession-proof," the heavy equipment rental market has succumbed to the economic downturn, proving that old norms and conventional wisdom do not really apply anymore. One needs to look no further than the earnings statements from a few publicly held firms for the evidence. At H&E Equipment Services, a diversified dealer with 63 full-service facilities operating in many regions of the U.S., gross margin on rentals decreased to 30.6 percent from 50.3 percent in the third quarter of 2008. In the company’s third-quarter earnings report, it was reported that rental rates were down 19.1 percent and rental revenues were down 42 percent, versus the third quarter of 2008. At Sunbelt Rentals, with locations in 34 states, rental revenue was down 29 percent through July 2008.
There's no doubt many more dealers are experiencing these same difficulties with the rental side of the business.
"You are competing with your customer," says Dale Vaughn, president of Oklahoma City-based OCT Equipment. "Your customer may have some number of crews working and he's down to one. He needs one [machine]; he pulls one out of his back yard."
Meanwhile, an oversupply of equipment has further diminished the value of the dealer's rental fleet.
Gary McArdle of Rouse Asset Services tracks a number of metrics for the rental industry, including the value of their fleets. "The value is down 20 percent on used machinery specific to the general rental equipment market versus 2008," said McArdle. "Peak to trough, 29 or 30 percent."
Rental Plays Well to Market Uncertainty
Still, there are some signs that the market may be improving, if ever so slightly. According to McArdle, the value of the rental equipment inventory has flattened in the past few months.
Looking to a recovery, tight credit markets and market uncertainty are two reasons why rental should play well with contractors wanting to outsource capital and logistics. And until credit flows more freely, there may be a whole new group of contractors for whom rental makes sense.
"Cash constraints with third party leasing or funding have hurt the distributor's sales," noted Chris Pera, president of HiReach Group, based in King of Prussia, Pa. "The rental business is a terrific alternative because the customer doesn't need the credit."
What You Should Be Doing Now
"This has been a stressful and demanding time for a lot of dealers," said Don Buttrey, president of Sales Professional Training, Inc. "But now it's time to go back to the war room and sit around the table and come up with some new strategies."
There is no denying that the market has changed, so your market position and strategy need to be re-evaluated to determine if they are still right for your business. In addition, dealers need to assess the importance of rental to their overall strategy and adjust resources accordingly. Your flexibility in adjusting your strategy to market conditions may be a key factor in achieving success coming out of this recession.
Every market is different, and according to Buttrey, dealers need to examine their own competitive situation and identify what their particular advantage is. "Prospect those types of customers that best fit your strategy."
Competition is fierce in the rental market, and you need to differentiate yourself from your competition. "Know what you do and leverage what you have to your advantage," added Buttrey.
Pera launched Hi-Reach Equipment in May of 2009, so he doesn't have many of the same problems and obligations of other dealers, who have had to adjust inventory and personnel when demand dropped off the table. He sees advantages in his narrow niche. The company rents JLG lifting equipment, including rough-terrain scissor lifts, articulated booms, telescopic booms, 4 x 4 telehandlers, electric scissor lifts and industrial cranes.
"Having such a narrow view makes it so much easier and comfortable for the sales reps," explained Pera. "Users are clearly defined. Our product only applies to a certain group of folks."
Defining a market niche is nothing new for Volvo Rents, either. The franchise arm of Volvo Construction Equipment North America has its eye clearly focused on the 10 percent of customers who account for 80 percent of the volume. Volvo Rents has chosen a franchise model based on its belief in the concept of local ownership.
"With local ownership you can tailor your service offering to each and every customer," said Nick Mavrick, vice president of marketing for Volvo Rents. Its VIP customers require a lot of flexibility, and the franchise model allows Volvo Rents operations to provide it.
Analyzing the competitive landscape is an important part of the strategic process. For Vaughn, a dealer with three locations in Oklahoma, rent-to-rent competitors aren't a major factor. OCT Equipment represents Case, Hitachi, Hamm Compactors and Stone Construction Equipment.
"They [rent-to-rent competitors] have moved away from the dirt to the lift" said Vaughn. Vaughn believes his customers rent from him for the reliability, and their marketing reflects that. "We Rent Reliability" is the slogan that OCT uses to promote its rental business. "Otherwise," says Vaughn, "it's a commodity."
