An Introduction to Car-sharing & Zipcar Essay

Custom Student Mr. Teacher ENG 1001-04 15 February 2017

An Introduction to Car-sharing & Zipcar

Back in 2000, in lieu of overcrowding in the US car rental market, Zipcar implemented a blue ocean strategy and established its car-sharing business as the dominant alternative to car ownership. Compared to car rentals firms that charge users on a per day basis, Zipcar offers users the flexibility of deciding the number of hours and distance of car usage. In addition, unlike car rental firms which require customers to pick up the cars from their offices, Zipcar allows members to pick up a car from their nearest parking lots located at strategic points throughout metropolitan areas. The added convenience over the traditional car rental business model, coupled with Zipcar’s first mover’s advantage in the US market, led Zipcar to be the largest car-sharing company in the world, with a total of 570,000 members and 8,000 cars.

Zipcar’s Service Proposition – 4 Simple Steps to Driving a Zipcar Firstly, new users are required to apply for a Zipcar membership which costs about USD60 annually. Secondly, users proceed to reserve a specific car model at their preferred nearest location, via phone, online or the Zipcar mobile application. Thirdly, users proceed to their reserved cars and unlock their cars by having an RFID scanner located on the car’s windscreen scan their assigned Zipcards. Lastly, users return their cars to designated parking lots and will be subsequently billed on a per-hour basis, without having to pay for fuel or insurance costs.

Zipcar’s Four Market Segments

The bulk of Zipcar’s operations is located within the US, although it does operate in selective cities of Canada and the UK. Its revenues come from the following four market segments. Individual Membership| Servicing individuals who prefer car-sharing to urban car ownership due to significant cost savings| Universities| Working with universities to address the lack of parking lots by providing car-sharing to staff and students and reducing the number of cars on campus| Businesses & Government| Working with businesses and local governments to meet environmental goals by providing employees access to Zipcars and encouraging car-pooling| FastFleet System| Selling its proprietary and trademarked car-sharing management systems to organizations interested in implementing an internal car-sharing program| Opportunity for Zipcar to Enter the Growing European Car-Sharing Market In 2006, the European Union (EU) announced plans to drastically reduce greenhouse gas emissions and the carbon footprint across European nations.

Under the new EU energy policy, European nations are required to report their annual carbon dioxide (CO2) emissions. As such, given their ability to reduce the cars on the road and consequently the greenhouse gas emissions and carbon footprints, car-sharing services flourished in Europe. According to Frost & Sullivan, the revenue from car-sharing in Europe is likely to hit $2.6 billion EURO ($3.4 billion USD) by the 2016. This figure even exceeds the projected US car-sharing revenue in 2016 of $3.3 billion USD. Given that the European car-sharing market is likely to be more lucrative than the US one, Zipcar should not miss out on the opportunity to expand its operations to Europe.

Our Recommended Goal for Zipcar and Reasons for Recommending It Despite lacking a first-mover’s advantage, we recommend that Zipcar sets its sight on penetrating the European car-sharing market, specifically Germany and Switzerland, and seizing market leadership in the long run. Our group proposes the use of creative collaboration strategies as a workaround to Zipcar’s lack of first-mover’s advantage when entering the aforementioned markets. These strategies will be further elaborated upon in Component #2. Our recommendation of seizing market leadership in Switzerland and Germany is based on the following reasons. Firstly, Zipcar’s acquisition of UK car-sharing market leader (Streetcar) in addition to its minority stake in a Spanish car-sharing start-up (Avancar) provides a solid geographical platform for expansion across Europe.

By tapping on the knowledge base regarding the European car-sharing scene Streetcar and Avancar built up over the years, Zipcar could better understand the differences in consumer preferences between European car-sharing customers and their US counterparts without any incurring any market research expenses. Zipcar could then tweak their car-sharing offering and achieve higher levels of market-fit. Secondly, Germany and Switzerland make up 35% and 19% of the European car-sharing market respectivelyv. Apart from the UK, which Zipcar is a market leader in due to its recent acquisition of Streetcar, the remaining European nations only make up single-digit market shares amongst the European car-sharing market.

Since Germany and Switzerland make up almost half of the European car-sharing market, entering these two markets instead of other geographic markets should give them the greatest Return on Investment (ROI). Thirdly, by targeting high-growth car-sharing markets like that of Switzerland and Germany, Zipcar can reap substantial economies of scale and scope, which will lead to a lower cost structure, as it increases the size of its car fleet to meet the increasing demand for car-sharing in these nations. For example, Zipcar could negotiate bulk insurance deals at cheaper rates with insurance companies. Seeing as how Zipcar’s recent profit margins have been eroded by increasing operating costs like soaring prices of petrol, it is important that Zipcar explore cost savings through economies of scale and scope to ensure long-term sustainability of profits.

