Analysis Of Zipcar Strategy

Analysis Of Zipcar Strategy Executive Summary An assessment of the strategic value of expanding Zipcar business was performed by identifying its resources and core competencies. Through its resources and core competencies, a S.W.O.T. analysis and external environmental analysis were performed to identify its strategic advantage and business model where it should strongly focus on its product differentiation and product cost (efficiency). Based on its strategic advantage and business model, strategic value and expansion into smaller US cities, other segments of the market and other countries were analysed and identified with clear implementation direction and recommendation. Introduction Zipcar was founded in 2000 by two Cambridge (Massachusetts) residents. Today, it is the worlds leader in car-sharing. It provides cars by the hour or by the day to more than 325,000 members and 6500 vehicles in 50 cities in the U.S., Vancouver, Toronto and London [1]. It has redefined the way the present generation perceives alternate transportation and strong focus on the need for environment conversation. Since 2004, it has doubled its membership base with current 10,000 new members joining Zipcar each month. This means that members on an average save about US$7200 per year by using Zipcar services instead of owning a car. Furthermore, it can be a suitable platform for electric vehicles due to the demographic and driving habits of its user base where the average trip in a Zipcar is less than 25 miles and lasts about four hours thus making as much as 95% of all Zipcar trips short enough for 1st generation electric vehicles with limited range. This could further enforce its goal on green initiatives. The company focused on three main customers: Individuals Personal usage by young professional who did not own a car but needed one occasionally for errands and short trips, and families who sometimes needed a second car Companies There are more than 10,000 organisations using its facilities and services for business programmes. Universities There are more than 140 colleges using its campus car-sharing services in U.S. It rents cars by the hour and day to members in Boston, Washington, New York, New Jersey, Chicago and several smaller markets. It aimed to become a billion dollar company. Resources and Core Competencies Its fleet was predominately made up of Volkswagen Golf and Beetle but has expanded to make it more attractive to drivers who first concern was style and not gas mileage. For example, mini-coopers, scion vans, and SUVs such as the Toyota Highlander and Ford Escape were introduced [2]. Since majority of its fleet were idle or unused in the day, it was able to create a sales force to market them to corporation. As such about 25% of its revenue comes from â€Å"Z2B† offering. In other words, it was able to utilise its resources to generate sustainable revenue. Service innovation As mentioned, Zipcar is a young company that has created an alternative to automobile ownership for urban dwellers in several cities across the U.S. Its mission is to offer members affordable 24/7 accesses to private vehicles for short-term round trips. It has been able to build such distinct competitive advantage and succeed in a crowded and established market like the rental car business through wireless technology and the Internet that major competitors like Avis, Hertz, and National have chosen to ignore. It was one the very first few organisations to utilise wireless technology to its advantage. The distinctive competence it developed around this technology meant the company had to create several new technological processes. By investing in RFID, it was able to streamline car rental process and tracks the location of the cars in real-time that helped to improve fleet yield management and mitigate the risk of double-booking and phantom vehicles. The online web portal was fundamental and critical aspects of its business model. For business to function effectively, the hourly rental reservation and payment portal had to be user-friendly and trivial (highly effective human-computer interface) for members to transact online. At the same time, it should virtually be costing zero or very minimal cost to the company for each transaction. This in contract to a typical human agent would have cost the car rental company about 4% to 10% for each transaction. By eliminating complex user interface from within the car, it effectively deploys a simple and effective proximity keycard that is held to the windshield of each car that allows car users to locate and gain access to the cars. With further enhancement, it has been able to effective adapt and used mobile phone like iPhone or Blackberry to locate and gain access to those cars. In other words, it contemplates car sharing through Zipcar to be as easy as drawing cash from any ATM. Zipcar attempts to satisfy driving needs of its customer at a fraction of the cost of car ownership by contemplating to replace twenty private cars for each Zipcar service. Traditional rental companies like Avis, Hertz or Enterprise have adopted a similar business approach but the rental processes is time consuming and entail its representatives handling over car keys at specify rental locations. Thus, the appeal of Zipcar is its flexibility and efficiency where one can pick up a car at any time from any available unmanned location with the car keys waiting in the car for the driver to zoom off on a journey. As mentioned, the company knows that its buyer like â€Å"cool cars†. Thus the fleet includes mini coopers and Volkswagen beetles. However, unlike