Do loyalty programs work? The rental car industry is highly homogenised, with most consumers perceiving the colour of the logos as the main differentiator.

A loyalty program has a critical role to play in growing rental car market share by differentiating the brand from competitors, especially amongst valuable business and high-frequency consumer travellers who seek perks for their choice when all else remains equal.

This case study focuses on the Australian rental car industry, examining the market share impacts of a change in loyalty program strategy across Avis and Budget versus Hertz in 2010-2011.

The analysis helps to answer the question ‘Do loyalty programs work?’, and is valuable for loyalty program managers, loyalty consultants, marketing strategists, and business leaders looking to boost customer acquisition, spend, retention and advocacy.

This case study was deemed so compelling it was cited in an Australian government report as part of a formal review of the loyalty industry.

Case study: Avis and Budget vs Hertz 2010-2011 in Australia

In 2010, Avis and Budget competed aggressively with Hertz for the top position in the rental car market. Hertz led with the highest market share, but between the three of them they commanded the majority of the market. This was especially true amongst business travellers, who were less price-sensitive and attracted to the Qantas Points offered by all three brands.

Qantas Frequent Flyer points

Up to 2010, Qantas Frequent Flyer members could earn points on car rentals with Avis, Budget and Hertz. Members earned 1 Qantas Point per dollar spent ^[7]. These partnerships worked well for Qantas as it meant they were able to sell large volumes of points to car rental companies irrespective of who members chose^[8] .

It was a concern for each of the rental car companies however, as they struggled to differentiate themselves in other ways, which they saw as a strategic imperative to grow their market share. In many ways, having to pay for providing their customers with Qantas Points added a lot of cost to the business with minimal upside advantage.

Hertz partners with Velocity Frequent Flyer

In an effort to differentiate the brand and boost market share, Hertz formed a partnership with Virgin Australia’s Velocity Frequent Flyer program ^[9]. The earning structure was tiered based on membership status, with Red members earning 4 points per AUD spent, and Platinum members earning 6 points per AUD spent ^[9]. Under this model, Hertz felt they had successfully found a loyalty strategy that would allow them to differentiate from Avis and Budget by providing members with a choice of the airline currency they earned.

Qantas offers Avis and Budget exclusivity

In response to Hertz new strategy, Qantas offered Avis and Budget exclusivity for Qantas points earn. This effectively cut Hertz out of the picture^[10]. In order to offset the reduction in points earned from removing Hertz, Qantas negotiated for Avis and Budget to increase their earn rate from 1 point per dollar to 3 points per dollar. This strategic decision allowed Qantas to maintain coverage of two customer segments: premium (Avis) and value (Budget) ^[8] while increasing the overall amount of points earned within the rental car industry.

For Avis and Budget, the new deal, which launched in Nov 2010, provided them with the opportunity to genuinely differentiate themselves from Hertz in a way that Hertz could not respond to (a strategically defensible position). While Hertz had the new partnership with Velocity Frequent Flyer, the program was not nearly as well established or patronised as Qantas Frequent Flyer, especially for lucrative business travellers.

Impact on Australian market share as a result of Qantas Frequent Flyer partnership changes

The impact on the rental car market share and revenue amongst the competing brands was rapid and pronounced. This included a significant negative impact on Hertz’ revenue, which declined year-on-year in 2012 by 2.9 per cent, with a further decline in 2013 of 4.3 per cent. For the same period, Avis’ revenue grew in 2012 by 4.6 per cent and in 2013 by a further 8.7 per cent.

IbisWorld reported ‘Avis (and Budget Rent A Car) have benefited from strategic partnerships with tourism service operators over the past five years, such as the partnership between Avis and the Qantas Frequent Flyer Program. These partnerships have provided the brands with a competitive edge over other passenger car rental companies, particularly in highly competitive positions within airports.’ ^[16].

The main segment that transitioned their spend from Hertz to Avis and Budget were business travellers who actively pursued the accumulation of Qantas Points. Making a change from a yellow logo to a red or blue logo was easy to make, and with all other customer experience factors comparable, there was little Hertz could do to stop the loss.

The impact on Hertz revenues was so negative that it was rumoured the CEO of Hertz Australia was fired.

Effectiveness of Qantas Frequent Flyer partnership

The clear revenue benefits to Avis and Budget of the exclusive partnership with Qantas Frequent Flyer provides a compelling case study for the role loyalty programs can play in growing companies revenues, especially in homogenised industries.

This example demonstrates that consumers who are engaged with a loyalty program that provides a desirable currency can be influenced to choose one brand over another, especially if all else is equal. In this case it is clear that the loyalty program did work.

The upside of loyalty programs

Customer acquisition

Loyalty programs can play an important role in boosting customer acquisition. By acting as a brand differentiator, as was the case with Avis and Budget, they can attract new customers by offering unique, desirable benefits and incentives. Research indicates that 85 per cent of consumers are more likely to continue shopping with brands that have loyalty programs ^[13]. Best-practice programs create a sense of belonging and exclusivity, fulfilling customers’ desire to feel a boost in self-esteem. One study showed that 94 per cent of Americans would take advantage of an exclusive offer over a price match ^[14].