Competitive Advantages that Helps Zipcar Fulfill Long Term Goal Firstly, as a car-sharing firm that owns the largest car fleet in the world, Zipcar has developed numerous patented technologies and invests heavily in research and development to uncover new innovations that might strengthen its technological leadership. For instance, its patented “Z3D Knowledge Center” technology is capable of synchronizing and displaying real-time information like reservation cost, vehicle location maps on various consumer touch-points like the online website, Zipcar mobile application and telephone reservation system. Looking forward, Zipcar is planning to use its proprietary wireless data network to be the first car-sharing provider to implement in-car Bluetooth and even Internet Wi-Fi services.

Secondly, over the years, Zipcar has been building a significant amount of brand equity. Today, Zipcar is a brand that is synonymous with car sharing and environmental conservation. Its powerful brand and trustworthy brand name is underscored by the numerous awards it has won over the years. For example, Advertising Age Magazine named Zipcar in its 2009 list of “Top 30 World’s Hottest Brands”. Given its powerful brand, Zipcar will find it easier to gain the trust of potential collaborative partners. However, transferability of these competitive advantages across geographical boundaries might be held back by differences in consumer behaviours and competitive landscape.

For instance, Europe and the US have radically different GPS networks and Zipcar might encounter challenges in implementing its patented GPS-reliant “Z3D Knowledge Center” technology in Europe. The extent to which Zipcar could leverage on its competitive advantages will ultimately depend on the effectiveness of its deployment strategies. Potential Pitfalls that Zipcar Should Look Out for When Pursuing its Goals While penetrating the European market, Zipcar should be wary of the threat it might face in the US market from an emerging form of car-sharing where online communities like Zimride allow individuals to form car pools with others who reside near them.

It is important that Zipcar hedge against this increasingly popular form of car-sharing by not overcommitting its financial capital to the European market, and allocating a fixed portion of its annual marketing budget to the US market, in order to differentiate itself from Zimride as the superior car-sharing offering through the use of creative marketing initiatives and even sales promotions.. Challenges Faced as a Second-Mover into the Germany and Switzerland Market We established in Component 1 that Zipcar’s next logical course of action will be to compete for market leadership in Switzerland and Germany.

However, this will be an uphill task, as Car2Go and Mobility, the respective market leaders in Germany and Switzerland, have leveraged on their first movers advantage to erect significant barriers to entry. Firstly, as first movers, Car2Go and Mobility have established themselves as technological leaders and have shaped customer expectations regarding car-sharing technological features. For instance, Car2Go has installed patent-pending electronic dashboards in their cars, which allows users to get directional help via GPS technology, as well as keep track of distance travelled and its resultant costs. Zipcar on the other hand, is in the midst of implementing such technologies and might come across as an inferior choice to certain group of customers.

Secondly, Car2Go and Mobility have pre-emptively secured scarce assets vital for success of a car-sharing business. Being first on the scene, they have secured strategic and limited parking lots around the cities as their designated car-sharing parking lots. Facing the above second mover’s disadvantages, it will be challenge for Zipcar to enter the new markets in the conventional manner. As such, our team recommends using creative collaborations strategies, tailored specifically for Germany and Switzerland separately. Entry into Germany as a Second-Mover via Collaboration with a Railway Operator * Reasons Why Zipcar Should Collaborate with Deutsche Bahn AG By collaborating with Deutsche Bahn AG (DBAG), the government-owned railway operator, Zipcar will gain swift access to scarce resources in form of car-sharing parking lots.

In the urban areas, most of the limited viable parking lots have already been converted into Car2Go’s designated lot due to their first mover’s position, leaving close to none for new entrants. Being a state-owned public transport operator, DBAG holds strategic state-owned land areas in urban districts, which could be converted into designated Zipcar parking lots. This is made possible by a German legislation allowing government authorities to authorize the conversion of state-owned land into car-sharing stations and lots. As such, Zipcar avoids the lengthy process of acquiring parking lots on their own prior to beginning operations, during which Car2Go would have continued to strengthen its market leadership in the absence of Zipcar.

* Reasons Why Deutsche Bahn AG Would Want to Collaborate with Zipcar The DB brand is synonymous with being the “frontrunner on climate protection”. By collaborating with Zipcar, which “takes 100,000 cars off the road and reduces carbon dioxide emissions by 150 million pounds annually”, DB could tap on Zipcar’s credibility and proven track record of being environmentally friendly to enhance its brand equity as consumers start to closely associate the two brands over time. Besides, prior in-depth studies in European nations have shown that collaboration between car-sharing and public transport firms have resulted in higher profit margins for both party. * Executing the Collaboration and Achieving Long Term Market Leadership This collaboration will seek to integrate different transport options, giving citizens in Germany the option of catching a train for the main part of a trip, before picking up a Zipcar at a specific station and drive for the last part of the journey.

