Entrepreneurship

Assignment 04: Critique Zipcar

SUBMITTED BY:
M. Umar Ashraf
REG # 2013-IM-23

SUBMITTED TO:
Prof. Dr. M. Pervez Mughal

Department of Industrial and Manufacturing Engineering

University of Engineering and Technology, Lahore

Zipcar Case study

Summary
Zipcar is a car sharing service that Cambridge, Massachusetts, residents Robin Chase and Antje
Danielson launched in 2000. Scott Griffith, a former Boeing engineer, now leads the firm. Although
Zipcar didnt pioneer the idea of car sharingit first emerged in Europeit is the largest car sharing
company, and is changing the way people think about car ownership in urban areas. Zipcar is a
membership-based system. It charges a onetime application fee of $25 and an annual membership fee of
$50. Zipcar cars have permanent parking spots in convenient locations in urban areas. It costs about $9 an
hour or $65 per day to rent a car. The cost includes the car, gas, and insurance. The car must be returned
to its original parking space. The member simply leaves the keys in the car, locks it with the Zipcard, and
walks away. Zipcars goal is to take the concept of car ownership and turn it into a service. As a result, it
doesnt see its competition as car rental companies, like Avis or Hertz; rather, it sees its major competition
as car owners. Zipcar envisions itself as ideally positioned to take advantage of environmental trends.
Zipcar (along with other car sharing programs) can save urban residents 70 percent of their total transit
costs, because they only pay for the hours they use the vehicle, with no responsibility for gas, insurance,
maintenance, or parking. Zipcar members reduce CO2 emissions by more than 500,000 tons a year as a
result of fewer miles driven. There are upscale neighborhoods opening in the inner-city in places like
Miami, St. Louis, and Atlanta, where young professionals are deciding to locate and start families rather
than moving to the suburbs. This demographic is an ideal target market for Zipcar. A particularly
interesting aspect of Zipcars business model is how it changes its members behaviors. The reason people
drive less when they use a car sharing service rather than owning a car is that when they pay for a car an
hour at a time, they tend to group their trips more efficiently to save money. In addition, they tend to think
of alternatives to driving that they might not have thought of otherwise. In 2004, it launched a program
called Zipcar for Business, to allow businesses to use the firms service in the same way individuals do.
Since 2004, its signed up 10,000 small, medium, and large companies. The program works nicely for
both Zipcar and the businesses. Rates are cut for Monday to Friday driving, when businesses use vehicles
the most, which helps businesses control/reduce their costs. More than 225 universities and colleges are
now partnering with Zipcar and providing parking spaces on their campuses. In 2009, Zipcar launched a
service called FastFleet, to help cities use the cars they own more efficiently. Rather than having different
departments maintain their own car pools, cities can now maintain a single fleet of vehicles, strategically
located throughout the city, and have city employees reserve them and use them in the same manner that
Zipcar members reserve and use cars. Zipcar is still growing rapidly relying on organic growth as well as
mergers and acquisitions to do so. In 2007, it merged with Flexcar, its primary domestic competitor. In
2009, it acquired a minority interest in Avancar, the largest car sharing company in Spain. In April 2010, it
acquired Streetcar, a London-based car sharing club. Zipcar is still growing rapidly relying on organic
growth as well as mergers and acquisitions to do so. In 2007, it merged with Flexcar, its primary domestic
competitor. In 2009, it acquired a minority interest in Avancar, the largest car sharing company in Spain.
In April 2010, it acquired Streetcar, a London-based car sharing club. Zipcar feels that it has just
scratched the surface of its markets and the possibilities its business model presents.

Question no 1
How does Zipcars business model motivate its customers and its partners (such as the cities,
businesses and universities it partners with) to participate with its business?

Zipcar (along with other car sharing programs) can save urban residents 70 percent of their total
transit costs, because they only pay for the hours they use the vehicle, with no responsibility for
gas, insurance, maintenance, or parking.
They motivate their customer by giving free and permanent parking spot in university and college
campuses, so for young professional and student this is a good way to not spend their money on
parking spot.
The price is something motivating for the customer. They can avoid purchasing a car but they
have the same service in fact they can get wherever they want without paying an insurance, gas
etc.
In 2004 Zipcar launched a program call Zipcar for Business to allow businesses to use the firms
service in the same way individual do.
The Zipcars services permit to use with more efficiency the car (we take a car by hour or by day)
and so they indirectly reduce the traffic so this can be a motivation factor for customer to use
Zipcar
The service motivates directly partner and customer because its simple to use.

