Harajinder Kang Zipcar Case Analysis

1) Please assess the overall validity of the Zipcar business idea:

Opportunity Looking at Exhibit 5, we can see that by Year 5 Net Income is estimated to be
$1,053,688, an increase of 16.47% from Year 4 projections and an increase of almost 1400%
from the Year 1. These figures imply a growth opportunity, especially as they have only
considered (in these financial plans) the projections for Boston. If they can capture the
market and expand the service into the 14 proposed cities then basic projections for Year 5
could reach a net income far higher than proposed in the financial plans.
History Similar services have succeeded in Europe, but despite a number of firms being
successful the market was fairly segmented between 200 firms in 450 cities.
Alternatives/Competitors Competitors did exist within the US, but operated in a similar
fashion to the European companies by concentrating on their core market locations. The
worry, due to the lack of barriers, would be established companies entering the market.
Team Chase and Danielson lacked one important factor, experience of the market. In
order to further attract investment (which they originally found difficult due to this factor),
this gap in their shared knowledge and experience should be addressed.
2) Why did the founders revise their financial plans?
By conducting research it became clear that the European model would not be suitable in
the US. $300 was too prohibitive and failed to create the intended customer value
proposition. Even though there was no market to try and gain a market share within, there
were still a number of alternatives. Zipcar changed to more of a blade-and-razor model,
where the membership acts as the blade in order to better penetrate the market. To
ensure that the financial model was still viable and the break-even point was still achieved
in a suitable time, Chase introduced a tiered pricing system, with the revenue-emphasis
based on usage rather than membership.
A number of costs had also been underestimated, such as the attrition rate, lease, access,
and parking costs. These had to be adjusted to enhance the proposal to informed investors.
3) What can you learn from the real operation data?
Overhead expenses as a whole the cost seems high, but only $14,000 is attributed to
Boston, whilst $30,000 are assigned to corporate overhead expenses. Once further
branches open, this corporate overhead expense will be split between them.
Total Usage Trips during the night and weekend periods account for 60% of Total Usage.
Zipcar should ensure that it has enough cars to accommodate this high-demand period.
Hourly Use Throughout the case, it is clear that Zipcar will not be able to increase the
price of daily usage (a fixed charge) due to competition from established competitors, but
the opportunity remains to increase the hourly charge (a variable charge) to customers.
Ending Members & Total Trips average amount of trips taken is 1.4, lower than the
predicted 4 trips. The potential to improve the service may exist, perhaps increasing the
ease of use/convenience of the Zipcar, or improving the availability of vehicles.
Attrition Rate is 2.85%, lower than forecasted in the revised financial plan, showing that
Zipcar has perhaps found a model that works for meeting the needs of the market.