ZipCar Case Analysis
Pranav AlwaniHeena Chauhan
Aldongar NurpissovShaunak Parkhi
Zipcar – Redefining the Business Model
Zipcar is a car-sharing company whose mission is to make it as easy for city residents to get behind the wheel of a car as it is to get a cup of coffee. This was a new concept in the U.S., which meant that there was plenty of opportunity and growth potential serving this new market niche, the urban, car-less residents in the U.S. Members could get a car without the hassle having to pay for insurance, buy gas, or try to find parking.
Idea Tested idea in the European markets. First Mover advantage in US.
Market Huge market, especially in urban areas, easily replicable. Target customers with limited driving requirements.
Competition Low current competition. Can be imitated easily, especially by larger car rental companies like Hertz, Enterprise etc.
Speed Speed of venture launch is key as the idea is growing and threat of new entrants in high.
The initial business model focused on a large annual fee, $300, and a nominal fee based on the usage of the car at a per mile/hourly basis. Additional market research and discussions with potential customers led to the annual fee being dropped to $75, but the charge per hour and mile was increased to allow costs for cars to be covered, resulting in a higher acceptance rate since the new model catered to low income residents as well.
September’s Operational Data for Zipcar seems to be a bit concerning (fixed cost) when we begin comparing the forecasted and actual numbers.
The actual overhead costs (Boston and Corporate office) are almost 3 times higher than the forecasted overhead costs which will have a significant impact on the profitability of the company.
Total number of actual trips per customer is 1.3, much lower than the forecasted number of trips (4 trips) as per the business plan.
Number of hours driven per trip is more than the forecasted hours – a positive sign. Since that is a variable charge to customer, increased hourly usage will lead to increased earnings.
For Daily trips, the number of miles travelled and hourly usage (94 miles and 16 hours) is much less than the forecasted (125 miles and 24 hours), which allows for significant cost savings.
Based on the September data, Chase should focus on reducing the overhead costs incurred at the Boston and Corporate Offices.
Chase also needs to focus on ways to increase the number of trips a customer makes. Chase could be to offer discounts for customers making a certain number of trips per month.
Another aspect that Chase should focus on is the variable costs, such as leasing per vehicle and parking costs. These costs were constantly increasing as the Company got bigger and therefore required immediate attention.
With over 100 applications only in the month of September (in contrast to 400 forecasted for the whole year) that too with low marketing costs of only $1,500 per month, it is evident that the customer acceptance rate is much higher than expected. With increasing customer base, hourly usage and number of cars rented out for daily use (all positive signs for the company), Investment needs to be focused primarily on increasing the number of cars to fulfil the customer’s needs. Chase should use the success of the revamped business model and the results of actual operations as selling point to potential investors. Data on lower marketing costs per customer would also be useful in helping to ease investor mindset of marketing difficulties within urban communities.