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Case Study: Zipcar
ʻCar Sharingʼ Introduction
Car sharing is rapidly growing in the United States as a way of reducing the high cost of buying, insuring, garaging and maintaining a car with the added benefits of meeting urban growth needs. Itʼs a service that provides members with access to a fleet of vehicles on an hourly basis. Members reserve a car online or by phone, walk to the nearest parking space, open the doors with an electronic key card and drive off.
Members are billed by the hour or by a combination of an hourly rate plus mileage. Car sharing can substitute for car ownership, especially for those who can commute to work and shopping by taking transit, walking or bicycling. At the workplace, it provides access to a vehicle for business use and personal errands during the day, allowing employees to avoid driving to work — which in turn reduces traffic congestion.
Car sharing has become so popular that auto giants Hertz, Enterprise, U-Haul and Daimler have jumped into the business alongside other successful nonprofit car sharing organizations in several major cities. Some predictions place care sharing as a $1 billion industry in 10 years, with a market estimated at 2 million Americans looking for an alternative to the high costs and hassles of owning a car.
Company Introduction
Zipcar is generally credited for having proven that there was demand for car-sharing, and even for having brought the sharing economy as we know it today to the broader public.
Until earlier this year when Avis purchased Zipcar in a $500 million deal, Zipcar was the world’s leading car sharing network with more than 750,000 members and more than 11,000 vehicles in urban areas and college campuses throughout the United States, Canada and the United Kingdom.
Zipcarʼs mission was to “enable simple and responsible urban living”. As a division of Avis, the company continues to do this by offering members affordable 24-hour access to private vehicles for short-term round-trip use, as an efficient means of complementing the public transportation network. Unlike rental cars that come with lots of extra charges, car sharing is all-inclusive. Zipcarʼs rates start at $8 per hour and include gas, parking, insurance and maintenance.
Zipcar launched its first 10 locations in Boston in 2000. Since 2004, Zipcar has experienced 100-percent-plus growth annually in its membership base. In a difficult economy, car sharing rose quickly. It took 2 years to get the first 1,000 Zipcar members. Today it takes a few days.
Company Strengths
Zipcar adopted a customer-centric vision from the start. This led to bold investment decisions in technology, a member-driven user experience and a strong consumer brand.
Zipcar quickly invested in the technology to support high quality customer service and the companyʼs values of convenience, selection, service, and value. The online reservations, the mash-up technology that allows member to select their car based on availability in their neighborhood, the electronic keycard for secure access – all these enable a seamless user experience, as do the database management software and customer billing system that track membersʼ usage, rates and billing statements.
Through early consumer research, Zipcar identified the need for conveniently located clusters of cars in easily accessible garages dispersed around the city – and moved beyond using large central hubs. The company also adapted quickly to the demand for higher-end cars when the average member age started rising – and kept off the big green Zipcar logo typically displayed on the car door for this more upscale clientele. And the company added four wheel-drives and pickup trucks when it recognized the need for them.
Finally, the Zipcar brand was distinctive from other car-sharing organizations – synonymous with fun, honesty, clever innovation, and social good. It fit well a company that delivers a modern, convenient, environmentally friendly driver experience. The Zipcar brand spirit is conveyed through the unique member submitted names for each of the 9,000 vehicles in the fleet.
Key Partnerships
In order to deliver on its mission, Zipcar aggressively worked in tandem with other transportation and infrastructure providers. The company partners across the “value chain” with bike clubs, ridesharing organizations, government agencies, parking facilities, transit authorities and more. In particular, Zipcar has courted cities, businesses and college campuses to dedicate parking spots for its fleet of cars.
For example, Jim Sebastian, transportation planner for the District of Columbia Department of Transportation, says that the District wanted to promote car sharing so much, that it granted 86 valuable on-street spaces for free to Zipcar and Flexcar in 2005. The District also provided large orange poles to identify the reserved spaces and prepared car sharing brochures. And car sharing grew so much in the following years — Zipcar merged with Flexcar and has hundreds of private spaces for cars in D.C. — that now the District is looking at charging a fee for the on-street spaces.
Another example of a strong partnership would be the agreement with Ford in 2010 to introduce up to 1000 fuel-efficient vehicles floating the Zipcar logo on more than 250 university campuses throughout the U.S. The 2-year alliance established Ford as the largest automotive source in Zipcarʼs University program and included offering incentives to join and use car sharing on campus to help accelerate the use of Zipcar and introduce a new generation of drivers to Ford fuel-efficient vehicles.
The Road Ahead – first Public, now Private
On June 1, 2010, Zipcar filed with the SEC to raise up to $75 million in an initial public offering. The company debuted on the NASDAQ on April 14, 2011 after raising $174 million in its IPO, more than expected. Introduced at $18 per share, the stock climbed above $29 a share within days, but the price soon started falling—a trend that continued until the purchase by Avis, which worked out to be at $12.25 per share.
While Zipcar proved the demand for car-sharing, they never became a reliably profitable business. The main culprit was huge fleet costs – cars, maintenance, insurance, and parking. Acquiring customers profitably was also a challenge.
Questions
1) Summarize the Zipcar business model using the Who, What, How framework. You may want to use the Business Model canvas tool.
2)Analyze the external forces in 2000 when Zipcar was launched. Compare these to the external forces prevalent in 2013. You may want to use Porterʼs Five Forces Model.
3) Was the situation more or less favorable to Zipcar and why? You could use two EFE Matrices, one grounded in 2000, the other in 2013.
-4)Based on your analysis above, what are some of the strategic challenges that the Zipcar division of Avis will face in the near future?
(Note: Zipcar and Avis are working through a lot of internal challenges tied to the integration of two very different companies and cultures, as well as the pressure of realizing operational synergies, but this assignment focuses strictly on external assessments, so no need to go into any detail on internal challenges).
