Zipcar: Refining the Business Model

1. What are the origins of the Zipcar concept? How was it modified? How did it evolve?

The idea of the Zipcar concept first came to Danielson’s mind when she saw a car sharing model in Berlin. However, the very first car sharing pioneers were located in Switzerland where a very basic concept was already introduced in 1987. Danielson was convinced that car sharing could be very successful in urban areas in the United States as well. Hence, she decided to partner up with Chase, a friend she knew because their kids went together to kindergarten, and developed an initial market analysis.

The main need in the market that had to be satisfied was between very short trips for which customers would use taxis and rental cars which cause a hassle every time someone wants to rent it. Consequently, the goal was to deliver convenience, ease of use, freedom to travel and hassle-free ownership for urbanities. According to the results of Chase’s market analysis, the car sharing industry was estimated to have a potential of $200m and there were only two main competitors in the area of the United States, Car-Sharing Inc. and Flexcar. However, both of these companies were focused more on the environmental impact of car sharing rather than on the factors of convenience and cost effectiveness.

Chase made use of the respective gap in order to differentiate from the competition. She tried to make Zipcar as cheap as possible to make it attractive for the customers. The up-front payment for Zipcar was with $25 substantially lower than those of competitors that asked for payments between $300 and $500. The annual fee was initially set at $300 but Chase soon realized that this was too high a hurdle for many potential customers which led to a reduction down to $75 per year. Subsequently, the overall cost structure was changed including an increase in hourly rates and the introduction of a daily maximum of fees. Another decisive feature of Zipcar compared to its competitors was the patented technology that was developed for the online reservation system and the wireless transmission of customer data.

In general, Zipcar had on overall competitive advantage due to its cost efficiency and advanced technology. Nonetheless, the company was not able to bring the respective advantages on the table as the budget became a major issue: Almost all cost estimations and anticipations were considerably lower than the actual costs. The only exception was the cost of marketing which was extremely low due to the “automatic” advertising that was done just by Zipcar cars driving around the city, serving as advertising poster.

Resulting from the high costs and missing funds, Zipcar had to be started in a leaner version than planned. The solely for that purpose developed technology was not functioning properly and parking contracts were not fully negotiated. Despite all that, Zipcar met with customer’s