How does United Rentals target national accounts?

When United Rentals announced Operation United as its strategy nearly two years ago, the emphasis was - and remains - squarely on differentiation through excellent customer service. In this exclusive interview with Lucy Peterson, CEO Michael Kneeland explains why the strategy also includes a focus on national and strategic accounts as the key to long-term growth.

A National Accounts base of nearly 1200 customers - almost 20% brought on board in the midst of a recession. These numbers speak volumes about the competitive strength of United Rentals, says CEO Michael Kneeland, who oversees the strategy that led to the signing of 233 large accounts last year.

"We know for a fact that Operation United is moving us in the right direction through customer service," Mr Kneeland says. "The bedrock of that strategy hasn't changed, but now we are implementing it with more precision through customer segmentation - focusing on customers that best fit our vision for growth. These tend to be national companies in the non-residential construction and industrial sectors, and large regional accounts."

United Rentals reported that national accounts revenue was 24% of total revenues in 2009, up from the prior year on a percentage basis. But even more on point, "We know that we increased our share of wallet with our top 25 customers in 2009," Mr Kneeland says. "That tells us that even if rental demand declines again in 2010, we are building the right kind of customer base for long-term profitability."

United Rentals defines a national account as having an equipment rental wallet of at least $250000 annually and a presence in multiple markets. Strategic accounts have similar size criteria but may be a single large location. National account managers and strategic account managers are assigned to customers with a projected spend of $100000 or more, and are charged with being the single point of contact for at least 60% of the customer's revenue.

"From rates, to fleet, to customer mix, we are looking at our business very differently than in the past," says Mr Kneeland. "Customer segmentation is a transformative strategy for us. We want to use our leadership position to our competitive advantage. That includes developing a defensible base of customers who value our geographic reach and depth of fleet."

United Rentals has been carefully pruning its branch network to retain geographic coverage as efficiently as possible. Currently at 568 branches and 7800 employees, the company covers the United States and Canada with general rental, aerial and trench safety operations, supplemented by specialty locations for power and HVAC rentals. Its most recent fleet estimate is $3.7 billion of original equipment cost.

While committed to an industry-leading position, "It's not entirely about physical size," explains Mr Kneeland. "It's about optimization, and about being in a position to provide your target customers with the availability and responsiveness they need. We talk about it with employees in terms of being where we play, and how we win."

To arrive at the right conclusions, United Rentals embarked on an intense analytical process that concluded in late 2009. Among other things, it showed that in 2008, less than 1% of customers generated a double-digit percentage of revenues. The more local and transactional the business became, the less efficient it became in terms of the top line and the bottom line.

"Our research has clearly shown that large customers can be a very good fit for us if we service them properly," Mr Kneeland says. "On average, large customers rent equipment for longer periods of time. They return equipment with less damage, and they pay in a more timely fashion. They also see our branch footprint as an advantage. And they have a comfort level with our fleet and talent."

In addition to United Rentals' field operations, a centralized Customer Care Center operates around the clock in Florida and is widely used by large accounts. In 2009, the Center handled more than 368000 calls and wrote about 30000 reservations. The process gives branches a chance to focus on customer service during fulfillment.

Ultimately, the months of analysis served to confirm a strategy designed to effect a ground-up transformation. "We drilled into branch performance to look at ROCA [Return on Capital Assets], at EBITDA margin, at all of the financial metrics that are benchmarks for profitable long-term growth. And we found very significant, measurable differences between different revenue compositions. Our findings reinforced the importance we were already placing on national and industrial business."

At the same time, Mr Kneeland emphasises that the company is working to optimise its transactional business. "Smaller customers represent the potential to become larger customers with us over time. But beyond that, Operation United demands our best efforts in servicing customers of all sizes."

Every United Rentals branch now uses a Customer Focus Scorecard that measures 19 metrics associated with five critical dimensions of service: on-time delivery, off-rent pickup time, service response time, equipment availability, and the resolution of billing disputes. The metrics evolved through the strategic process, which took customer input into account.

"We know exactly what customers value most when it comes to service," Mr Kneeland says. "For example, we measure ‘service response time' as starting with the service call and ending when the machine is up and running again. That's what the customer cares about. If our metric only measured the time it takes to dispatch a service tech, we'd be missing the point from our customers' perspective."

And with local business accounting for about half of the company's revenue, "we are committed to serving these customers very, very well. Our Scorecard analytics give us the ability to drill down through the company, region, district and branch levels to see how we are performing for individual customers. Not just key accounts - any account."

That kind of insight is integral to United Rentals' ability to perform for both its customers and its stockholders, says Mr Kneeland. While declining to discuss specific contracts, he cites a major Canadian rail project, a Texas energy plant construction and an Arizona public service contract among his company's recent large-scale wins with national accounts.

"Segmentation is far more than a sales strategy for us - it extends to fleet mix and fleet management, a consistent customer experience, competitive pricing, branch optimisation, and value creation for our stockholders. For example, earthmoving will become a relatively more important component of our fleet over time to address the changes in our customer base.

"Large customers are fundamentally different from the rest of the market, just as United Rentals is different from the rest of equipment rental industry," Mr Kneeland says. "We understand each other's goals. This is a very exciting strategy to move forward with, because it is based on relationships that are mutually beneficial and reflect the value of what we offer."

The author: Lucy Peterson is president and owner of Balboni Associates, Inc. and its press distribution division, IndustryWire. The company is a longstanding US supplier of market communication and consultancy services to rental and related industries. lpeterson@balboniassociates.com

Aggregation
of opportunity

While United Rentals relates its customer segmentation to scale, certain market forces also support the strategy - and they are not limited to North America, writes Lucy Peterson.

UK tool hire chain HSS has targeted its sales force with a goal of 30% turnover from national customers, decreasing reliance on regional players. The move "anticipates that certain types of customers will become fewer and larger through consolidation," says HSS chief executive Chris Davies, who points to building contractors as one likely sector.

Stateside, the end of the downturn could open the door to consolidation in any number of industries, causing reverberations up and down the equipment supply chain. Oil and gas company mergers are beginning to show signs of life; energy
consolidation is on the radar; and the upheaval in the pulp and paper industry never fully subsided in the recession - to name just a few.

Merger and acquisition activity in the US construction industry has been marching along for three decades and may see renewed foreign interest as the cycle turns. Although M&A trends tend to initiate with larger firms and work their way down to midmarket, the result is the same as if the industry was defragmented: revenue opportunities become more and more aggregated with large companies.

And that can give large, focused suppliers an edge.