Furniture Rentals Customer Segments: Who is renting it? And are they profitable customers?

Online Furniture Market in IndiaOnce you own something, disowning it is not as easy as it sounds. I have an old laptop, water filter, bookshelf and an old air-conditioner which I don’t use willingly but I still own them. So, why don’t I sell them out – because selling out isn’t easy! You just won’t throw out your old fashioned (but in good condition) appliances or furniture just like that because you look for an inherent value out of the sale and it is difficult to get value in the second sales market. So, one usually ends up just using that old furniture or appliance until it becomes totally obsolete. However, the important thing to note here is that the owner has a desire and intention to get rid of it and get something new. Furniture or appliance rental services such as Rentomojo make it easy for individuals to keep up to date with the latest trends and yet not have the hassles of owning and disowning products. Let’s call these individuals as rental customers by choice as they like to keep up with the trend and they genuinely prefer to use rentals over ownership as a lifestyle choice.

In my point of view, rental customers come in two skins: rental customer by choice and rental customer by force.

  • Rental customers by choice are uptrend lifestyle customers who truly want different furniture periodically (say a year’s time) and who truly believe that owning, disowning and buying new furniture is a difficult way of living and opt for rentals as a lifestyle choice. These customers are not tied for money – these customers can buy expensive furniture paid in full, however, they don’t do so because they don’t believe in ownership.
  • Rental customers by force are customers who rent furniture because they lack the cash to buy the product in full or have a limited time in a city or are uncertain about their permanency in the city; they are not renting because of a  lifestyle choice; they are renting because it is an efficient option within the circumstances of limited budget, impermanence or uncertainty.

Rental Customer by Choice

The rental customer by choice will not have any post purchase dissonance after a few months of rental because rentals are his genuine way of life. However, rental customers by choice segment is a subset of lifestyle customers who want good looking furniture. So, for rental commerce companies the rental customer by choice is the most important customer segment, however, it is still a small segment in its size. Rental commerce companies should majorly focus category building activities targeting this segment.

Rental Customer by Force:

  • When you are uncertain about your permanency in the city – Type A
  • When you are sure that you will only use it for less than a year – Type B
  • When you are not willing to spend a bulk amount on furniture or when you are in a cash crunch and yet want to have good furniture in your house (you are a customer who is in a cash crunch) – Type C
  • When you don’t care to do the math of rent vs. buy and just look at your life one month at a time – Type C (same as previous)

The problem with a  rental customer by force is that this customer will have a post-purchase dissonance after 8-9 months when they realize that they paid the entire cost of the product and they actually don’t own the product. Additionally, they actually have to pay rentals to continue using the furniture. It is at this stage that these customers feel that it is principally wrong of the rental company to not let ownership when he or she has practically paid for the value of the product. This feeling of immorality and injustice causes people to default on future payments and return the product. Refer this link to actually see a live example of this situation. To cater to these customers’ dissonance, rental commerce companies should provide a rent-to-buy option or an option to have credits that can be used to buy other furniture, credits that accumulate with increasing number of monthly rentals paid. Of course, the company can say that it is well known to the customer that there is no rent-to-buy option when the customer is renting the product itself. However, a rental customer by force never knows very clearly how he or she is going to feel about the furniture after paying certain monthly payouts. This causes dissonance in the customer because the customer was not driven by choice in the first place and, therefore, it is only justifiable for the rental by force customer to ask for an option to own the product. Type A and B customers specifically might look for options to own the product after a certain a period of rentals. The option-to-own the product should be available to customers at any point of time of rental, removing the post-rental dissonance in the customers and providing that extra convenience to convert the same furniture from rental to own.

How are these customers different in terms of what they want?

RentalCustomerSegments_Brandalyzerdotblog

Service levels and great designs are important for rental customers by choice, whereas affordable pricing is the most important attribute for rental customers by force. Balancing these customer attributes through right selection, product design and pricing is crucial to the success of rental commerce.

Rental companies should check the proportion of these customer segments for profitability

Rental companies should look at the proportion of these customer segments for profitable unit economics. On the outset, rental customer by force seems to be a large segment of customers for most rental commerce companies. If a large proportion of these customers are those who are type A & B, then it is good for rental commerce companies as this is a healthy and profitable customer segment. But, if a large proportion of these customers are those who are of type C customers then there will be frequent cancellations of rentals, leading to several operational cost inefficiencies.

Furniture rental is a business with several operational complexities such as costs of delivery and pickup of big boxes, damages while delivering and picking up, damages during the rental period, large working capital requirement and high lead time to delivery from manufacturers (leading to high inventory position). While the margin in furniture retail is a healthy 20-25%, online commerce is still to crack it in a profitable manner at scale due to high customer acquisition costs and operational costs. On this backdrop, it is not easy for rental companies to chalk out profitable unit economics if the majority of their customers are from Type C.

Rental commerce companies might be going into a danger zone of acquiring non-profitable customers in the run for higher revenues and valuations. This high adrenaline run to acquire customers can work for e-commerce sale companies such as Amazon and Flipkart – the type of customer doesn’t affect these companies’ finance directly as the entire value of the product is recovered on sale (even on EMIs). Contrarily for a rental company, the customer is not paying the entire product cost and therefore managing product returns is threateningly crucial for rental commerce.

Top 9 online furniture rental portals in India shows the various top portals to rent furniture in India. Indian online furniture rental market is in a huge rage with several startups mushrooming across metros and each of them is in a huge customer acquisition spree. Only time will be the proof of what will happen in this market!

Thank you.

 

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