The Illusion of Choice

As a frequent traveler and subsequently a frequent car renter. Rental car signs are commonplace in the airport. However, since digging deeper into the industry, I have begun to look at these companies differently.

From this sign, you would assume that there are 10 unique companies providing rental services at this airport. This is an illusion. The reality is these 10 “companies" are actually operated by 4 companies. Alamo, National, and Enterprise are owned by Enterprise Holdings, Avis, Payless, and Budget are owned by Avis Budget Group, Hertz, Thrifty, and Dollar are owned by Hertz, and Fox Rent-A-Car is owned by Europcar. Enterprise Holdings has about 27% of the US rental car market, Hertz accounts for 15% of the US rental car market, and Avis Budget Group accounts for another 8% of the US rental car market. These three companies take up half of the US rental car market, a $40 billion dollar industry that is constantly growing and so are these companies’ market shares. Understanding how consolidated the rental car industry is also helps explain why if you have noticed at many airports, agents will work at multiple different “companies”. Each “company/brand” has an independent loyalty program and while you may think these loyalty programs' benefits would have some type of functionality at other “brands” under the parent, you are mistaken. I am under the belief that this is done to make consumers believe that these companies are inherently different entities and are all not being operated by one parent. This seems to be an effective strategy because people will often imply these companies are independent of each other. For example, as David Dayen points out in his book “Monopolized”, The Hill leads an article stating

“Three top car rental rental companies are ending their discount programs for the National Rifle Association(NRA) members, becoming the latest business to cut ties with the gun group.”

In reality, since Alamo, Enterprise, and National all belong to Enterprise Holdings, it would have been more accurate to simply say

“Enterprise Holdings is ending its discount programs for the National Rifle Association(NRA) members”

https://www.enterprise.com/en/help/faqs/emerald-club-free-day.html; Proof that loyalty membership are only applicable to that specific brand

Originally, I hypothesized that rental cars under the same parent company would have similar rental prices. I came to this conclusion because what is truly distinguishing between these rental car companies’ brands? Nonetheless, I decided to pick on the Enterprise Holdings group that contains Enterprise, Alamo, and National under its’ brand portfolio. I tried to reserve a car at the Hartsfield-Jackson Atlanta International Airport(ATL) starting on May 6 at noon until May 9 at noon, a period of three days. The results came back and instantly proved my hypothesis to be wrong.

The above and below diagrams display the same information in different formats; the prices for rental cars at Enterprise Holdings from May 6 12 PM - May 9 12 PM

As you can see the price I paid varied heavily on what brand I decided to use. Before going further into the analysis, I find it important to recognize some things I observed. If you notice each brand had the same exact classes(Economy, Compact, Midsize, Standard) and cars(Mitsubishi Mirage, Nissan Versa, Toyota Corolla, Volkswagen Jetta) representing each class. This further cemented my stance that there are not many tangible distinctions between major rental car companies, especially brands under a single parent company. Going further than that, I have never seen branding on a rental car for any of these companies. Have you seen any Avis, Budget, National, Enterprise, Hertz, etc on a rental car letting you know this car is exclusive to that brand? Upon thinking about this deeper, it makes sense for a multitude of reasons not to brand your vehicle fleet. Obviously, a sticker or another emblem of a brand may cause the brand to not be able to garner maximum resell potential when they decide to offload cars in their fleet. However, in my eyes, a stronger reason to avoid branding cars is that if you have multiple brands operating at a location you can interchange cars between brands without worry. Looking at the website and pairing it with my rental car experience, there is nothing different between an Alamo Economy class car and an Enterprise Economy class car, similarly, there is nothing different between an Enterprise Economy class car and a National Economy class car. If I had someone wanting to rent a Standard class car from Alamo but there were no more, if I have “surplus” Standard class cars at Enterprise or National, I can just move the car to the Alamo space or just tell the customer that their car is parked in an Enterprise or National space. On that same notion, if I had a National customer and an Alamo customer vying for the last car of a particular class, I could give the National customer the car, even if it was “parked” on the Alamo side because there is no difference between an Alamo and National car of the same class. In choosing to rent to the National customer, this decision would net $100 more dollars in revenue using the prices from my experiment. Thus I conclude, economics is the key factor in cars forgoing branding.

