Zip Car Case Analysis
As the Springboard 2000 New England Venture forum was approach quickly, Chase needed to develop an effective business plan to present to the conference. My Recommendations for Chase are: 1. Refine Zipcar’s business model based on real U.S. market data, and use the real U.S. market date to construct a new pricing structure: eliminate the daily maximum rate, and double the per mile and per hour rate. 2. Maintain 40% car utilization. 3. Find a right person to join their management team. 4. Refine and complete Zipcar’s technology platform. 5. Secure good parking locations as its competitive advantage.
Originally, since Chase was inspired by the car sharing business in Europe, the assumptions and financial plans were using the data from European market. However, due to the differences in consumer behaviors and market conditions, those assumptions were not accurate and cannot be directly applied to the U.S. markets. On June 22, 2000, Zipcar put its first three cars on street, which tested the market and gave real market data for Zipcar to use. With these data, we can see the difference between the original assumptions and reality: First of all, the attrition is much lower than expected. Chase was expecting a 15% attrition rate, however, the real attrition was less than 1.3%. (Table 1) This low attrition shows customers are buying in this business idea and majority of the customers are willing to continue using this service. In addition, the trip per user per month is less than anticipated, but hours per trip and miles driven per trip were more than double of what was expected. With the current pricing structure, the average cost per trip is $ 72.42, and total cost per month is $101.52.(Table 4) However, since Zipcar has a maximum daily rate of $44.00, and people are taking less but longer trips, this will great impact Zipcar’s revenue and thus profitability. With these number in mind, we can reconstruct a new pricing structure. Since Zipcar is providing cars for the people who don’t need cars, it only makes sense if the total billed amount from Zipcar is less than actual owning a car. We can see that the car ownership costs about $575.00 per month. (Table 5) The total cost per month of $101.52 is much less than the car ownership cost. As a result, chase can remove the price ceiling, and double the per mile and per hour price to $0.8 / mile and $11.00 per hour. This will cost each customer about $203.00 per month on average for using Zipcar service. (Table 4) Although lifting the daily maximum will seem less attractive when people have the alternative of rental car, but doing so will attract the right customers (More trip with shorter time and less miles). Zipcar’s primary targeted customers are the ones who need to run multiple short trips, doing so will attract more of this type of customers, which is beneficial to both Zipcar and its customers. In addition, comparing to the traditional rental car service, customers who use Zipcar will have the access to the same vehicle every time. It is just like owning a car with less cost (35% of the car ownership cost) and less trouble (don’t need to worry about insurance, parking, maintenance etc.) Maren Souders, spokesman for Carsharing Portland Inc. mentioned, “You might get in each time and find the preset radio stations have been changed, but otherwise, people will find it’s just like your own car.”
Besides the pricing structure, Chase should also look at the utilization of each car on street. Based on the European market data, the utilization for each car is about 50%, and she planned to target a 40% utilization. I recommend Chase to maintain this utilization for each car. Since Zipcar wants its customers to feel like the car is their own car, the waiting time for using the car should not be long, customers should be able to have access to the car most of the time when they need to use it. Based on queuing theory, linear increase in utilization of a server (A car in this case) will result in exponential growth in waiting time (Figure 1), and at 40% utilization, the waiting time is kept minimum, lower than 40% utilization will result in wasting resource (Car will sit in parking lot), and customers will have to wait to use the car when the utilization is higher than 40%.
In addition to pricing structure, Chase also need to construct a right management team. Although Chase and Danielson are founders of Zipcar, they never run a successful start-up before. Both Chase and Danielson are considered lack of car expertise and inexperience of running complex operations. And a solid team is number one requirement to get capital. Therefore, Chase and Danielson need to find someone who has experience of running such operations. However, looking for someone with operation experience is not enough, they need to find the right person that fits Zipcar’s situation. Since Zipcar’s funding is limited, they need someone with experience with start-ups that can work things around and use every penny to its purpose.
Moreover, Chase and Danielson need to refine its technology platform. Chase and Danielson deployed Zipcar even when the technology was not ready. This will risk customer satisfaction and higher operation cost. Ideally, a person who can access a particular car should be the one who booked the appointment online. However, since the technology was not ready, anyone with a Zipcar access card can open the car and use it. Customer will be upset if he booked an appointment online and found out the car has been driven away by other Zipcar user, the customer satisfaction and Zipcar’s reputation will be negatively impacted. In addition, since the technology was not ready, records were kept on paper by drivers, and Zipcar employee visited each car once a month to retrieve the record. Two issue will raise from this practice: 1. Record accuracy, since all the records are recorded by drivers by hands, the accuracy cannot be enforced. There will be discrepancy between the paper record and the odometer. 2. Higher cost, since Zipcar employees need to go to every car to retrieve the record, this decrease the efficiency and increase the labor cost to retrieve data and compute bill.
Last, securing good parking locations is very essential for Zipcar’s model. Since convenience and accessibility is one of the key selling points in Zipcar’s business, it has to park its cars at where its main customers can easily access the cars. Parking space near large institution, or high density residential areas are more desired. Even as the case mentioned that the parking space is more expensive than what is expected ($750/car/year). That is only 2.5% of its first year projected revenue. I believe that having desired parking location is the competitive advantage for Zipcar, and people’s willingness to pay for the accessibility is high. There for selecting the right parking location should be on top priority.
Appendix
Figure 1: Utilization and Waiting Time

Table 1: Attrition Number and New Member | Beta | June | July | August | September | New Members | 14 | 20 | 49 | 64 | 101 | Attrition | 0 | 0 | 3 | 3 | 3 | Ending Members | 14 | 34 | 80 | 141 | 239 |

Table 2: ZipCar Customer Usage Data Usage | | Per User Basis | Avalaible Car Days | 439 | 1.84 | Total Trips taken | 335 | 1.40 | hourly uses | 218 | 0.91 | daily uses | 117 | 0.49 | total miles driven | 16339 | 68.36 | miles driven-hourly uses | 5341 | 22.35 | miles driven- daily uses | 10998 | 46.02 | Total Hours Used | 3223 | 13.49 | hours used-hourly uses | 1351 | 5.65 | hours used - daily uses | 1872 | 7.83 | Trip night and weekend % | 60% | | Hours of use night and weekend % | 53% | |

Table 3: Average Customer Monthly Usage | Assumption | Reality | Trip Per User Per Month | 4 | 1.40 | Miles per trip | 22 | 48.77 | Hours Per Trip | 4 | 9.62 |

Table 4: Current monthly cost and proposed new monthly cost | Average Monthly Cost | Proposed New Cost | Per Mile Basis | $ 19.51 | $ 39.02 | Per Hour Basis | $ 52.91 | $ 105.82 | Cost per Trip | $ 72.42 | $ 144.84 | Cost Per Month | $ 101.52 | $ 203.04 |

Table 5: Car Ownership cost Vehicle Depreciation | $ 270.00 | Insurance | $ 99.00 | Parking | $ 125.00 | Gas | $ 45.00 | Maintenance | $ 36.00 | Total | $ 575.00 |