Buttrey also cautions dealers about selling value and not price. "Giving somebody a discount on price is not going to solve the customer's problem," said Buttrey. "Helping them come up with a solution, that is how we help them."
"It is not the lowest price," contended Pera. "Low price has to introduce you to the customer, but there has to be more merit than just low price."
Hunting for Customers
According to Buttrey, prior to the recession, dealers were admittedly focused on order taking, not order making. "The issue wasn't, ‘can we find customers?' It was ‘can we find equipment?'"
Rental industry veteran Pera concurs. "What I used to notice in this business is that the sales staff never went to look for new customers." As a result, HiReach has put a strong emphasis on prospecting.
"From a rental perspective, the more sales calls I make, the luckier I get," reported Pera. One of the sources the company uses to prospect is McGraw Hill Dodge reports. "We are making cold calls and also on jobsites every single day." Pera believes that rental salespeople are fortunate because they can get instant gratification for their efforts. They can find someone, fill and get an order in the same day. On the sales side of the business, that doesn't happen."
"Salespeople are either "hunters" looking for a sale, or "farmers" caring for their crop/customers," said Vaughn. "Good salespeople are a little of both. It is very common to see a salesperson start out as a hunter since he has not developed relationships. Over time, they become farmers and lose the intensity for the hunt, relying on developed relationships."
Buttrey believes it's time to put a focus back on hunting. He recommends some additional sources for prospecting, such as lists from other divisions of the company, lists of unassigned accounts and UCC data. "The best way is to just pick up the phone and start calling."
Buttrey also suggests strategic account planning and pre-call planning. "Select viable, well-fit potential customers and start working them to build long-term relationships," he said. He acknowledges that it may take time for some of these relationships to develop but also thinks that now may be an ideal time, because contractors are not busy.
Pre-call planning ensures that you run the meeting to accomplish your objectives; are prepared to deal with customer objections; and will sell value.
"These are things we should have been doing all along," said Buttrey. "Instead, everything was transactional. They didn't do the grunge work of sales."
Technology in Play
Technology has the potential to provide dealers' rental business with a competitive edge by turning data into meaningful and actionable information. Software programs provide a wealth of tools that can assist companies in defining their market niche and identifying new prospects. Customer Relationship Management (CRM) applications can capture a wealth of data such as industry, sector, size and turnover, but can also capture information such as purchased and rented equipment.
"All of this information allows a market to be clearly defined and targeted," said Mathew Bridge, a solution consultant for Lawson Software. "The software should enable company profiling too, so that similar companies can be identified against the same characteristics such as size, type of company and installed base.
Sunbelt Rentals utilized Mobile SalesPro with an innovative iPhone application to create a more efficient communication tool for more than 1,200 employees. The company worked with Customer Connect, a Microsoft-certified partner, to implement Microsoft CRM 4.0 and customize a Web interface.
With the new technology, Sunbelt sales reps can access real-time information about a customer's account, rental history, and outstanding invoices, as well as quote equipment rental rates. The result is that salespeople can respond more quickly to customer requests. They can obtain information on their own, rather than waiting for phone calls from the inside sales people. The company just received the Best Mobile SFA/CRM Award in Mobile Enterprise magazine's 2009 Mobilizer Awards for their efforts.
A Balancing Act Between Sales and Rental
Full service AED dealers who are involved in new machine sales, service and rental have an added challenge of balancing their resources between each area of business. Inherently, there are conflicts.
"The operating models are so different," explained Mavrick at Volvo. "Ultimately they compete for people and resources."
"When you have a sales side and rental side within the same dealership, CRM is so important," said Buttrey. Good leadership is required to ensure that the needs of the customer come first. For example, data on maintenance expenses for a particular machine could be used to convince a customer about the value of a new machine purchase. "The larger the dealer, the more important CRM is, so that you are attacking the customer base as a team," added Buttrey.
This past year, many dealers have restructured and refined their processes to reduce costs as required by the steep downturn. But the rental game is still on, and there's no better time like the present to determine your next move.
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