ZIPCAR: CASE ANALYSIS

VARUN LOYALKA MIM F1

In September, 1999, Zipars co-founder Antje Danielson returned from a trip to Germany
with a new business proposition based on the car sharing market which was then valued to be
around $200 million. In late 1999, Danielson along with her friend, Robin Chase, decided to
launch a company based on this model. Zipcar would lease and insure cars and park them at
various points throughout Boston which would allow the cars to be easily accessible to the
subscribers of Zipcar. Members would need to pay a non-refundable $25 deposit to submit
their application and, if approved, would then pay $300 as a refundable security deposit.
Along with this, a $300 annual subscription fee applied. Zipcar would charge per use of the
car as well. $1.50 per hour plus $0.40 per mile. An attrition rate of 5% per year was assumed.
Chase had secured several contracts which would allot Zipcar parking space throughout the
city. However, this initial business and financial model underwent several large changes.
Upon further research, Chase found that it was becoming increasingly difficult to secure free
parking in the city and that parking would cost the company $600 per car per year. Also, the
lease cost per vehicle, which was assumed to be $4,000 per car per year was increased to
around $4,400 per car per year because the leasing companies perceived a higher credit risk
in leasing to Zipcar. The Access equipment required for cars was increased from $400 to
$500 per car and the attrition rate was seen to be around 15%. Financially, it was found that
users would be unwilling to pay a steep $300 annual fee and this was reduced to $75 per user
per year. To recover this decrease, the per hour charge per car was increased to an average of
$5.50 and the daily rental option was kept at $44 to compete with the traditional renting
companies like Avis and Hertz.
In September 2000, Zipcar has done fairly well in terms of the number of subscribers. They
have managed to secure 239 new subscriptions from the Beta to September and seem to be on
track for matching their projection for 440 new users by the end of 2000. But, in terms of
their billing in miles and hours, where they had predicted to get $92,000 and $232,000, they
are not doing so well. If September is taken as the benchmark, then this would give them
yearly revenues of only $96,000 in terms of car billing. However, in September, they
managed to get a hold of 101 new members, up from 64 the previous month. So, it remains to
be seen if they can continue to sustain such a growth. I feel that the data for September is
comforting for such a new startup in Boston run by only 1 full time employee and 1 part time
employee who, previously have had no experience in running a business.
If I were Robin Chase, I would continue to do what I was already doing. Although, I would
try and make the technology required to access the cars more up-to-date and try and invest a
little more on marketing. Chase had invested only $7,000 in 2000 up till September which,
although quite successful, now that they had a bigger user base, the need is there to expand
rapidly and meet the financial projections pitched to investors. The only way to do that would
be to get a lot of new subscribers. If Chase were to reach this financial target, the investors
would gain more confidence and she would have a better chance of securing the additional
$1.3 million capital she requires to solidify the business. One more area which requires
attention would be the pricing model. As stated earlier, the financial projections made were a
bit too optimistic, especially in the hourly revenues. Perhaps Chase could employ a higher
price per hour during the times when there is more demand, specifically during the nights and
weekends where the usage is about 60%. If Chase manages to do these things, I think
Zipcars future is bright and secure.