Zipcar: Refining the Business Model

Assignment #1: Zipcar: Refining the Business Model

In my opinion, the strongest argument that would make Zipcar appealing to investors is the well-designed wireless technology platform. As to the competition, the single market policy can’t prevent other competitors with strong power to enter. Whatever the place start, the competitors are one of strong factors that restrict company’s development. To win the competition, the new birth company should have one or more special areas that contribute the whole plan, which wireless technology platform could do the work. As to the consumers, in the early stage, the logical choice Boston is one excellent market for carrying out the new technology. The large population of college-educated have the capacity to accept the new wireless platform, and the huge number of Web-connected individuals would be the basic of Zipcar. For the later stage, wireless platform may solve a lot of work when Zipcar decide enter into the open market or other cities, the technology may ensure the security of the vehicles without building other guardian. The same reason, consumers using range would be larger than those traditional car-sharing companies. Last but not least, the company part.  The network technique and globalization are developing at an amazing speed. Due to that, the future cost for maintaining the platform would decrease.  At the variable cost level, the wireless platform would decrease the risk of cars’ missing, company may use this advantage to argue with car companies to reduce lease cost.

However, the strongest argument has a terrible problem, the early fixed cost is huge. Creating a new wireless technology platform is a long and hard process, which needs much researching fee. If the company can’t solve the beginning financing problem, it would make the operating data has much loss in the early stage. From the view of investors, no one would have interest on one company with much loss. Namely, if the company can’t make a well-planned capital allocation, the business would end in the beginning.  In conclusion, the potential venture of Zipcar is the network created by the wireless technology platform in the future. The completed wireless platform would decrease the operating cost by a large margin, for instance, the labor cost, the parking area cost and the office renting cost. Zipcar only need one central office and few employees to manage a large area of operation. To solve the problem, the company should decrease other cost in the early stage, like adopting single market plan, they chose Boston as the laboratory.  Also they shouldn’t make long-term investment, simplify the operation process as easily as possible, so they layoff the big-company guy.

As Hedidi B. Perlaman said in ‘Car Sharing on Rise’, Zipcar members like the convenience of having a car but don’t like what it costs to maintain one in the city. In the population of Top 20 U.S. Markets, I recommend those cities with high density, like New York (7,447per sq. mile), Chicago (3,221per sq. mile), Anaheim-Santa Ana (3,052per sq. mile) and so on. It is Zipcar’s marketing positioning, citizens in those cities with high density would have high cost to maintain vehicles, for much less parking area, poor traffic situation and well-developed public transport system. To those traditional car-sharing companies, it is harder to operating business in the high density area, due to the high offices renting fee and much labor force, which are needed to manage company’s cars in the busy situation. But Zipcar with wireless technology platform would not care about that, it is their advantage. From the financial plan for Boston we can see the office space and equipment experience was just 1,000 dollars per year in the first and second year. Compared Original Financial Plan with the revised one, we can clearly see that the annual fee cut a lot (75%), at the same time, the per hour charge increased 367%. From the view of consumers, the 5.5 dollars per hour operating fee was normal, fees at other companies range from less than 2 dollars an hour to up to 9 dollars, but the 75dollars annual fee was attractive for most of citizens. Zipcar company could use this to build their market targeting, a car-sharing company with cheap requirement to come. All above hold the same requirement to the different markets, with the development of Zipcar, it would face the different market situation soon or late, so it should complete its’ market segmentation at first. The annual fee can’t change, which is the brand of the Zipcar. Otherwise, the operating fee could change with the different parking fee, the vehicles lease, even with the fluctuation of oil price. Depending on the Exhibit1 (Economics of Individual Car Ownership), we can see the Lease cost takes part of 46.9% of monthly costs, parking expenditure 21.7%, Zipcar company should make different operating fee mostly based on the lease cost and parking expenditure in various markets.