Chapter 66 - Exceeding Customer Expectations: What Enterprise, America's #1 car rental company, can teach you about creating lifetime customers
Today’s Chapter is based on the book “Exceeding Customer Expectations: What Enterprise, America's #1 car rental company, can teach you about creating lifetime customers” by Kirk Kazanjian.
Here’s what I have learned from the book:
Unique Proposition
“Just as in an ecosystem, people who narrowly specialize can get terribly good at occupying some little niche. Just as animals flourish in niches, similarly, people who specialize in the business world—and get very good because they specialize—frequently find good economics that they wouldn’t get any other way.”
— Charlie Munger
It is often said that uncommon success comes with uncommon approaches to businesses. In order to compete in a crowded field, it is primordial to find one’s niche and to offer a product or service that is genuinely unique. With a unique proposition, a company can gain a significant competitive advantage against its competitors.
This importance of finding one’s niche can be seen in the story of how Isadore Sharp built Four Seasons. He was able to create one of the largest hotel chain in history despite competing with various existing giants in the industry such as Holiday Inn and Marriott by specializing. As such, he decided to fully focus on midsize hotels of exceptional quality to offer a differentiated product compared to the rest of the industry.
“Holiday Inn had created an empire on U.S. highways, first through standardized rooms, then by becoming “the host with the most,” the first to offer free cribs, dog kennels, soft drinks, and ice machines. Marriott had found a profitable niche in suburban complexes, between the new roadside motels and the older downtown hotels. I believed we could do as well, maybe better. All we had to do was stand out from the clutter, be distinctive.”
— Isadore Sharp
Similarly, Jack Taylor, the founder of Enterprise, succeeded by differentiating from other car rental companies. Taylor was constantly looking for opportunities to differentiate his company’s services compared to his competitors. This was especially important considering the car rental businesses was seen as a commodity-driven business.
As a matter of fact, first, while other car rental companies were usually located near the airport, Taylor decided to open his stores in the city. This decision to operate within the city offered multiple advantages: “It reduced competition, because almost every other rental car company was located at the airport, targeting business travelers. It made the cost of entry and doing business cheaper, since operating expenses were much lower in town. The home-city market also allowed the company to stress its primary differentiator—customer service. That's especially crucial when dealing with those who have been in an accident, as is true of many of the company's insurance referral renters.”
Second, Enterprise promoted the idea of offering professional customer services rather than solely being a car rental company. Jack Taylor and Enterprise was the first to reach out to insurance companies to offer their car rental services to customers who needed to rent a car after going through a car accident. But more importantly, Enterprise was providing solutions and ways for insurance companies to reduce costs associated with the rental process. As Andy Taylor, Jack’s son, and executive chairman of Enterprise, once said, "We offer a sophisticated value proposition to our customers in what is otherwise a commodity-driven business.”
Furthermore, Enterprise insisted their employees to present themselves in a professional appearance like bankers. While other car rental businesses were more lenient with attire, Enterprise’s employees were expected to wear suits. As Jack Taylor explains, "The bottom line is that people act the way they look. Nice dress gives you a much higher degree of authority and commands the respect of your customers.”
Third, Enterprise was unique in the way it obtained and managed its rental fleet. While competitors were leasing cars from automakers, the company was buying its cars. In the long run, due to the size of Enterprise’s annual car buy, this allowed the company to gain a significant cost advantage.
Finally, Jack Taylor believes that what differentiate Enterprise from its competitors is its culture. He mentions that the company’s philosophy of “Take care of your customers and employees, and the profits will follow.” is the reason for Enterprise’s success. As a matter of fact, Taylor is consistently always asking himself if the company is treating their employees well and if customers are happy, because he knew that these questions must be answered properly in order to build a sustainable business over the next fifty years and beyond.
