Zipcar is a company based on the business model of car sharing whose main goal is to provide consistent and suitable access to on demand vehicle. The company was co-founded by Robin Chase and Antje Danielson and appeared in the US market in 2000. Danielson came up with a new idea of starting a company based on car sharing and believed that it would be successful in the urban areas of United States. Today Zipcar whose headquarter is in Boston, is one the biggest car sharing network having more than a million members across 500 cities in 9 countries.
The business of car sharing had already proven to be successful across Europe during late 1980’s and 1990’s but it was still in infancy level in the United States. Chase and Danielson saw the potential of this business model growing in the United States market. This concept definitely provided a substitute to public transportation. In addition the concept of car sharing is very useful for the public in over populated cities with inadequate parking space and limited public transportation. Zipcar was a large business opportunity that turned into a successful business venture. The opportunity had already turned into growing business in western European countries. Even without the extensive marketing the growth rate was 30 percent and same could be done under United States where the population above 21 years was more than 65 million.
The cost of owning a car in big cities of United States is very high. Many people opt for car sharing rather than spending huge amount of money to maintain the car. The customers of Zipcar had no tension of maintaining, refueling and servicing the car. Therefore this type of business model is scalable and sustainable economically in the American market. As profit per customer raises and the preservation rate remains stable, any business that runs within the system allows Zipcar to be in a secure and profitable zone.
The attempt of Zipcar was to emulate the ongoing trend of the world of sharing the resources. Zipcar had rightly made adjustments to tap into the North American market to be more successful and sustainable in the future. In conclusion, Zipcar guarantees a well developed business structure maintained by many users and transaction. Zipcar has very high preservation rate which shows that the quality of service provided is very good and has committed to customer relationship. According to the case Zipcar is a business opportunity which is in close connection with the changes in the current world. The company still has the opportunity to be profitable through mutual consumption, sharing and social production to make the world a better place.
The first business model presented by Chase and Danielson was based on the assumption that the potential users would be required to become members and pay a $25 nonrefundable application fee, a $300 fully refundable security deposit and a $300 annual subscription fee. Moreover, members would be charged for driving time at $1.50 per hour and $ 0.40 per mile. However after many rounds of discussions it was discovered that many potential customers found $300 annual fee very high, so Chase decided to lower the annual fee to $75 per year and increased the hourly charge from $1.50 per hour to between $4.50 and $7.00 per hour. According to the data Zipcar had projected to charge $0.40 per mile but as per its data they could only charge $0.14 per mile which shows us that it is less by $0.26 per mile.
Zipcar’s projected annual return on investment (before tax) was 19.77% but according the actual data it was not able to meet its projected revenue and other costs. Most of the assumptions made by Chase turned out to be inaccurate so she was enforced to reorganize her business model. After reorganizing her business model the data showed much improvement and by mid October of 2000, the number of members enlisted had increased to 250 from 14 members in June 2000. Restructuring the business model helped Zipcar to improve in all fields in short period of time.
The business models adopted by Chase for Zipcar are as following:
According the business model adopted by Zipcar, it concentrated on four main segments in urban areas and they are: residents who do not own cars, residents who own cars, college and university students and business and government agencies. The first customer segment that Zipcar targeted was the residents who do not own cars and had to depend on public transportation. These residents could reach the desired destination through car sharing when the scheduled route of the public transportation was may not be nearby the desired destination. The second segment targeted on residents who owned cars but had to face high cost of expense for maintain the owned cars. The third segment focused on university students who are above 21 years and had to travel long distance to reach the college. The last segment targeted the business and government agencies that had to provide their employees with transportation service in the urban areas.
Chase’s business model offer it’s convincing “wheels when you want them” value proposition. Zipcar offers car sharing service and offers on demand vehicle and provides timesaving service in the urban areas and to its customers. The cost of owning a car in urban areas is very high so Zipcar provides its customer with the value of on demand vehicle at their service when they need them.
Zipcar uses various channels that are necessary to attain and keep hold of the customers and communicate value proposition precisely. During the early stages Chase and Danielson expected that 30 to 40 percent of their marketing impact would be driven by word of mouth, another 25 percent by free media coverage and the rest through grass root marketing efforts. Zipcar used websites for reservations where members could choose the type of vehicle and period they wanted them.
After restructuring the business model, Chase and Danielson were able to see various improvements in their data. During the early stages they had only 14 members but by mid October of 2000 the number had increased to almost 250. Customer relationship is one of the important factors to Zipcar’s success. Zipcar provided various facilities to its members such as to not worrying about the parking space in over populated cities to retain its customers.
Meeting the customer expectation has direct connection to the revenue of the company. At the beginning the business model was based on $300 annual fee to its members. But many potential customers found that very high so the business model had to be restructured and the annual fee was decreased to $75. These changes showed huge improvements in the revenue of Zipcar through customer satisfaction.
Key resources are the resources by which the Zipcar business model works and cars the understandable first resources needed to improve the business. At the beginning Chase believed that 12 cars were enough to operate the business. But later due to increase in customer demand she had to increase the number of cars to 19. Chase believed that these resources had to be widely distributed to the targeted areas for more success
Sales and marketing are the key activities of the business model developed by Chase for the company to be successful. Chase created a logo of Zipcar specifying that it should convey simplicity, cleanliness, a professional look with a hint of “green.” This logo was used on the website, stationery, promotional materials and on the cars themselves. She was consistent in her efforts to present the same image in all her marketing materials. The first Zipcar was a green Volkswagen Beetle chosen to convey the green image the company had chosen.
