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KATHMANDU UNIVERSITY SCHOOL OF MANAGEMENT

Zipcar: Refining the


Business Model
CASE ANALYSIS
SUBMITTED BY: Group-8
Anjali Shrestha
Mohammed Istiyak
RushkaSthapit
Jay Prakash Upadhaya

SUBMITTED TO: RUPESH KRISHNA SHRESTHA

Synopsis
Zipcar is a startup-business model organized around the idea of sharing car usage by
membership organization. The case describe several iteration of Zipcar business
model and financial plan. Zipcar faces many strategic decision ahead as they begin to
expand their business. The case provoke the reader to analyze the underlying
economics and business model of the company and assess its shortcoming and validity
as the business actually rolled out.
Case Facts
Zipcar is a car sharing company started by Robin Chase and Danielson. The idea was
conceived in late 1999 and by June 2000 the company has already started running. The cars
would provide solution for people who did not need cars 24/7 but wanted the convenience of
a private car occasionally.
There are around 200 similar companies worldwide that act as potential competitors to
Zipcar. But the industry is growing at the pace of 30% annually and the market in the US is
large and virtually untouched with only five to six companies running in the same model.
Zipcar provides a service in which customers could reserve specific cars at specific locations
from the company website or over telephone services. Chase found out 14 cities in which
Zipcar business model could be replicate, and she decided to start with Boston.
In January 2000, Chase raised $50,000 from an angel investor. By June 2000, she was out
capital and therefore raised another 25,000 from the same angel investor. In June itself,
Zipcar formally launched itself with 12 cars. By October 2000, the company was running
with 19 cars and 250 members. Chase however needs more money to run and expand Zipcar
at its full capacity. She has faced many challenges and made several changes in her business
model and come this far. On October, she will make her pitch to raise funds at Springboard
2000 New England. There are possibly some more amendments that she can make in her
business model which will be discussed further.

Issues

Does the Zipcar business idea seems validate and realistic one?
Why did the founder revise their financial plan?
What can be implied about the Zipcar business model from the actual operation data

of September?
What changes should Chase do to refine her business model before making her pitch

at Springboard 2000 New England?


What could be the strongest arguments that founder of Zipcar could make at a
springboard forum about the attractiveness of venture?

Analysis
Robin Chase has definitely adapted a very functional and efficient business model for Zip car.
The car sharing company, unlike conventional car rentals and taxi services operates on a very
different framework. Instead of crafting their customers as car renters, Zipcar has made
their customers shared car owners. Zipcar has very effectively been able to deliver the
ownership part to its customers. The customers can pick up a car anywhere and go wherever
and whenever they like making them more of an owner than a renter. Apart from this the
business model comprises of technological sophistications and a very effective capacity
management which enables the company to reach as many customers.
As discussed earlier, one of the prominent features of the business model is the inclusion of
technology to bridge gaps in business processes and reach unprecedented functional ability.
Apart from delivering values to the shareholders Zipcar has been very successful in
delivering values to the customers and society as well. Zipcar has clearly considered
customers convenience and comfort while designing its business model. The distribution
channel primarily comprises of parking lots. Instead of having a tedious airport parking or
selected exclusive parking locations, Zip car has very cleverly opted for more accessible and
convenient parking lots in malls and other such urban facilities.
The value proposition for Zipcar lies somewhere between convenience and affordability. The
target customers are the sort of people who wants convenient and comfortable transport
without having to go through steep financial dispositions. The customers for Zip car do not
want to go through the hassles of having a new car but still would love to have a car. The
availability of numerous parking lots and the ad hoc service leads to the maximum utilization
of vehicles. Unlike other car rental companies which require their customers to bring the cars
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to them, Zip car has made it possible for the customers to dispose off the car at their own
convenience and comfort. This obviously saves the gearing up time for vehicles and also aids
availability thus leading to maximum vehicle utilization.
Zipcar is very much technological driven. One of the best things about technological driven
companies is that they engage with their customers to a large extent. Zip car has both web
based and mobile interface in its business process. The customers are required to reserve cars
for them from the web based portal. This sort of interactions would strengthen the companys
engagement with its customers and ensures good public relation.
In an upbeat tone, Zip cars business model is an excellent one and surpasses many flaws of
the conventional ones. However, inspecting the model in detail one cannot help but notice
certain flaws and holes in the whole business plan or the model itself. Before pitching at
spring board 2000, Chase should definitely make certain arrangements in her plan.
The company is clearly running on high variable and fixed costs. The variable costs like
parking, fuel and other are high and to cover these costs there should be maximum usage of
the services. One of the best ways to cover COGS (with more VOH than FOH) is to have
maximum usage of a particular product or service. Even Chase herself thought of having
maximum usage of Zip cars. The whole maximum vehicle utility element of the business
model is directed towards ensuring maximum usage of the vehicles. But when we look at the
pricing strategy that Chase adapted it doesnt slot in. Chase later increased the hourly usage
rate to somewhere between 4.50 USD and 7 USD. This increase in price would obviously
jeopardize the possibility of having more usage based revenues and would also reduce
product availability. Chase should clearly work on the revenue generation part of the business
model.
Another thing that Chase might want to look upon is the membership fee she has in her
revenue generation model. There is a fierce competition in car rental business and forcing
your customers to pay a membership fee even before they can actually use the service doesnt
sound good. Businesses, these days, are more customers oriented. Companies give anything
to have a loyal customer base. The days of membership fees are slowly subsiding. Under
these circumstances, it will be best if Chase looks upon this matter as well.
The success of collaborative consumption lies in the perception of the consumers. Why do
people go for collaborative consumption? For a company like Zip car, it is obvious people opt
for collaborative consumption because of economic reasons. The company boasts that their
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one car would replace almost 8 normal cars. This means the company believes that the world
is better off with less number of cars. In the short run this may seem subtle but in the long run
this may quite back fire. Shifting consumer perceptions from rationality to luxury may not
always be good. People use Zip cars because of affordability. Not because they are
environmentally conscious. The company should be very careful in giving the luxury of
being environment friendly people to its customers because if the consume less tendency
takes over the consume cheap tendency than it sure would rebound back at the company.
The partnership with Danielson is questionable not in regard with her abilities but in regard to
how would potential investors perceive upon having a partner who is in the business as a part
time. Investors look for credibility. Why would they invest on a business in which one of the
partners is not fully committed? Instead of pitching into getting maximum value of her
equity, for a start up like Zip car, Chase should rather pitch into gaining trust of the investors
and building up credibility for her business.

