male and female technician with patient and diagnostic equipment
tv studio with cameras and lights production
three male construction workers on site looking at plans
farm tractor in field blowing hay

"Customer retention is often overlooked as a business strategy for success.
For the New York equipment rental operator, it can be his ace in the hole."

Industry Outlook

The equipment rental industry is expected to grow in the next five years. New York state’s market is forecast to experience double the national growth rate. It is a thriving industry that includes construction, agricultural, medical, audiovisual and entertainment equipment. Moreover, with interest rate increases the benefits of acquiring equipment with new technologies without the long-term commitment, offers flexibility.

According to IBISworld’s Industry Report (“Industry Report”), nonresidential private construction and New York’s vibrant healthcare sector, will fuel the state’s equipment rental industry. Consequently, with increasing growth on the horizon New York State equipment rental operators will be faced with more competition with each year.[1]

State of the Equipment Rental Market

Interestingly, the average equipment rental operator in New York has less than less than 10 employees. More than 300 businesses in New York identified as equipment rental operators. New York’s equipment rental market has varied products compared to the national industry. The lower demand for heavy construction equipment, coupled with demand from the entertainment and audiovisual sectors, translate into more affordable startup costs for new competitors to enter the industry.  In addition, low market share per operator results in price competition and tighter profit margins.[2]  Given the state’s highly competitive landscape, New York equipment operators must think creatively to stay competitive.

Business Strategy: Customer Retention

A focus on customer retention can give an operator an edge over the competition. According to Frederick Reichheld, a well know business strategy consultant, “a 5% increase in customer retention can increase the value of an average customer by 25-100%.”[3]  Reichheld posits an example of two competitors in the same industry who acquire new customers at the same rate, 10% per year. However, Company A’s customer retention rate is 95% and Company B only has a 90% customer retention rate. Reichheld concludes, that at the end of the year, Company A will net a 5% growth rate and Company B will experience no growth. The explanation, as illustrated in the figure below, is that the 10% of new customers is off-set by the loss of existing customers in the same time period. In other words, since Company A retains 95% of its existing customer and only losses 5%, half are off-set by the loss rate and the other half reflect its true growth.

Customer retention graph showing two companies with different rate of growth

Unique to the equipment rental market, are the recurring revenues from loyal customers. Unlike other businesses that sell products, the life line of the equipment rental operator is the receipt of monthly rental payments from customers under contract. In light of these factors, operators must ensure receivables in fact become recurring revenues. Existing customers that fall into default must promptly be identified. These accounts should be prioritized and handled by a someone who is adept at problem-solving negotiation.

Problem-Solving Negotiation

Problem-solving negotiation is starkly different than what comes to mind as traditional negotiation. We are all familiar with the image of the savvy negotiator who is able to persuade (pressure) the other side to yield to his or her position. In contrast, the process of problem-solving negotiation is not a contest between the negotiators. It is a collaborative process designed to satisfy the priorities of both parties at the table. It involves asking probing questions to identify the other side’s interests and needs. This information equips the problem-solver to engage the other side in brainstorming solutions that could address each party’s priorities.

Thereafter, the parties jointly generate criteria by which to evaluate the options proposed. Problem-solving negotiation requires the investment of both sides to engage in the process and the parties’ commitment to reach a resolution. In this manner, the parties reach an agreement that benefits both of them in the long-term but makes neither of them the “clear winner”. Quietly simply, problem-solving negotiation is designed to expand the realm of possible solutions rather than limiting the outcome to “all or nothing.”

Customer Retention and Problem-Solving Negotiation

Assigning a skilled staff member or outsourcing doubtful accounts to a professional, allows an equipment rental operator to recapture receivables, he might otherwise write-off.  Moreover, assuming an agreement is reached, the operator benefits from retaining that customer and account, thereby increasing his customer retention rate. The problem-solving process is defined by collaboration. As such, it leads to positive brand perceptions and builds the customer loyalty every equipment rental operator desires. A customer who is personally acknowledged and given the opportunity to continue the relationship, will likely become an advocate for the operator’s brand.

In today’s age of impersonal interactions and digital relationships, a human voice reaching out to a customer with empathy, is uniquely captivating. In New York state’s highly competitive equipment rental market, a customer retention process can be an effective business strategy.  It can remedy the account default, up-start the generation of revenues, and build customer loyalty.

Customer retention is often overlooked as a business strategy for success.
For the New York equipment rental operator, it can be his ace in the hole.

[1] IBISWORLD Industry Report, US53249 Industrial Equipment Rental and Leasing in the US, August 2018; and  IBISWORLD Industry Report, NY53249 Industrial Equipment Rental & Leasing in New York 2017
Frederick F. Reichheld, The Loyalty Effect, 1996 Bain & Company, Inc., p. 33


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