This reminds me of how Paul Orfalea used corporate culture as a way to differentiate himself from the competition in the retail copy centers business with low to no barriers to entry. Ofalea understood that, if he wanted to beat his competitors, he would have to make Kinko’s a great place to work; he would have to create an incredible corporate culture and make it a competitive advantage. This starts by setting the right incentives in place. In fact, Orfalea mentions that it is a lot easier to manage the work environment than the people in a store. He once said that “when people are properly motivated, they will essentially manage themselves.”
First, he started calling his employees as coworkers to remind himself that he didn’t want to “use” people, but to work with “empowered entrepreneurs”. To instill this sense of entrepreneurship among Kinko’s workers, the company gave a share of the profits of the store to everyone — partners, managers, and even workers behind the counter.
Orfalea mentions that initially, Kinko’s “gave each manager 25 percent of his or her store's profits. Later, we expanded the system of profit sharing when we started giving each manager 15 percent of the store's profits and earmarking the remaining 10 percent to be split among that store's coworkers.”
“At Kinko's, we were building a family together at the same time we were building a business.”
— Paul Orfalea
Second, Orfalea mentions that “people want to know they are contributing to society.” As such, other than monetary incentives, Kinko’s had to give a sense of mission to keep their workers both happy and motivated.
To do so, Orfalea set a flat organization at Kinko’s. Without having any hierarchy, every single member of the company were treated equally in the company and were part of the decision process. In fact, Orfalea mentions that the head office’s main purpose is to serve the stores. He implemented the “80/20” policy where managers were encouraged to spend 80 percent of their time on the floor of the stores with coworkers and only 20 percent of their time in their offices.
As such, Kinko’s empowered coworkers behind the counter to become autonomous thinkers. They would not be required to ask for permission for implementing new ideas for taking care of customers. As Paul Orfalea once said, “our original store was a hothouse of experimentation.”
“As we grew, we designed a structure for our company that would be as democratic as the services we were providing. For me, this was the true brilliance of the Kinko's we created.”
— Paul Orfalea
Take Care of Your Customer
“There is only one boss—the customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else.”
— Sam Walton
As we have seen above, taking care of customers is part of Enterprise’s corporate culture and a big reason for their success. In fact, for Jack Taylor, having “satisfied” customers isn’t enough, you need to exceed their expectations. This is because customers who are completely satisfied are 70 percent more likely to become repeat customers.
Why are repeat business so valuable? The reason is simple; studies shows that it costs 5x or 6x more to gain a new customer compared to keeping a current one. Over the years, Enterprise’s management team believe that there are six reasons why people stop doing business:
1 percent die
3 percent move away
5 percent develop other relationships
9 percent leave for competitive reasons
14 percent are dissatisfied with the product
68 percent go elsewhere because of the poor way they were treated by employees of the company
Similarly, according to a survey done by Enterprise, 70 percent of those in the “completely satisfied” category were willing to use Enterprise again the next time they need to rent a car. However, only 22 percent of “satisfied” customers mentioned they would come back.
“Repeat customers are the quickest way to build a solid business.”
— Jack Taylor
It is fair to say that this philosophy of Enterprise of exceeding customers’ expectations in order to gain repeat customers is largely a differentiation between the company and their competitors. While others may be concerned about getting renters in and out of cars as soon as possible in order to increase their bottom line, Enterprise are much more committed in making sure customers have a good experience and will come back.
As Andy Taylor once said, "We derive our success from careful adherence to a common sense approach: We treat our customers well, we give our employees respect and opportunities to grow, and we know that if we stick to these two rules, profits and growth will naturally follow."
This concept of sacrificing the bottom line in order to exceed customers’ expectations reminds me of the story of how Bernie Marcus and Arthur Blank built The Home Depot with their “cultivating the customer” policy. As a matter of fact, right from the start, Bernie Marcus and Arthur Blank understood the importance of customer services as a retail store. They define “cultivating the customer” as taking care of the customer today to make sure that they will remember The Home Depot and become repeat customers for their next home DIY project.