Zipcar was able to create many relationships and partnerships with several manufactures, lifestyle brands, retailers and parking authorities. After its success Zipcar had to buy more cars and they were able to buy cars from various companies at discounted prices. Zipcar also partnered with various lifestyle brands for marketing purpose. The cost of parking space was very high in urban areas. Zipcar created relationships with various parking authorities to lower the cost of parking space for the cars of the Zipcar.
The cost structure of Zipcar defines all the cost sustained by the business model of the company. Vehicle costs are directly associated with fleet operation costs such as lease expense, depreciation, parking, fuel, insurance, gain or loss on disposal of vehicles, accidents, repairs and maintenance as well as employee-related costs. CITATION htt l 1033 (http://dspace.unive.it/bitstream/handle/10579/2037/816968-1163873.pdf?sequence=2).
Zipcar is one of those startup that helps to solve the problem of people on demand use of the private car conveniently located and easily accessible. It can be understood more clearly by analyzing the gain and pain factors along with gain creator and pain relievers below:
Save time travelling from one place to another
Economical cost (less than car rental)
Drive on demand
As the public transportation in over populated cities is very limited zipcar helps to consume time for travelling from on place to another
Cost of car sharing is less than that of car rental. Car rentals provide on demand vehicle on daily basis rate whereas car sharing provides on demand vehicle on hourly basis as well.
Zipcar covers gas, insurance, parking and maintenance over car ownership. The member does not have to worry about maintain the car which is very high in the urban areas
Zipcar can be booked on hourly or daily basis anytime anywhere 24/7. The members don’t have to wait for a long time for the car to arrive. You can just book and get the car.
Zipcar offers its members a choice of vehicle. Members can choose the vehicle type that best suits their needs for a particular trip.
Hard to find a car during rush hour
Higher risk of accident, technical failure or breakdown
Less flexible than owing a car
Short term solutions
It can be hard to find a car during the rush hour as Zipcar is located only in certain areas of the city. Sometimes you have to walk farther than you planned which can be difficult during cold and rainy seasons.
There is higher risk of a car getting into a accident, technical failure or breakdown than that of a public transportation. Traffic congestion can also be a problem when sharing a car.
A car owner has the freedom to go where you want to go and when you want to go. But with car sharing you will have to go and pick up the car and drop it off in the same location otherwise there will be a fine.
Car sharing is more of a short term solution rather than a long term one. Car sharing can be a problem when one requires the car to be driven on a long term basis.
Yes, there are definite gaps in the segment of gain and gain creator and pain and pain reliever that has to be taken into account by this business model. As stated above one can save time to reach the desired destination as public transportation is limited in the urban areas. But the traffic congestion in the urban areas is very high. Sometimes the desired destination cannot be reached on time because of the jams and high traffic congestion. The model should minimize the gap and ensure that the desired destination to be reached on time by taking alternative routes and advising the members about the traffic congestion in various parts of the city.
The cost of owning a car is very high is urban areas and the consumer can save money by choosing the option of car sharing rather than owning a car. However, some customers who opt for car sharing may not feel the sense of ownership. They can ride the car carelessly and misuse the service provided by the car sharing company. The model must ensure that there are effective measures taken to fill these gaps by making people aware of these things.
As stated the car sharing companies offers its members of vehicle choice. This can help the customer to plan particular trip and the type of car required for the trip. However, the members may not get the particular vehicle during the rush hour and may have to cancel the trip because of the unavailability of certain vehicle. The model must ensure to minimize the gap by keeping a spare car and make them available when demanded by the members.
The gap between pain and pain reliever can be minimized with the help of this model. As we know that there is a higher risk of accident while driving a car than that of riding a public transportation. This gap can be minimized by educating the customers about the traffic rules and regulations. They can even provide with first aid kits in each and every car. With the availability of this model, the Zipcar can minimize the gaps and help the company to grow and provide customer satisfaction.
The strongest argument that the entrepreneur could make to potential investors about the attractiveness of the venture is by making the business model new and improved according so that it can easily succeed in the competitive market without having any kinds of obstacles. Chase should also focus more on increasing of the variable costs but decreasing in the market needs. Due to which the investor could see their investment in two separate categories that is purchasing more cars, parking spots and the cost related to overheads. This helps to create profit for the potential investor by showing the expenditures the investment would provide and the improvement made in these area. Technology plays the important role which helps to develop the process of the business with ease. So, with the help of Check-ins and checkouts can now be quickly accomplished without the need of a representative through the networked tracking system. So it will also be the competitive advantages for Zipcar.
The company is growing rapidly in Boston, which proof the concept of indicating this business model which can successfully run in other cities across the U.S. market by capturing largely on untapped market. So to increase the untapped market of Zipcar are focusing on the on demand car sharing program that makes vehicles easily available to the customer in an hour or by the day, which provides the convenience of car ownership without any kinds of hassles and expense of owning a car. This service will cater to those people living in urban, dense cities whose want to rent a car for a full day for short trips. Moreover this business attracts environment conscious as it is an eco-friendly business and ease of use. This venture can also offer outstanding profits to investors due to its nature of consumer pricing ease and cheap marketing methods.
BIBLIOGRAPHY (n.d.). Retrieved from http://dspace.unive.it/bitstream/handle/10579/2037/816968-1163873.pdf?sequence=2.