traditional rental cars, each has a Zipcar logon and web address making the actual car a communication tool that help curious observers learn more about the company. Many of the cars are painted in the signature Zipcar light green that also signals environmental friendly or green initiative aspect of the product experience. By partnership with city governments, landlords, colleges, and business owners, it has formed a dedicated team of customers who evangelise the company to potential renters that produce resonance with drivers or customers. Additionally, it has a strong, focus and effective management team that was capable of stirring the organisation into one of the largest car sharing leader in the industry by exploiting and maintaining core competencies and developing human capital to effectively execute it goals and strategic direction [9][10]. S.W.O.T. Analysis Strength: Ease of use (utilise proximity keycard, Blackberry or iPhone) in term of identifying car make/model, location and rates as well as ease of driving off. Style of its service (cool car) Technological sophistication (Wireless RFID technology) Clean and user-friendly interface within the web portal makes navigation very easy like car browsing, check and compare prices and view membership plans. Effective branding through its website and fleets by using signature Zipcar light green that symbolises environmental friendly. No usual hassles attributed to traditional car rental like reservation after joining as a member. For example, lost time for tedious paperwork, prohibitive car prices and petrol prices, limited certainty about vehicles make and model etc. Avoidance of double-booking or phantom vehicles through effective real-time fleet yield management. Strong partnership or collaboration with governments, landlords, colleges, and business owners. Weakness: High dependency on technology for its seamless operation like online reservation, payment and fleet management. Any failure of its integrated system can be catastrophe. Thus, business contingency plan is critical and needs to be in placed. There is certain weakness in its marketing tactics as it is largely unknown to urban masses. This can result in lost sales if potential customers are looking to rent a car in Chicago may look for traditional rental agencies as opposed to car-sharing. Furthermore its website failed to be search engine optimised. Opportunities By been environmental friendly and adopting the use of electric cars, it is in a very strong position to entice customers who have strong view about environmental and social concern. This is critical to Zipcar in building up its brand and equity apart from attracting more customers. Such trigger in term of economics and social interruption help to create more awareness about car-sharing that can only benefit Zipcar. Increase weekday car usage. Its fleet are only utilised at night and weekend while majority are idling during the day. Besides attracting more private business organisation to use it fleets on employees as opposed to using employee own cars, it can also look into convincing municipal agencies or government workers like social workers or nurse to utilise its services. Furthermore, as pressures mount for reduced fuel consumption and car-usage, its concept can provide a unique and viable long term solution. By establishing its presence on college, it has created a strong awareness and foothold of fans in term of the ease of car sharing as well as marking its environmental and social concern among the new generation. The students are part of the new generation of self-service economy that fits nicely to Zipcar self-service model. By experiencing with Zipcar concept and car sharing service, there is a high chance that those students would continue to use car-sharing as an alternative to car ownerships instead of buying one. Transit connection can provide growth opportunity for Zipcar where it fleet can be strategically parked near train or subway stations to provide members easy access to cars so they can continue their journeys to areas where public transport is not available. By parking at subway station, it can further create awareness of its brand and services Threats With its merger with Flexcar, it is competing in 50 cities in the U.S market including Canada. In another words, it is competing directly with larger operator like PhillyCarShare [5] and I-Go [6] that bring unique set of competitive forces in relation to their tide niche at the city and communities. Furthermore, their grassroots operation, low rental rates and non-profit status may inadvertently make them the preferred choice for business seeking car sharing services. Big car rental companies like Hertz, Enterprise or Avis [8] may make entries into car sharing market. Hertz has 40,000 cars in New York alone while Zipcar has about 6500 vehicles in total. In other words, big car rental companies have better economies of scale to take advantage of existing facilities, expertise and financial support if they chose to enter car sharing market. Rising petrol can be an economic burden to Zipcar since its rate is inclusive of petrol. It may have to increase its rate to cover such increased expense. This may lead to lower car usage by members and more may use cheaper public transport or share their rides. This could hinder membership growth. External Environmental Analysis Economies of scale Zipcar and Flexcar are the two largest and nationwide car sharing companies in the state. With their merger, there is a greater economy of scale as the new company will operate under the Zipcar brand and use its