The customers of DBAG are an ideal target segment for Zipcar to extend its service offering to, as these frequent railway commuters are unlikely to own a car. Hence, Zipcar should launch initiatives that convert railway commuters into Zipcar members. For instance, Zipcar could execute joint marketing campaigns with DBAG promoting joint-package pricing programs where consumers enjoy discounted rates for railway train rides and Zipcar’s car sharing services. Zipcar can also leverage on the unique marketing channels DBAG offers by posting marketing collaterals in railway stations and within trains themselves to educate commuters about its car-sharing offer. Given that countless Germans take the railway every day, this serves an effective platform for Zipcar to reach out to an enormous target group.

These marketing collaterals should also make the partnership between DBAG and Zipcar obvious, through slogans like “Zipcar – the public car from DBAG”. Knowing that the service is jointly-offered by their established and trusted public operator, consumers will be more receptive to Zipcar’s offer. In the interest of user convenience and expediting the adoption rate, Zipcar should clearly indicate on the DB railway transport route map which stations offer car-sharing services. Zipcar should also station staff at railway stations providing reliable information regarding car-sharing. Entry into Switzerland as a Second-Mover via Collaboration with Universities Mobility, the Switzerland car-sharing market leader, is involved in a collaboration with the Swiss Federal Railways. Hence, Zipcar cannot use the same collaboration strategy as what we proposed for Germany and we suggest Zipcar collaborate with local universities instead.

* Reasons Why Zipcar Should Collaborate with Switzerland Universities Zipcar lacks a knowledge-base about the Switzerland car-sharing market, particularly consumer preferences and strategic locations where car-sharing is in high demand. By collaborating with local universities that serve an importance source of learning, Zipcar could rapidly build up its knowledge-base through interactions with tertiary students, as compared to venturing into the market alone without any form of market intelligence or research. Universities are also ideal collaboration partners as college students are generally open-minded youths who form the majority of the “early adopters” who are eager to try new innovative ideas like car-sharing.

* Reasons Why the Switzerland Universities Would Want to Collaborate with Zipcar The collaboration with Zipcar achieves a strategic fit – reduction of carbon footprint. Switzerland is one of the leading environmentally friendly countries due to continuous governmental efforts to promote a green lifestyle. Zipcar’s mission statement of reducing global carbon footprint will resonate well with these government-linked universities. In addition, most Switzerland universities, especially those located in the city, face parking management issues due to the lack of land and face an institutional need to reduce cars parked on campus. Collaboration with Zipcar provides a cost-effective manner of solving the above issues, given Zipcar eight-years’ worth of partnership experience with US colleges, during which they achieved a proven track record of cutting down the number of cars and traffic congestions in various campuses.

* Executing the Collaboration and Achieving Long Term Market Leadership Initially, Zipcar should focus on promoting mass adoption among university students. As it is a rite of passage for most European graduates to purchase a car when they leave school, it is crucial for Zipcar to get students to experience the benefits of car-sharing first-hand and warm them up to the idea of a car-free lifestyle post college years. Since most university students have limited spending power, Zipcar should tailor its marketing initiatives to convey the cost savings students will enjoy as a Zipcar member, due to their lack of a need to pay for car insurance, parking and rising fuel prices. Zipcar might also want to emphasize a story of convenience, where students’ matriculation cards could double as Zipcards that unlock Zipcars.

Taking into consideration that university students are mostly Millennial (adults belonging to Generation Y), who are progressively getting more environmentally conscious, Zipcar could also highlight the fact it offers a selection of hybrid cars, like the Totyota Prius and Citroën C1. Upon achieving mass adoption status, Zipcar should convert graduating college students into life-long Zipcar members, by offering incentives of lower annual membership fees and loyalty points. By targeting a specific target segment (i.e. college students) instead of competing head-on with Mobility for the same group of customers, Zipcar can steadily grow its market share and eventually emerge in a good position to challenge for market leadership.

Bibliography

i Baan, J., Mack, D., Murphy, T., Sharma, S., & Watson, L. (2011, 08 22). Zipcar to set the Pace in Race for “Young Urbanite” Market. Glendale, Arizona, USA. ii Edgar Online. (2011, 04 14). Edgar Online – ZIPCAR INC. Retrieved 10 22, 2011, from Edgar Online: http://www.edgar-online.com iii Garthwaite, J. (2011, 4 14). Car Sharing Startups Bask in Zipcar’s I.P.O Glow. New York, USA: New York Times. Retrieved 10 22, 2011, from NY Times.com: http://wheels.blogs.nytimes.com/2011/04/14/car-sharing-start-ups-bask-in-zipcars-i-p-o-glow/ iv Zipcar Inc. (2011, 01 01). How It Works. 4 simple steps to freedom from car rental and ownership – Zipcar. Retrieved 10 22, 2011, from Zipcar: http://www.zipcar.com/how/ v Zipcar Inc. (2011, 01 01). Rate & Plans, car sharing instead of car rental and owning a car – Zipcar. Retrieved 10 22, 2011, from Zipcar Inc: http://www.zipcar.com/dc/check-rates

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