Break Even analysis


Based on the original financial plan, to achieve breakeven point (no profit no loss), the
company need to operate 15 cars on average or should make 277 average member in year 1
(15:277) and then year 2 (18:329), year 3 (20:356), year 4 (20:360) and year 4(20:361). Due
the revision made in the financial plan, the requirements for breakeven point decreased,
showing a positive sign. New requirement for breakeven point were 9 average cars or 159
average member followed by 11 cars or 189 average members in year 2 and so on
(Appendix).
The breakeven analysis suggest that the company made a wiser decision in making
modification in their financial projection which is more realistic and is forecasted to meet
breakeven point showing growth prospect for growth in the future.

Analysis of Actual Operating Data


The analysis of September actual operating data gives a clear idea on the validity of business
model. The operation data shows a wide variation both positive and negative from the
projected financial of Zip car. Upon considering the result of September, we can find that
almost 50-60% service are demanded at night and weekend so it will be profitable if car
availability can be ensured at that time.
The two major negative variation of September data reveals that:
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1. Overheads for Corporate and Boston office have increased significantly by 186% and
205% respectively. But once the company start to expand its branches corporate
overhead will spilt up.
2. Actual number of trip is deceased to 1.4 trips per month per member while the
estimate of May plan represent 4 trips per month per member. But there is potential
increase the number of trips through improving the service perhaps increasing the
ease of use of the Zipcar or improving the availability of vehicles.
Though negative variance are there but positive variances seem more beneficial for future
growth prospects of the business; they are:
1. For daily trips, only 94 miles were used instead of expected 125 miles, and 16 hours
were used instead of expected 24 hours.
2. Hourly usage is expected to be 4 hours per trip however, result shows that per trip
6.2 hours have used.
This variation has positive impact for company as hourly charge is variable thus
increased hours reflects increased earnings, while daily charge are fixed, thus decreased
miles reflect saving.

Daily miles driven =Miles drivendaily uses


= 94miles daily uses

Daily hours usage =


= 16hours

Hourly usage =

Hours used hourly uses


hourly uses
= 6.2 hours

Also, there is 2.85% attrition rate which is far lower than forecasted indicating that Zipcar has
perhaps found a model that work for meeting the needs of the market.

So, the actual operating data of September shows that the business is in overall positive
direction and to secure the funding for the expansion of the business, chase should focus on
the following points.

Environment friendly concept.


Highlight financial forecast based on breakeven analysis.
The market is growing at the rate of 30% and had huge potential.
The technology it has developed will ease the business process thus creating a

competitive advantage for the company.


Innovative marketing-controlled marketing budget.

Recommendation
There are several factors Zipcar should take into consideration for its success such as the
need for recruiting skillful and knowledgeable staff, the need for technology in Zipcar to be
incorporated and implemented, the need to address the financially strong consumers who are
also conscious towards the environment and so on. Thus, there are numerous options that
should be taken into consideration to achieve these success factors.
1. Advising Board
The necessity of an increased knowledge base through the creation and nurturing of advisory
board does seem to be deemed necessary.
2. Pricing
Change in the pricing structure to gain more revenues by catering towards customers those
also using cars less often but for a longer period of time. Pricing structure included that
would be more on daily rental and decrease in free miles.
3. Technology
Incorporate technology that will lower the operating costs of Zipcar and yield towards higher
customer satisfaction.
4. Revenue Sources

Pursuing viable revenue streams in order to minimize the risk to Zipcar. Focusing on a
growth by increasing the revenue rapidly to foster its growth. Revenues in turn are necessary
to incorporate required technologies.
5. Cost drivers
Cost drivers such as parking, insurance and gas should be understood in order to minimize
the cost driver, which does not yield return.
6. Association
The cost drivers should be lowered and the member base must be amplified by utilizing
partnerships. For example an association in some kind with parking company which would
reduce the cost of parking.
7. Customer feedback
The mantra to develop a strong band and a business is the key to customer satisfaction. Thus
the utilization of customer feedback to retain and research the needs of customers is
significant.