Zipcar Harvard Case Solution & Analysis

Zipcar Case Solution

Contains a detailed description of the processes and tasks associated with the creation of a new enterprise in a developing industry (subscription carpooling to urban residents). Chronicles the development of the concept of the entrepreneur, industry analysis, market research, determining the identity and brand building. Also provides background information on writing a business plan, budget creation and building finance, development management team, the creation of business partnerships and financing business.
This case is only available in paper format (HBP do not have the rights to distribute digital content). As a result, a digital copy of an educator if not available through this Web site. "Hide
by Myra M. Hart, Wendy Carter Source: Harvard Business School 17 pages. Publication Date: 01 Oct 2001. Prod. #: 802085-HCB-ENG



Chase’s care sharing venture, Zipcar, is a typical example of a revenue model with multiple revenue streams. This car sharing service allows members to access cars parked at designated spots through zipcards which are issued to members and provide convenience to individuals who do not own a car and yet do not want to go through the hassle of keeping a private car.

The multiple revenue streams in this model include revenue from an annual membership fee, application fee for new members, security deposits and variable income in the form of charges per mile and hour. Additional revenue heads include late fee charges.(Appendix 1 ) The major impact on the revenue is from an increase in memberships which not only leads to an increase in security deposits but also to a potential rise in variable revenue heads such as per hour/mile charges.

The main cost drivers (Appendix 2) in this business model are in the form of corporate overheads and cost of goods sold such as lease costs per car, fuel, insurance and maintenance for the cars along with parking and equipment charges for each car. There are additional variable costs in the form of fee for consultants and software developers for developing the wireless technology system for the business but these would be non-recurring costs since they only have to be incurred till the development is complete. Corporate overheads are expected to be $44000 per month while the Boston office alone has overheads of $14000.

This business model has already used up $50000 as the initial investment in the form of cash borrowed from friends while an additional contribution of $375000 was made by a venture capitalist. Even then the business requires an additional investment of $1.3 million for being built on the pattern as originally planned out by the entrepreneurs. This shows how the initial investment was not worked out well and neither were the sources of finance planned out effectively.

The critical success factor for this business is the ability of the service to attract the target market with its low cost and convenience driven model since the business would require a regular revenue stream for a successfully covering the costs and generating a positive inflow.

Chase has managed to launch the idea even though the wireless platform has not been developed yet which shows that she did not want to let the company down by postponing the launch of the service and this shows considerable effort on her part to have taken this strategy and idea forward as a potential business venture


Originally the business model was based upon a wireless technology platform which would allow members to make online reservations and access cars at designated parking spots through specific zipcards .The system was to capture information about the car in the form of usage per miles and hours which was then sent to a central location for billing.

The initial plan in Dec 1999 was to charge $25 as the non-refundable application fee along with $300 as a fully refundable security deposit from each member along with annual charges of $300 per member. The original charges per hour were decided at $1.5 and the per mile charge kept at $0.4. The costing model was developed to cover the overheads and the costs of goods sold .

When the actual model was put into practice, several changes had to be made in the original plan of December 1999. For starters, the complete technology platform had not been implemented before the launch and so the system which was introduced initially did not have car specific zipcards. The keys had to be left in the glove compartment for each car as well as the wireless system was not developed yet. Even the records had to be kept and maintained manually by the members for billing purposes instead of the wireless based billing system as originally planned for Zipcar.

As far as the cost model was concerned, customers found the $300 annual deposit too high and it had to be reduced to $75 per year. To balance the revenue stream , the hourly rate was raised from $1.50 to approximately $5.5. So, the initial contribution per member was estimated at 2559.2 whereas in actual it came out to be $ 1723.2 (Appendix 3)

As per the original financial plan for December 1999, the variable costs per car were estimated at $7580 ( Appendix 4) while the plan for May 2000 estimated the cost per car at $8680 because of an additional parking charge of $600 per car. However, the actual cost was even more than that initially planned out since leasing companies charged more if additional cars were added while the parking and fuel costs were higher than expected. So the actual cost per car came out to be $9338 per car. However, with 350 current members and 12 operational cars, the total revenue adds up to be $603155 and the Total cost of goods sold are $112056 which gives a gross income of $391099.  With overheads cost of $180975, this gross income is enough to cover the overheads as well so the business does not seem to be in any sort of financial trouble.

