Focus on providing solutions to customer needs beyond the equipment rental.
Telling equipment rental companies to get out of the rental business may appear to be a brash statement, but on careful review, the idea is really very sound.
However, the statement isn't about telling rental companies to stop renting equipment. It's about getting them to focus on a more important goal: delivering the best possible solutions to the renters, not just thinking in terms of renting a piece of equipment.
You may have heard the comment that when someone buys a drill, he is really buying a hole. For years many contractors rented core-boring equipment but found it was a very costly and inefficient way to drill a hole in concrete as inexperienced workers tore up the expensive bits because they didn't know what they were doing. In contrast, today most contractors hire a specialist to core drill their holes because they have learned it is more cost effective.
If you want to compete on something other than low price, you need a superior strategy, one where you outthink your competition instead of attempting to outmuscle it in the midst of a destructive price war. To achieve this, rental companies must think of their businesses in broader terms than the lowest common denominator, namely the renting of equipment. Railroads declined in the 20th century because railroad executives thought they were in the railroad business. When the railroads accepted the fact they were in the transportation business, the resurgence began. Equipment rental companies must think of themselves as providing a service of lifting, moving and digging things. Just like the person buying a drill is buying a hole, your customers are buying a ditch or something moved. The question for the rental vendor is, “What is the best way for us to help the client achieve its goal?”
Peter Drucker wrote that there are two skills that every company needs: marketing and innovation. When he mentioned marketing, he was referring not to the company's brochure or its advertising campaign, but its marketing research effort. To profitably compete in today's hypercompetitive marketplace, the rental company must better understand its prospects' true problems and needs. Once this is understood, the rental company can apply innovation to the client's problem and create a solution that maximizes the value for the renter. This allows the rental company to compete based on value instead of price.
In essence, the rental company needs to position itself in the mind of its clients and prospects as a consultant on issues that require equipment. In that role, the vendor provides clients with the best solution from the client's perspective, even if it is not in the vendor's best interest. For example, if the best solution for the client is to purchase a piece of equipment instead of renting it, the rental company should make that recommendation, even if it doesn't sell that piece of equipment. Of course, short-term thinking may argue that suggesting a prospect buy a piece of equipment from someone else instead of renting from you is not a good idea. However, what you are doing is establishing trust and credibility. The result is the clients will come to you first with all their equipment issues because they trust you.
The rental company must convert prospects from potential customers to clients. Customers create transactional interactions that are price driven, but clients are built on a more substantial relationship based on trust and value. My favorite definition of client is “someone under the protection of.” If you think that definition is a little crazy, consider the following. How long would you keep your doctor if you didn't think he was protecting you? How long would keep your lawyer, your CPA or your financial planner if they weren't protecting you? So why should the equipment renter keep you if you aren't protecting him?
What does this mean in practical terms for the rental company? In today's marketplace, you can no longer merely get outside the box. You need to throw away the box. You must constantly ask, “What is the best way we can serve or protect our clients?” The answer may be renting just a piece of equipment, renting a piece of equipment with an operator, working with an owner-operator to send him out to the location or selling a piece of equipment.
In other words, as a rental company, you must place the client first because that is the way to maximize the value potential to the client. The greater the value to the client, the easier it is to increase your profit margins. However, if you are merely copying exactly what everyone else is doing, you will find yourself competing on price regardless of the amount of value you deliver. Eliminate the “we can't do that because no one else is doing that” argument. That's exactly the reason you should be doing it.
Increasing either or both the scope and flexibility of the services you provide will make you more valuable to your client. For example, someone needs a ditch dug. They don't have any operators. You could simply rent them the equipment, which could result in an inexperienced operator's using it. This exposes your piece of equipment to damage and additional cost for the renter because an inexperienced operator will take longer to perform the necessary work. This would increase both the rental cost and labor costs. In contrast, consider these alternatives: (1) you rent the equipment and arrange for a qualified operator to be hired by the renter or (2) you rent the equipment to a qualified operator and he works directly with the renter, providing the equipment and operator. By knowing your clients better than the competition, you will be better able to tailor your services to their exact situation.
My point here is not to tell you how to run your business. It is to stimulate your thinking on how, based on the needs of your clients, you can provide additional services that expand the service of merely renting a piece of equipment, which as a standalone service is highly competitive.
Of course, I'm not suggesting you just jump off the cliff blindfolded. There are a lot of services and benefits clients would like that they aren't willing to pay for. These services are difficult to furnish unless they cost virtually nothing or they allow you to sell other services they place a high value on. Each situation is unique; therefore, you must address each prospect from that perspective. Your job is to seek opportunities where you can apply your expertise and make a profit. Of course, some services might be more difficult than others, but the question is this: Will that service allow you to differentiate your company from the competition and make a sufficient profit for the trouble and risk? In contrast, rental companies that attempt to run their businesses for their own convenience will find that they are forced to compete solely on price and their profit margins will continue to be squeezed.
Ted Garrison is a construction industry expert who writes, speaks and consults on the future of the construction industry. He is also the host of the Internet radio program New Construction Strategies. He can be reached at Ted@TedGarrison.com.