On a similar note, I wanted to see how far economics could potentially drive the decision-making of these companies. I felt there was a chance this could potentially explain their desires to have multiple “brands” under their portfolio, even though each “brand” did not offer a product that was tangibly different than the others.

I decided to run a math experiment to see what the findings would uncover. Since these companies are not much different than each other, I decided to consolidate them into one company. I call that company EH and its’ prices are just the averages of the three brands that were merged to create it. This gives us a glimpse of how much the parent could have charged me for my trip in ATL if there was one brand.

Now for the fun part(If you do not like math this will not be fun). Let’s assume I have 200 total customers. I will distribute 100 customers to EH and I will distribute the other 100 customers to be split amongst Alamo, Enterprise, and National. I will give 30 customers to Alamo, 30 to Enterprise, and 40 to National. We will now determine the total revenue these customers will generate for each brand. I will combine the revenues of Alamo, Enterprise, and National so we can evenly compare the revenues against EH, the consolidated brand.

Table that lists the total revenue by class

As we can see from the results, the Alamo, Enterprise, and National combination generated more total revenue than the consolidated brand, EH. This is important because it provides us with sound reasoning on why a company would decide to have multiple brands instead of one consolidated brand. It also helps validate the theory that companies are trying their best to market these companies as unique brands and do not want it to be common knowledge that each brand is being operated by the same parent. According to the Enterprise Holdings website, I deduce that National primarily serves the business traveler, Alamo primarily serves vacationers, and Enterprise is the jack-of-all-trades. However, once again, what distinct services and products are these “unique” brands offering to their “unique” markets they intend to serve?

With the mathematical backing of our experiment, I want to explain what I believe these parent companies are doing. They are falsely segmenting their consumers by who they can and cannot overcharge. You see we are now in the “big data” age where we have so much data at our fingertips and companies are using this data to generate new insights. While it is probably most fair to just have one company that charges a uniform price, from a business perspective, that is a terrible idea. If the price is more than what a consumer is willing to pay, they will fish out a better deal at a competitor, causing you to lose out on revenue. Similarly, if a consumer is willing to pay more than your price, you are losing out on revenue. What if a company was able to figure out exactly how much it could charge certain segments of the population? What if it could use this data to create and tailor brands to market towards these consumers that they used data to artificially segment? This is a basic primer for why data collection, exploration, and analysis are an integral part of society today. These large companies can also then buy out small competitors with a niche market, or just create their own brand to compete directly with them. Ultimately, this allows for the parent company to continue to increase its market share, total revenue, and profit.

Lastly, let’s say you had a bad experience with Enterprise and vowed to never rent from them again. You go on a vacation and rent a car from Alamo, a brand under Enterprise Holdings, therefore you are still patronizing the company you are supposed to be boycotting. This is another reason why having multiple brands offering the same services comes in handy because you can still retain a percentage of customers who are boycotting a brand in your portfolio as long as the fact that these brands being operated by the same parent does not become common knowledge.

All in all, I conclude there is a vested interest for major rental car companies to have multiple brands offering the same services to maximize profitability. The rental car industry is not the only industry heavily consolidated and it certainly is not the only one artificially segmenting consumers. The truth is most industries are heavily consolidated and follow similar practices. I say all of this to say, you do not have as much choice as you believe you have, in your everyday life you are likely buying from a few major corporations in each different industry, do not let labels fool you. This lack of choice has large consequences outside the scope of this article but I encourage you to do your own research and formulate your own opinion.

I will leave you to do this exercise discussed in Monopolized for those who are skeptical.

Go to your local grocery store and go to a random aisle and check the back of every product in succession. For each group of products, count how many different corporations are actually producing those products, I can guarantee it will be less than a handful of corporations. For those who do not want to randomly choose, go investigate the labels of peanut butter or jelly brands, or look at toothpaste brands.

Monopolized is a great introduction to monopolies across various industries and very insightful for those looking to learn more about how concentrated our industries have gotten and the consequences that occur from this concentration.