On a scale of 1 to 5 (5 is high), how motivated do you think each group is to do business with Zipcar
and help it succeed?
By SWOT analysis of Zipcar they seem to be a good magnet for investors although some threats also
exist but in my opinion many groups will be willing to do business with Zipcar. Scale 4 is the assigned
scale. Here is the SWOT analysis
STRENGTHS
Rent by the Hour
Low Price
Insurance /Maintenance/ Gas Included
Convenient checkout process
WEAKNESSES
Low Availability of Cars
Application fees
Limited Vehicle Selection
OPPORTUNITIES
A large amount of potential customers who know of the Zipcar service but have not yet tried it.
Promotional activities that could let potential customers try and test Zipcar
THREATS

Competitors with more resources may adopt our car sharing model
Consumers use of alternative forms of transportation (bike, bus, etc.)

Question no 2

At the beginning of this chapter, the statement is made that at its simplest level, a business model is
a story of how a company operates. Do you think Zipcar has a good story to tell?
I think that Zipcar has a good story to tell because they make some innovation in car sharing service.
This new idea to rent car and not to pay completely a car, permit Zipcar to lead an innovation in the
market.
Zipcar is a membership-based system. It charges a onetime application fee of $25 and an annual
membership fee of $50. Zipcar cars have permanent parking spots in convenient locations in urban areas.
Each member is given a membership card (called the Zip card) that gets them into the cars. Reservations
can be made from minutes before a car is needed up to a year in advance. Once a reservation is made, the
member simply approaches the car, opens it with the Zip card, and drives it away. It costs about $9 an
hour or $65 per day to rent a car. The cost includes the car, gas, and insurance. The car must be returned
to its original parking space. The member simply leaves the keys in the car, locks it with the Zip card, and
walks away. As of December 2010, Zipcar offered a fleet of over 8,000 vehicles in urban areas throughout
28 North American states and Canadian providences, as well as London
When it goes to a city, a business, or a university to pitch its idea, do you think its easy or hard for
Zipcars employees to clearly explain what it does and what the benefits of its service are?
Zipcars goal is to take the concept of car ownership and turn it into a service. The two biggest complaints
that people who live in urban areas have, are
(1) The high cost of living and
(2) Traffic and congestion.
Zipcar sees itself as at least a partial solution for both problems
The potential benefits are:
No charge for gas
No charge for insurance
Convenience of using an app to unlock the car which speeds you on your way
Up to 180 miles per day included
Potential convenience of having a ZipCar vehicle available close to where you want to pick up
Green benefits
Less cars on the road means less congestion, less pollution and less dependence on oil
Fewer cars, way fewer
Driving smarter
More green space.

Question no 3

Look at Figure 6.3 in the chapter. Explain Zipcars business model in each of the four areas
Zipcar is a leading car-sharing company. The company is based in Cambridge, Massachusetts. Founded in
2000, it was one of the car-sharing industrys early entrants. The company was acquired by Avis Budget
Group in 2013 in a ~$500 million cash deal. Lets take a look at Zipcars business and operations.

Zipcars operations
Currently, Zipcar provides mobile-application-based on-demand mobility services in eight countries.
These countries include the United States, Canada, the United Kingdom, Spain, Austria, France,
Germany, and Turkey. According to the companys website, it operates in over 30 major metro markets,
at over 500 college campuses, and at over 50 airports.
Zipcar membership
To use Zipcar services, customers need to purchase its monthly or annual membership plan. After the
purchase, customers receive a membership card that allows members to access Zipcar vehicles. As an
alternative, customers can also use the Zipcar mobile application to get access to the vehicles, which are
typically parked in spaces throughout cities.
The company also takes care of major vehicle-related expenses including gas, insurance, maintenance,
and parking. Customers can choose to pay on an hourly or daily basis, depending on their need. Currently,
the company charges $70 per year or $7 per month for a membership, excluding $8.25 per hour for each
trip.

Types of vehicles offered

Zipcar is able to expand its presence in key markets due to the variety of vehicles it offers. Currently, the
company offers over 50 different makes and models. These vehicles include hybrids, SUVs (sport utility
vehicles), pickup trucks, luxury vehicles, minivans, and cargo vans.
Is there anything in Zipcars business model that makes what it is doing hard to replicate? Explain
your answer to this final question.
Zipcars goal is to take the concept of car ownership and turn it into a service. As a result, it doesnt see
its competition as car rental companies, like Avis or Hertz; rather, it sees its major competition as car
owners.
Zipcar finds a niche in market by solving two major problems of society.
The two biggest complaints that people who live in urban areas have are
(1) the high cost of living and
(2) traffic and congestion.
Zipcar sees itself as at least a partial solution for both problems. Niche in the market and solution to the
two major problems of society are first identified by Zipcar and they surely advantage of it. Now it is the
hallmark of Zipcar and no one can replicate it.

