Zipcar Case Study

Case Study: Zipcar

Business Model

Zipcar has managed to provide a service that has transformed the traditional car rental industry. It has capitalized on the limitations of traditional rental agencies by offering a 24hour service that enables customers to have “wheels when they want them” (Zipcar.com). The company’s use of information systems has allowed it to minimize human interaction by streamlining all transactions. Using Porter’s Five Competitive Forces, we will further analyze Zipcar’s business model (Figure 1).

1. Potential Threat of New Entrants M edium: A s a pioneer in the ridesharing service, Zipcar has been able to successfully establish a strong brand with a large number of loyal members. Zipcar’s reputable image can be seen as a barrier to entry. Furthermore, Zipcar has access to additional resources since Avis acquired the company in 2013. This enabled Zipcar to benefit from Avis’ experience and scale of fleet operations, keeping its technological advantage over new entrants. On the other hand, existing rental car companies can easily replicate Zipcar’s business model given the fact that they already have the overall scale necessary to compete.

Zipcar’s adoption of a membership model also serves as a barrier to entry. Consumers are selecting a car sharing platform rather than a one­time short­term rental. While signing up for membership isn’t difficult, it does require an annual fee making it unlikely for a single user to maintain accounts with multiple car sharing companies. This membership model disincentivizes those wanting the flexibility to select various car sharing services.

2. BargainingPowerofBuyersH igh: Asaproviderofatransportationservice,Zipcarisnotonlycompetingwith other ridesharing services but also with public transportation options as well as car ownership. Customers can easily access any of these alternatives, granting them high bargaining power. Many of Zipcar’s competitors have removed their annual fees so there are no switching costs included.

3. BargainingPowerofSuppliersL ow: Zipcarhastheupperhandwhendealingwithsuppliers.DuetoZipcar’slarge car fleet, most automobile companies compete to be Zipcar’s supplier as they would be able to sell cars in larger numbers while benefiting from the exposure Zipcar members’ will have to their vehicles. Similarly, since Zipcar vehicles are fully insured, Insurance companies would also have it in their favor to be partnered up with Zipcar. Currently the company has over 12,000 vehicles i ts members can choose from. In 2011 Ford and Zipcar entered a partnership where Ford supplied vehicles to Zipcar’s 250 university campus locations in the US. This agreement allowed Zipcar to reduce the hourly rate of Ford Focus and Ford Escape by approximately one dollar per hour. In addition, Zipcar has developed strong relationships with gas stations and car service centers in order to guarantee proper maintenance of its vehicles.

4. ThreatofSubstituteProductsH igh: Z ipcarmembershavenumerousalternativeservicestheycanuse,asmentioned above. Since the substitute services have relatively similar price­to­performance with Zipcar, consumers can easily switch. The cost of switching to these substitute services is also low, causing the threat of substitute products to be high. Zipcar has to increase the perceived value of its service in order to sustain its competitive advantage. Zipcar is continuously investing in advancing the technology behind its services in order to stay ahead of its competitors.

5. IndustryCompetitorsH igh: Initially,Zipcarofferedaservicethatrevolutionizedtheconceptofrentingacar.Its proprietary IT platform and ease of car availability truly offered members a unique service. Over time, new ridesharing services have emerged and existing car rental companies have adopted Zipcar’s business model eroding Zipcar’s differentiation. A loss in differentiation has decreased barriers to entry.The increased competition has forced Zipcar to alter its business model and offer one­way trips. Furthermore, multiple other business models have emerged: BMW’s DriveNow, for instance, offers driver’s by­the­minute rentals of electric vehicles in Europe (SF Bay Area suspended). Car2Go has scaled quickly in Europe and North America by offering on­demand rentals of compact cars in urban areas.

Synergy between Business Strategy and Information Technology

Zipcar essentially runs an e­business conducting the majority of its business processes online. The company’s business strategy is highly dependent on its proprietary IT platform. This platform has enabled Zipcar to innovate on an existing car rental industry by providing a differentiated automated service. Zipcar’s innovative business strategy focuses on process automation, customer empowerment, transparency, and community (Pearlson, Saunders, 2012). Information technology enables such process to be automated allowing Zipcar to cut overhead costs by employing fewer staff. Furthermore, Zipcar’s IT platform has allowed the flow of information between customers and the company to be transparent, enabling members to have full control of the service they want provided. This transparency and flexibility allows Zipcar to achieve its business strategy of empowering its members. Lastly, Zipcar was able to develop a member community by using networking technology to provide customers with a blogging platform. The online community of Zipsters share their experiences which allows Zipcar to get direct feedback in addition to customer led marketing of its service. Applying the information strategy triangle, we can further see the synergy between Zipcar’s business strategy and information technology in Figure 2. Network Effects and Zipcar’s Strategy

Zipcar’s social network of Zipsters is an example of a network effect that plays an integral role in the company’s strategy. Zipsters provide the company with an information resource that enables constant unfiltered customer feedback, enabling Zipcar to be quick to assure customer satisfaction (GARP Investing). The value of the Zipster community is prevalent on the condition that the community grows i.e. value from plentitude (Pearlson, Saunders, 2012). The more Zipcar members join the Zipster community the more number of Ziptrips will be reported. As a result, this information resource will yield more value for both the members and the company. With more volume of information available, Zipcar can achieve its strategy of customer empowerment and transparency. With the addition of more subscriptions to the Zipcar service the more expansive the network; a more dense network requires more vehicles to be available. Competition and How to Sustain Competitive Advantage