ZipCar: Refining the Business Model Harvard Case Solution & Analysis

Question 1

Evaluation of Potential Venture:

Zip car is a large market opportunity that can be turned into a successful business venture.The opportunity has already turned into growing businesses in Western European countries, even without the extensive marketing the growth rate is 30% and same can be done in the United States where the population of top 20 US markets is more than 65 million.

The option of car-sharing is attractive economically for the users who do not use their cars regularly and need them occasionally, where each car monthly cost exceeds $575. In addition to this, the trend is changing and people are interested in the services that Zipcar is providing as it is a better option than owning a car and using public transport. With more access to the internet due to the advancement of technology, the online model of this business has a huge potential to grow in the future.

The industry in the U.S is untouched at the moment with no major players, as there are only two car-sharing companies working in the industry, which too are not running the businesses for profit though traditional car rental agencies like Avis or Hertz might enter the market.This will create a big effect for Zipcar as these companies would have no problem to finance the venture and can easily take over the market.

The main reason to provide the services is to target people who need cars occasionally and to save customers from hassle of ownership, freedom to travel. The pricing strategy is made by Chase after considering variables and variations of the companies that are already in the same business around the world.

There are several components to the price structure made by Chase, that are security deposit, initiation fee, annual free, monthly fee, per mile fee and per hour fee and daily rates. The main target of Chase is to cover the cost of goods sold,and then to cover overhead to break even. Prices are set by looking at what other rental providers rent for a day and staying below that to attract the customers.

The first price structure forwarded by Chase is three upfront payments that include $25 to become a member that is not refundable, $300 onetime refundable security deposit and a $300 of annual subscription fee, the main problem here is to see if the customers are willing to pay such amount upfront and do they have the spending power as European people have? The attrition rate is 5%.

Financing has become a big problem for Zipcar, mainly due to the lack of information of the business in the market and no major experience in the industry of Chase and Daniel son and most financers were hesitating in giving loan to Zipcar.The minimum level of funds is acquired by small investors. Another major issue here is technology, even though the software is made and patents are registered however,it usually takes years to make it perfect and competitors usually work around these patents.The change in pricing model after research to make it more comfortable and locally acceptable is a good step, which shows that the first model was made with the lack of full research and knowledge of the business.

The marketing strategy chosen by Zipcar is of low budget however, it is effective and targets the potential customers who use internet and only provide minimum information in the advertisement.Zipcar tried to keep the cost as low as possible by not employing any full time employees;however, it opted to hire an experienced employee who could bring expertise and credibility in the team to help raise the funds. This is because not having the experience to hire anyone previously turned against Chase as she had to get rid of the experienced President.

Overall, Zipcar does not have a very good team, with Chase giving her 100% to push the business forward, while Daniel son is busy with her personal time and gives her minimum time to Zipcar.

Progress:

Chase successfully raised $375000 by mid-October through angel investors, friends and family, which shows that Zipcar needs a good team and experienced employees who can help in raising funds.However,the business grew and the number of cars exceeded to 19 and 250 members registered with Zipcar.

A big mistake made by Chase was to launch the business before Zipcar was ready and unable to provide the full services to the members and the process of recording the miles and providing Zipcard for separate cars to separate customers failed.In addition, most of the processes, which were planned to be automated, became manual.......................

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