Case Study of Zipcar: Recommendation and Justification

Main Issue

In Zipcar: Refining the Business Model, Chase and Danielson face the challenge of not having enough capital to scale their business idea. In order to grow and be a dominating force in the ridesharing industry, Zipcar needs access to more cars. Currently, Zipcar only has 12 cars and needs more inventory to expand its services. In addition, Zipcar has few employees and is only in Boston. Also, Zipcar needs to figure out what its pricing model is so that it can remain competitive. Since there are competitors that are essentially doing what Zipcar is doing and because there is also the threat of car manufacturers and car rental companies creating a similar venture, Zipcar needs to come up with a brand differentiation strategy to attract and retain more customers.

Because competing in this market involves a high amount of capital and investments, Chase and Danielson need to be clear on what all of Zipcar’s strategies are so that Chase can present this business opportunity to investors. Additionally, lease costs and parking costs are both increasing. As a result, the revenue that is the return on these 12 cars is low, so Zipcar needs to find a way to be profitable while being competitive in its pricing model and strategy.

Evaluation of Available Options

Chase has several options, including not asking for more capital from investors since she and Danielson have been able to run the company on $375,000. Another option is for Chase to ask for $1.3 million in addition to the $375,000 that has already been spent on the business.

Recommendation and Justification

As stated in the main issue, Zipcar needs to find a way to differentiate itself from its competitors. Throughout the case study, Zipcar is described as a company that places an emphasis on environmental impact rather than on simply convenience in comparison to the competitors. Zipcar should definitely highlight this throughout its marketing efforts and bring awareness to people about how the usage of Zipcar has a significant impact on the environment.

Another part of the recommendation is to raise capital in order to hire more employees and purchase more cars. Based on the financial projections, it can be seen that Zipcar needs to reach its breakeven point. The way it will do this is by increasing its number of vehicles. A key consideration is the utilization rates of Zipcar. With a total usage revenue of $14,644.50 being broken down into $5,317.60 for revenue from daily uses and $9,326.90 for revenue from hourly uses, it is evident that a larger percentage of revenue is coming from hourly uses. With this said, the hourly rates can be set higher than the overall daily use price of Zipcar. Additionally, there is a substantial percentage of people using Zipcar during nights and weekends, so increasing the prices during these times could generate more revenue as well.

Both the per mile charge and per hour charge can be increased until Zipcar is not only breaking even but bringing in profit. Considering overhead and cost of goods sold—specifically parking, lease, and fuel costs—are increasing for the cost of each individual car, the prices must increase as well. With an overhead of $44,000 per month, Zipcar needs to produce more revenue. Although Zipcar is already profitable with 239 members enrolled as of September 2000, Chase and Danielson need more members and more vehicles to scale this business to other cities besides Boston. Due to this, marketing efforts must be increased at a high rate. Throughout the case, there was a notable lack of marketing efforts. Zipcar’s marketing strategy is greatly influenced by word-of-mouth marketing in addition to advertising on cars. If Zipcar wants to grow its business, more marketing must be done and more money needs to be invested into the business and utilized for marketing purposes.

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During Chase’s pitch to investors, she needs to emphasize Zipcar’s success in Boston and how Zipcar is different than the competitors in the industry as mentioned previously. As stated in the case study, Zipcar can be marketed as a convenient, cost-saving, and environmentally friendly technology. Rather than advertising Zipcar in subway stops and creating postcards, Zipcar needs to create a more personalized and creative marketing strategy approach. Since Zipcar is providing an alternative to owning a car, Zipcar can focus on urban areas such as New York City and on customers like college students who are in favor of saving money. In addition, college students love the rise of the sharing economy versus the traditional economy that is rooted in high ownership rates.

In order to persuade the investors to put $1.3 million into Zipcar, Chase needs to communicate the benefits of Zipcar in a succinct, precise, and effective manner. She also needs to define her marketing strategy in a clearer and more specific way because market segmentation and targeting are highly important and are key in any business. Zipcar could narrow in on its marketing efforts and campaigns by focusing on college campuses. With many colleges and universities located in Boston, this could lead Zipcar to enter the market in other areas. Because there are competitors that offer the same exact service, Zipcar needs to do an excellent job at informing its target market about the cost advantages and energy efficiency of Zipcar versus owning a car.

Another recommendation for Chase and Danielson is to gain enough traction so that car manufacturers would want to partner with Zipcar. However, first, they need to focus on following through on the marketing strategies discussed throughout this section so that investors can see Zipcar’s potential and the company can gain more members and ultimately traffic.

A way to appeal to the investors who would be putting in $1.3 million is to mention the way the investment money has been handled in the past. In the past, Zipcar has taken out convertible loans that have then been converted into equity. This type of negotiation is significant when dealing with investors, so proposing the cash investment through this lens would be in Chase’s best interest.

Another way for Chase to go into the pitch is through stating the growth of the car-sharing industry. According to the case study, the car-sharing industry grows at a rate of 30% each year. Considering the investment into Zipcar has not been close to the $1.3 million that would be invested, an appealing factor would be that the investors would own most of the equity of Zipcar.

Chase needs to stress the fact that car-sharing services are prospering in Europe and no other competitor is locating itself in the Northeast like Zipcar is doing. Because of the growth potential that Zipcar has and due to the market that it is in, Chase has the capacity to create a compelling argument that is based on why $1.3 million would further advance the future of Zipcar. Acquiring this capital is pivotal in the success of Zipcar and will further the Zipcar business model, feasibility, and revenue streams—creating a sustainable business in the process.