This is also the reason why the company’s main customer services’ philosophy is “Whatever it takes”. Bernie Marcus and Arthur Blank explains that they would need to do whatever it takes to satisfy their customers’ needs even if it meant they needed to go far out of their way to do so. This is especially true when they were first staring The Home Depot and were struggling to survive.
For example, in the early days, when a customer walked out of the store because the company was not carrying an item, they would ask the client for their name and address and would promise to deliver them the product as soon as possible. They would then purchase it at another store and personally deliver it to the customer’s home. That’s how they often expanded their merchandise section.
“First I would run back inside and order it so we'd have it in the future. Then I would personally go buy whatever it was at West Building Supplies, Handy City, or a wholesale house and personally deliver it to the customer's home, carefully removing the other store's price sticker and charging the customer a lower price than I paid out of pocket.”
— Bernie Marcus & Arthur Blank
Another way of cultivating the customer was by offering a return policy that allowed customers to bring back a product no matter what. The purpose was to improve customers’ trust toward the company and to encourage them to engage in new projects.
Think Like A Customer
“Never write an advertisement which you wouldn’t want your family to read. You wouldn’t tell lies to your own wife. Don’t tell them to mine.”
— David Ogilvy
Considering the fact that exceeding customers’ expectations is a philosophy of business at Enterprise, it is important according to Jack Taylor to think like a customer. As a matter of fact, the best ways to understand what customers need is by putting yourself in their shoes.
Therefore, Enterprise is known for teaching their employees to use their sense of observation in order to learn what needs to be improved on throughout the company. For example, employees, of all levels, are required to constantly look around the office in order to find some improvements, such as how many times the phone rings before being picked up, the expressions on the faces of customers and other teammates to see whether they are smiling or showing signs of frustration, etc.
Furthermore, Jack Taylor believes that listening is also extremely important in order to uncover new business opportunities. In fact, that’s how they first got into the car rental business to begin with: customers were asking for replacement vehicles while their cars were getting reparations at the shop.
Andy Taylor explains that “listening to his leasing customers convinced Jack [Taylor] there was a huge, untapped market for daily and weekly rentals. More recently, paying close attention to what our customers said led us to the airport market, corporate rentals, and other promising markets like truck rentals.”
"Listening is the only thing that can help us preserve our high standards of personal service and success. I challenge every manager to make sure that the ideas of his or her employees are heard and valued.”
— Andy Taylor
As such, it is fair to say that Enterprise’s customer services has been created through a deliberate process through continuous commitment, training and monitoring from their employees. As Andy Taylor once said, "When you think about it, we're actually not in the car rental business at all. We're in the customer satisfaction business. And that's a trait we have in common with every successful service company, large or small."
This concept of using one’s sense of observation in order to seek business opportunities reminds me of what we have learned from Lui Che-woo. As Lui once famously said, “We need to understand what people and the society need, and then we find ways to meet their needs.”
Lui Che-woo first started his business career at the early age of 13. He quickly understood a basic principle of running businesses: “focus on observation and seek opportunities from the real environment.” As a matter of fact, he started selling snacks due to a simple rationale after a long period of observation and deep thought: “the food business is a lifelong endeavour. No matter how difficult life gets, people still need to feed themselves.”
Despite his young age, he had a competitive advantage compared to his competitors: he had a keen observation of society and life. This allowed the young Lui to find the perfect location to reach his customers and to resell peanuts; “The fact that he decided to peddle peanuts was based on what he had observed. There were many people trying to return to their homes in Mainland China now that the war had come to Hong Kong. The queue to apply for travel documents would invariably be long. Lui knew that the people waiting in line would want to snack on something, such as peanuts. So demand gave birth to his business.”
Furthermore, when he was running his snack business, Lui enjoyed walking back and forth through Shanghai Street where shop owners sold grains and groceries on the street. Lui’s purpose was to study how shop and stall owners ran their businesses and to learn about their success formula through deep observation.