technology. Moreover, the move could help expand the practice of car sharing. By merging, Zipcar effectively operates in 50 cities in U.S., in Vancouver, Toronto and London that brings more members and more benefits in term of access to more fleets in more location and neighbourhoods. With more fleets in more location, it can consider lowering its membership fee to entice more membership enrolments to enjoy greater economies of scale. Barriers to market entry This can be unattractive for Zipcar as large rental companies may enter this market after they have a better understanding of such business model. In addition, there is no government regulation or restriction to prevent anyone from going into car sharing business. In addition, the cost can be low as anyone can start the business with a few vehicles. Diversification Apart from providing car sharing to individual, companies and colleges, it can expand into taxi business, emergency business or ambulances services or health caring services that required vehicles on ad-hoc or certain regular basis. Furthermore, it can also provide vehicles to courier services or mover services. Alternatively, it can provide fleet management services to those organisations as well. In this case, it is restricted to related-constraint diversification for better performance of the company. Product differentiation Zipcar provides unique experience by utilising wireless technology to ease car sharing. By eliminating complex user interface from within the car and deploying a simple proximity keycard that is held to the windshield of each car, it has allowed drivers to locate and gain access to the cars with ease. By integrating iPhone or Blackberry device, it has further improved such experience. Furthermore, it provides a fleet of â€Å"cool cars† that cater to each individual lifestyle and needs. Degree of concentration of firm in the industry There are several car sharing operators within U.S. [7] that operates as a non-profit organisation. However, in term of coverage, they are no as comprehensive as Zipcar that operates in 50 cities and outside of U.S. Thus, it can value add its service like more access to many cities and locations for its members which is inline with Zipcar objective of providing wheels when you want them. Positioning and Business Model Zipcar operates in a model of car sharing business that makes it difficult for competitors to imitate. For example, it utilised wireless technology like 3G, GPRS, GPS and RFID to manage and streamline its operation to maintain lean and low overhead. Traditional car rental companies or non-profit car-sharing would find it difficult to model after it due to their existing infrastructure and model. This is similar to Wal-Mart efficient supply chain management practices that competitors find it difficult to intimate. No doubt, customers can utilise other rental companies or car sharing operators but they would lose the convenience and ease of use offered by Zipcar model of hourly rental agreements and convenient access to 50 cities and locations. Moreover, it has a strong focus on customer needs and lifestyle by providing fleet of hip vehicles like mini cooper, Volkswagen Beetle, BMW Bottella, Mazda and environmental friendly vehicles like Toyota Prius [2] and using cool gadget like iPho ne or Blackberry to locate and gain access to the cars. Zipcar does not need to concern about car manufacturers or other suppliers since it does not use proprietary goods. Been a IT savvy organisation, Zipcar should ride on its existing memberships by using social networking tool so members can exchange and shares ideas and more importantly provide feedback to Zipcar who can them improve on its services and offering. In other word, it should keep listening to customers and continuing to innovate through IT. Based on strategic directive and advantage, Zipcar should continue to focus on product differentiation and product cost (efficiency) through greater economies of scale and product differentiation by offering unique fleet of vehicles coupled with excellence service and ease of usage. Expanding its presence in smaller US cities Zipcar has great appeal to a number of buyer personas like city dwellers that occasionally need to use a car for a few hours where cars ownership are expensive coupled with high parking fee in cities. According to U.S. census back in 1990, there were about one-third of U.S. residents living in cities. Those clustered suburban neighbourhoods would be suitable for car sharing, particularly if they have good transit service, pedestrian-friendly streets and local commercial centres. Assuming that 30% of American drivers live in higher-density, multi-modal neighbourhoods and 20% of these have low annual mileage vehicles; this could mean that about 6% of current privately owned vehicles could shift to car sharing. Of course, potential demand for car sharing will be much higher in urban areas and lower in rural areas. Zipcar can look into merging or buying over smaller operators that operate or have presence in those smaller US cities if viable. Alternatively, it can consider deploying its fleet in those cities since it uses wireless technology to streamline most of its operation and the cost of expanding in those cities would be relatively low. Nevertheless, there should be sufficient number of users within convenient walking or cycling distance where vehicles are parked with good travel alternatives. For example, to have 3 car share vehicles stationed in a neighbourhood with 10 members per vehicle would requires at least 30 member households within one square mile. Therefore, as