With an additional revenue stream in the form of more members in the next five years, the business would see an increase in revenue stream and would become self-sufficient with lesser dependency on additional funds. Currently the business has to take care of additional set-up expenses in the form of the wireless system and fees for its consultants and software developers. Further advertising and research would also need to be done and all this needs additional funds which have to be generated in the form of a loan . The business does seem to have a regular cash flow and revenue stream for now and this would help in paying back the initial investment .


The September results mention an increase in the parking costs along with the increase in lease and fuel costs. Even with these additional costs, the business does seem to work out fine with 350 members as mentioned in the press release of June 2000 .

However, looking at the September results, it can be seen that the actual members enlisted are 239 rather than the assumed 350. This means that further efforts have to be made in increasing the number of memberships. It should also be noted that out of 112 new memberships, only 105 are approved while 7 are rejected in the September results. The business needs to focus more on advertising efforts instead of just relying on word of mouth and advertising through post cards . The business currently advertises at sub stations and near parking spots for their cars. Since the target market is mostly college students who would prefer to share a car than own it, advertising efforts could also be aimed at colleges in Boston. Chase should try to avail marketing strategies that compare the cost effectiveness of Zipcar with that of privately owned cars for making this venture worthwhile for the target market.

Another alternative is to target a different market altogether alongside the current segment. A different set of cars  can be used for the other segment which would be different from the current market . Corporate markets can be targeted and bigger vehicles can be used for corporate use. One advantage of targeting the corporate sector is that they are less price sensitive and ZipCar can charge higher prices from corporate members listed in the corporate plan.

Ultimately Chase has to consider finding alternative options for financing the technology platform that would be the main strength of the project. With lesser memberships, Chase should look at a plan of implementing marketing strategies that can attract potential investors so that the platform can be completed quickly.

The operating results also bring concern in the form of accounting practices which only book 1/12th  of the revenue from the membership fee of $75. Instead of following this conservative practice of accounting revenue, Chase could adopt a strategy of allowing revenue to be realized earlier so that the business can take an attractive plan for financing possibilities in front of potential creditors.

However, the September results do not portray any major problem that needs to be addressed other than the fact that the membership status is lesser than that planned out for the new venture and unless that is improved, the business may find itself with high costs in the form of overheads that may not be easily balanced with the revenue stream

zipcare Case SOLUTION


In attracting a potential investor to invest in ZipCar, Chase has to use a different strategy altogether which needs to focus on the financial attractiveness of the venture, making it seem worthwhile for an investor who would be putting $1.3 million at risk. Chase could discuss the concept of convertible loans as had been done for other investors in the past where investments of $50000 and $375000 had been taken as loans only to be converted into equity in the future.

Several arguments can be presented to potential investors for making this business model seem like an attractive investment. For instance, Chase could focus on the idea that the market for car sharing is growing at a rate of 30% annually which would mean that there is a lot of potential for new investors in this segment. Secondly, Chase could also show how the previous investors have only brought in capital of $375000 and $50000 which was to be converted into share capital or equity in the future while a current investment of $1.3 million would mean a greater share in equity for the potential investor.

Chase could further stress on the potential in the US market by pointing out that the US market was large and virtually untouched so far as far as the concept of car sharing was concerned. Bringing this concept into the US market with a full force using the wireless technology would give ZipCar a competitive edge. This concept could be further stressed by pointing out that currently there is no car sharing service in this particular side of the East Coast and by launching this service in Boston and in other states in the US, ZipCar would be looking at a market of immense potential.

The strongest argument that could be put forward is that of ZipCar launching a service which would be using a wireless security and data transmission system. Not only would this be an innovation, it would be a new concept altogether and investing in such a business venture would generate positive revenue inflows since customers would be looking for convenience and cost savings in the form of a new idea.

The strategy to be adopted at the Springboard forum would be different altogether. It should be focusing on the idea of women entrepreneurs working on developing a model which is generally not considered viable for females. Therefore, the entrepreneurs would need support in the form of encouragement and financial help for taking the idea forward. Along with that, the environmentally friendly concept of the car sharing model could be addressed at the Springboard forum with a specific emphasis on the idea that this concept would cater to the demands of 7.5 individual car owners so that would mean one shared car would replace 7.5 individually owned ones.

Likewise, the focus can further be on the fact that this venture would bring about ease of use and cost savings for the general American individual. This would lead to major costs savings for households that would be needing transportation but would prefer not to get into the hassle of handling a car and its maintenance.

Through these strategies, Chase can put forward her case in front of the private investor and at the Springboard and can present it as a worthwhile idea which would get financial and moral support.......

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