Question no 4
Do you think Zipcar is growing too rapidly? In what ways can rapid growth jeopardize the
strengths of Zipcars business model?
ZipCar is by far the worlds largest car-sharing company. It has 760,000 membersup from just 50,000
half a dozen years agoand leads what some expect to be a $10 billion market, down the road. The
business model has been heralded as a game changer, potentially disrupting car sales and traditional car
rentals alike.
Growth is definitely a good thing. It can be exciting, and its a measure of validation for our ideas and all
of the hard work. And of course, in general its a good thing for businesses to be growing, because they
then hire more people and fuel the economy.
The issue comes when your growth gets in the way of running your business correctly. Its hard to run any
company, but there are specific challenges that are especially hard about running a fast-growth company.
Zipcar may face these hazards.
Misunderstanding whats going on financially.
When your business is smaller, you probably have a pretty good command of your numbers. Youre able
to watch your cash and know quickly how expenses are stacking up to sales. But once you get to a certain

sales range, above $5 million or so, its very hard to keep track of your financials in your head. Same is in
the case of Zipcar
Thinking that sales growth trumps everything
Most entrepreneurs just figure that if you increase your top line, everything else will take care of itself.
Unfortunately, more sales does not always equate to more profit. So thats another reason to look at your
financial data beyond just the revenue line on your income statement and make decisions based on the
trends across several metrics.
Hiring the wrong people
Once a company is really growing quickly, the quality of the people you hire becomes a big issue. You
want to hire the right people. The culture of a company is very important. You have these certain culture
points that made you successful, and as you grow quickly; you want to keep some those intact to the best
of your ability. In order to do that, its very important that you hire the right people. As Zipcar is also
growing very fast, they may also face the same problem.
Losing touch with the customer
When youre growing quickly, its really important to make sure your customers are happy. When sales
are up, its easier to get sloppy with products and services. The core elements of what makes a company
successful usually are customers and products, so, even in times of growth, customer service has to be
front of mind.

Application Questions
Question no 1
What are the main challenges that you feel Zipcar will face in both the immediate and the longterm future?

As the concept of car-sharing becomes more popular, Zipcar now faces more formidable
competition from car rental giants like Enterprise and Hertz, which have recently joined the
hourly car rental business in a big way
While Zipcars previous growth benefited from little to no competition, the landscape is quickly
turning hostile for the young company that has yet to post profits.
These new players are aggressively trying to sway car share users in their favor through flexible
membership terms, one-way rentals and other benefits, and have played a major role in the
negative sentiment impacting Zipcars stock
Another challenge for Zipcar is the variable cost of gasoline. Because of the short rental periods,
it is not practical to have customers refuel the car, and the flat hourly rate is appropriate and
convenient.

Question no 2
In San Francisco, Zipcar competes with City Car Share, another car sharing service. Compare City
Car Share and Zipcars business models. Use information you find about each firm to determine
the ways these companies are similar and the ways in which they are different. Are there any areas
in which you feel City Car Shares business model is superior to Zipcars?
To compare each company we have to present them briefly
Zipcar
Zipcar is a membership-based system. It charges a onetime application fee of $25 and an annual
membership fee of $50. Zipcar cars have permanent parking spots in convenient locations in urban areas.
Each member is given a membership card (called the Zip card) that gets them into the cars. Reservations
can be made from minutes before a car is needed up to a year in advance. Zipcar is an entirely self-service
business. As much as it loves it members, it tries to talk to them as infrequently as possible. None of its
locations are manned. Cars are available 24 hours a day, seven days a week. As a result, it doesnt see its
competition as car rental companies, like Avis or Hertz; rather, it sees its major competition as car owners.
City Car share
The organization began with a fleet of 12 lime green Volkswagen Beetles and 850 members. The original
pricing was a $300 deposit with a $10 monthly fee, in addition to fees of $2.50 per hour and 45 cents per
mile (28 /km) driven. City Car Share expanded to include locations in Oakland, Berkeley, and Palo
Alto in 2002. In 2004 City car share began providing vehicles to the city of Berkeley, in order to help the
city reduce emissions.
Comparison
Zip car

City Car Share

It has Fleet of 10,000 vehicles hybrids,

luxury, SUVs, pickup trucks, cargo vans
Gas and insurance included

Wide variety of vehicles compacts,

hybrids, luxury, SUVs, cargo vans
Gas and insurance included

Mobile apps feature map view, GPS

location, and directions to easily find your
rental

Mobile apps arent quite as functional as

Zipcar

They customize systems for businesses and

government agencies

Main focus is the young professionals.

Fixed fair per hour i.e. $9/hour

Airport and college campus locations

Excellent customer service

A number of customer complaints about

cars not being there at reservation time and cars
being dirty

Monthly member fee

Frequent drivers have a no-member-fee

option

Required to return the car where you

picked it up

Required to return car where you picked it

Rates vary by time of day and day of week

you rent the car, unlike other services that have
set rates
Good number of airport locations

up