The Value of Dominating Underserved Markets

If you want to win a quick bet, ask your friends which car rental company is the biggest in North America. If they say Hertz or Avis, you can smile and shake your head—and pocket your winnings. Then titillate them further and say that this company is the most profitable car rental company too. It’s Enterprise. What’s the secret? Well, first, a genuine institutional commitment to customer service--which yields an exceptional customer loyalty. (As rated by independent players like J.D. Powers and Market Matrix, Enterprise consistently receives the highest customer satisfaction scores in the industry). But the real competitive whammy is that the company’s commitment to service, and its extraordinary growth, has been wrapped around a unique business model. Rather than competing directly against huge powerhouses like Hertz or Avis in airports and hotels, Enterprise grew by building, and dominating, a previously underserved market—in this case the “home city” market. In hindsight, it seems brilliantly obvious how often we need a car in our own town or city—like when our car needs mechanical repair, or is in an accident (or stolen), or when out-of-town relatives come stay in our home and need a car for just a couple days in the middle of their holiday, or when an out-of-town business associate quickly needs a car for a few hours in the middle of the day in order to get to a couple appointments. At that point, a nearby Enterprise office (strategically located, there’s a branch office within 15 miles of 90% of the U.S. population) will send someone to pick you up, provide you with a genuinely positive concierge service, and then after you’re done with the car, drop you off. Enterprise still dominates this lucrative market, and what’s more, the growth of the brand’s customer loyalty became so profound that Enterprise was able to expand cautiously, but profitably, into the big competitors’ airport territory. I thought about Enterprise when I received a note from Bernard Rapoport describing his gala 90th birthday party in Washington D.C. earlier this year. I’ve written about “B” in a couple of my books. Remarkable fellow. Still very active in a variety of ventures, even after retiring ten years ago from the CEO position in the company he started over fifty years ago: American Income Life Insurance. American Income is a billion dollar insurance company has been rated by A.M. Best, one of the country's oldest and most respected insurance ratings company, as A+ (Superior) for overall Financial Strength. But I’ll bet you’ve never heard of American Income. That’s because it doesn’t compete directly against the high-profile behemoth insurance powerhouses across all markets. (Initially, it did, and got creamed before switching direction). The company’s successes are due to the fact that it focuses on providing specialized products and unique services for what used to be an underserved market: lower income working families, labor unions, credit unions, and some professional associations. “Labor” is American Income’s core market, and I remember when I first met “B”, he told me that every employee at American Income is a card-carrying union member—including himself! During his birthday speech, here’s how Bernard Rapoport described the origin of the American Income business model in the early 1950’s: “When I was in New York in the early days, the company wasn’t doing well; it wasn’t growing. I looked up at the skyline and saw all the skyscrapers that belonged to the large companies like Metropolitan Life, Prudential Life, Equitable life, etc. I shook myself and said, 'I can’t compete with those companies. They’re too big! What I’m going to do is I’m going to give the big companies 235 million Americans and I’m going to take 15 million Americans for American Income.' I went to the labor leaders and told them that we were going to be the union company. Everyone in our company would be a union member and from that point on we were exceedingly successful.” What’s the lesson that Enterprise and American Income have learned? Great customer service is a great idea, but its market and financial impacts are logarithmically expanded when that great service is applied to virgin nascent market spaces that you can ultimately dominate. So instead of rabidly competing with everyone else in the same arena for scraps of market share the way hungry dogs fight for a lone piece of meat, always look for those untapped, underserved, potentially lucrative markets—and then commit to doing whatever it takes to grow them, and “own” them.