Later in life, Lui also worked as a stock keeper in a car-parts shop. While for most people the job of a stock keeper was simple and boring, he took it as an opportunity to use his keen observation skills to learn about the business. While others were finishing their work and leaving on time, Lui would stay at the shop to “familiarized himself with the products that were in high demand, and learnt about those which nobody wanted. He understood the underlying reasons from observing and chatting with others.”
From reading Lui’s story, it is fair to say that his keen observation skills were one of the key principles to his success as a businessman as it provided him with the ability to identify opportunities and to learn from others’ success in order to innovate his own businesses. The other two qualities for success mentioned by Lui are perseverance and fighting spirit. As he once said, “If you think you can do it, then you should persist and never give up. Although you may encounter setbacks, you won’t collapse.”
Take Care of Employees
“Four Seasons is the sum of its people—many, many good people.”
— Isadore Sharp
As we have mentioned, taking care of their employees is one of the two main tenets behind Enterprise’s business philosophy. The importance of taking care of their employees is quite evident when you consider that they are the frontline of Enterprise that faces the customers on a daily basis. For this reason, Enterprise spends a lot of of time and money to carefully choose their employees, to train them properly and to empower them.
As a matter of fact, Enterprise’s employees have always been given the tools and necessary support in order for them to succeed. Considering that the company has a “work your way up” and “promote from within” policy, it makes even more sense for them to hire smartly and to allow their employees to grow as individuals and as managers. It is often said within the company that a manager can’t succeed at Enterprise unless he or she makes others successful.
And, furthermore, to make sure to maintain his employees’ happiness, Jack Taylor has found two ways to do this:
Feeling of Ownership among employees
Allow employees to make decisions and to take risks
As we have seen previously from others successful entrepreneurs, such as Paul Orfalea at Kinko’s and Bernie Marcus at Home Depot, giving employees a sense of ownership is an incredible incentive for them to think like owners and to perform better at their tasks. Similarly, when Jack Taylor established Enterprise, he gave his employees share in the company’s success. As he once said, "If I give someone a piece of the action or a bonus based on profits, they are going to do a better job every time."
"I want our employees to think of the Enterprise brand name as being something they own and have a responsibility to grow, strengthen, and protect. Our brand is our reputation. We need to protect it and make sure people know who we are and what we stand for."
— Andy Taylor
Furthermore, Enterprise’s ownership structure allowed employees the complete freedom to make their own decisions and to try new things. While this may lead to some mistakes, employees are constantly encouraged to try things out even at the risk of failure. As Andy Taylor would explain, "You just don't want to make anyone accountable by telling them their jobs are on the line for taking these risks. If you do that, they'll never try anything new. Taking risk is part and parcel of being successful."
This concept of encouraging employees to take risks reminds me of how Peter Kiewit managed Kiewit. As we have learned previously, it is very easy for large corporations to become complacent, especially when faced with a long period of success. In the case of Peter Kiewit, in order to avoid getting fat, lazy and complacent, he made sure to always take calculated risks. As he once said, “There is no progress without risk. You can’t hope to develop your maximum potential without taking some risks.”
By consistently asking his employees to complete projects at the lowest cost possible, Kiewit was always pushing them to seek innovation and continual improvement in order to respect the projected budget. One of Kiewit’s famous aphorism in the company was that he was always “pleased, but not satisfied” which became a company’s motto.
“Just as a rock is not shaken by a strong or sudden gust of wind, neither should we be affected by praise or success. We must not be satisfied with our past accomplishments, and we should make every effort possible to improve and expand our operations-but only in an orderly and beneficial manner. I believe that a company cannot stand still for long—either it goes ahead or slides back.”
— Peter Kiewit
Even if encouraging taking risks may lead employees to commit more mistakes, this did not bother Kiewit as learning from mistakes can also be considered an improvement. As Scott Jr., an executive from Kiewit, once said, “As a company, we’re tolerant. We're quite tolerant of mistakes, and we're very tolerant of people who make mistakes. Just don't go out and make the same ones all the time.”