long as there is high density urban neighbourhoods with good walking or cycling distance and good public transit services as mentioned, it should continue to expand its presence in those area to enjoy greater scale of economies with minimum risks. Expanding to other segments As highlighted, Zipcar should expand into taxi business, courier business, mover business, emergency business, ambulances services or health caring services by not just offering vehicles but also its fleet yield management services to help those companies to better managed and streamline their operations. This can be done in a form of strategic alliance or partnership. In addition, its services could be bundled with public transit passes, taxis service and ride share matching to give customers an integrated package of mobility options. It can also extend those services by collaborating with state mayors, city councillors, or police force who deals with parking constraints in major cities. Expanding to other countries and cities (Singapore, Hong Kong, Taipei and Tokyo) Countries like Hong Kong, Singapore or major cities like Taipei or Tokyo are suitable target for Zipcar services as they are typically high density metropolitan areas where walking, cycling and public transit are viable transportation option. Moreover high cost of car ownership coupled with high parking pressure in term of cost and space made these cities suitable market for Zipcar to expand its overseas business similar to those in London. Residents in those cities usually do not require cars to go to work or go about their daily activities. Thus, low vehicle ownership rates are one of the best predictors of the economic viability of car sharing programs. It can consider co-operative strategies by forming a joint local partner to operate fleet of vehicles that utilise it fleet management systems for car sharing. Alliance formation would avoid high cost of investment since resources are shared including risk. By forming synergistic alliance, it can create joint economies of scope between partner firms. For example, by exploring ways to work with car manufacturers like Toyota, its members can test electric cars to designing vehicles specifically for the sharing market. Similarly by working with closely with various authorities and companies, it can bundled public transit passes, taxis service and ride share matching to provide customers a fully integrated package of mobility options just like in its home country. Recommendation Zipcar should continue to focus on product differentiation and product cost (efficiency) through greater economies of scale and product differentiation through its unique fleet of vehicles that comes with excellence service and ease of usage. It should consider lowering it membership fees to attract more memberships to further utilise its fleet. It should continue to collaborate with various authorities and companies to use its fleet management system to enjoy greater economies of scale. It should look out for opportunities to perform consolidation through mergers and acquisition at the same time form strategic alliances with overseas local partners, car manufacturers and IT vendor to further develop its competitive edge. It should continue to adapt to customer needs by using an effective customer relationship management (CRM) system to obtain and to enhance its relationships with customers, retain customers and provide better customer service that leads to competitive advantage for the business. It should institute a more vocal marketing campaign to educate the target demographic about the benefits of car sharing. This could include aggressive print advertising on all urban and public transportation vehicles in addition to its own fleet of vehicles. It should further invest in improving the search engine optimisation of its web portal to attract traditional car renters. This would improve zipcar.com ranking on organic searches and increase the conversion rate. Through integrated marketing strategy this would increase awareness about Zipcar and its car sharing benefits that further reinforcing the firms hip and green identity. Reference: [1] Team: home office. Accessed on 17-01-2010, http://w.zipcar.com/ [2] Four Leaders You Need To Know. Accessed on 17-01-2010, http://stage.fastcompany.com/magazine/91/4-leaders.html [3] Zipcar is shifting into higher gear as market widens. Accessed on, 17-01-2010, http://www.boston.com/cars/news/articles/2008/01/13/zipcar_is_shifting_into_higher_gear_as_market_widens/ [4] Zipcar The best new idea in business. Accessed on 17-01-2010, http://money.cnn.com/2009/08/26/news/companies/zipcar_car_rentals.fortune [5] Philly Car share. Accessed on 17-01-2010, http://www.phillycarshare.org/ [6] IGo Car share. Accessed on 17-01-2010, http://www.igocars.org/ [7] List of carsharing operators. Accessed on 17-01-2010, http://en.wikipedia.org/wiki/List_of_carsharing_operators [8] Avis: For more on the history of Avis, see www.avis.com/AvisWeb/JSP/global/en/aboutavis/corp_info/historical_chronology.jsp. [9] Zipcar: We interviewed Robin Chase in November 2007. Other useful information came from ‘‘Part-Time Wheels: City Dwellers Share Cars through New Service by Heidi B. Perlman, Associated Press, http://www.onlineathens.com/stories/072000/new_0720000010.shtml; and from ‘‘Scott Griffith: Zipping Ahead by Lisa van der Pool, Boston Business Journal, August 24, 2007; [10] Zipcar is shifting into high gear as market widens by Yoon S. Byun, The Boston Globe, January 13, 2008. http://www.boston.com/cars/news/articles/2008/01/13/zipcar_is_shifting_into_higher_gear_as_market_widens/.