Increased Member Spend

Loyalty programs can be effective in stimulating member spend; upsell, cross-sell, share of wallet increase, boosted consumption, more frequent purchases, and more. Studies show that 57 per cent of consumers spend more on brands to which they are loyal ^[13] . Program members generate 12-18 per cent more incremental revenue growth per year than non-members ^[13]. The top-performing loyalty programs boost revenue from customers who use them by 15-25 per cent annually ^[13]. Additionally, 66 per cent of consumers modify their spending behaviour to maximise rewards ^[13].

Reduced Member Churn

Customer retention is a core benefit of a best-practice loyalty programs. A mere 5 per cent increase in customer retention can generate a 25 per cent increase in profit ^[13]. Loyalty programs can combat churn by creating emotional connections and offering personalised incentives. They provide valuable data for tailored marketing strategies, allowing companies to anticipate customer needs and improve the relevancy of communications, offers and experiences.

Increased Member Advocacy

Loyalty programs can play a role in fuelling word-of-mouth marketing and the creation of brand advocates. Satisfied members are 79 per cent more likely to recommend brands with good loyalty programs ^[13]. This organic and cost-effective method of customer acquisition is invaluable in competitive markets such as car rental. Referred customers have a 37 per cent higher retention rate ^[14] and typically have a lower customer acquisition cost, resulting in a 16 per cent higher lifetime value ^[15].

Conclusion

This case study of loyalty programs in the Australian rental car industry reveals their significant impact on customer behaviour and business performance. The story of Avis and Budget versus Hertz in 2010-2011 highlights how strategic partnerships, like those with Qantas Frequent Flyer, can boost market share and drive customer engagement. This has influenced all aspects of the Avis and Budget business, including customer acquisition, increased spending, reduced churn, and enhanced advocacy.

It is a useful case study when attempting to answer the question, ‘Do loyalty programs work?’.

As the loyalty landscape continues to evolve, businesses that effectively leverage well-design and executed programs and adapt to changing customer preferences are likely to gain market share at the expense of their competitors.

Designing a world-class loyalty strategy is not easy, however. It is recommended that companies engage the services of expert loyalty consultants such as Loyalty & Reward Co to ensure they get it right.

Our loyalty consultants have helped global brands take the critical steps to design effective loyalty programs, as well as support ongoing evolution to meet changing business and consumer expectations. Contact us to learn more about our comprehensive loyalty services and talk with our loyalty consultants to understand how to develop or optimise your loyalty program strategy.

References

[1] – https://www.researchgate.net/publication/369638175_Evolution_of_loyalty_programs_offered_to_customers_and_investors  https://www.researchgate.net/publication/369638175_Evolution_of_loyalty_programs_offered_to_customers_and_investors
[2] – https://images.hertz.com/pdfs/HertzAU_Location_Guide.pdf  https://images.hertz.com/pdfs/HertzAU_Location_Guide.pdf
[3] – https://www.thrifty.com/BlueChip/BlueChipRewards/FAQs.aspx  https://www.thrifty.com/BlueChip/BlueChipRewards/FAQs.aspx
[4] – https://www.europcar.com/en-us/p/loyalty-programs  https://www.europcar.com/en-us/p/loyalty-programs
[5] – https://www.europcar.com/en-us/p/loyalty-programs/club https://www.europcar.com/en-us/p/loyalty-programs/club
[6] – https://www.thrifty.com/CustomerCare/content/LoyaltyPrograms.aspx https://www.thrifty.com/CustomerCare/content/LoyaltyPrograms.aspx
[7] – https://www.avis.com/pt/business-programs/miles-points-partners/airlines/qantas-airlines https://www.avis.com/pt/business-programs/miles-points-partners/airlines/qantas-airlines
[8] – https://amadeus.com/documents/en/mobility/case-study/qantas-cross-sell-case-study-0.pdf https://amadeus.com/documents/en/mobility/case-study/qantas-cross-sell-case-study-0.pdf
[9] – https://www.velocityfrequentflyer.com/partners-offers/cars-hotels/hertz https://www.velocityfrequentflyer.com/partners-offers/cars-hotels/hertz
[10] – https://ir.avisbudgetgroup.com/news-releases/news-release-details/avis-budget-group-extends-exclusive-agreement-qantas-frequent  https://ir.avisbudgetgroup.com/news-releases/news-release-details/avis-budget-group-extends-exclusive-agreement-qantas-frequent
[11] – https://www.accc.gov.au/system/files/Airline%20Competition%20in%20Australia%20-%20March%202023%20report_0.pdf  https://www.accc.gov.au/system/files/Airline%20Competition%20in%20Australia%20-%20March%202023%20report_0.pdf
[12] – https://www.abc.net.au/news/2024-04-08/asx-markets-business-news-live-updates/103680478 https://www.abc.net.au/news/2024-04-08/asx-markets-business-news-live-updates/103680478
[13] – https://queue-it.com/blog/loyalty-program-statistics/ https://queue-it.com/blog/loyalty-program-statistics/
[14] – https://www.annexcloud.com/blog/the-secret-to-building-a-loyal-customer-base-rewarding-advocacy/ https://www.annexcloud.com/blog/the-secret-to-building-a-loyal-customer-base-rewarding-advocacy/
[15] – https://www.saasquatch.com/blog/loyalty-programs-for-customer-acquisition/ https://www.saasquatch.com/blog/loyalty-programs-for-customer-acquisition/

[16] – David Whytcross, ‘IBISWorld Industry Report: L6611 Passenger Car Rental and Hiring in Australia,’ October 2014, page 23-25.