Zipcar experiences a number of problems, which are common among the start-ups. It encounters crucial strategic decisions before beginning to expand and open its business. More importantly, the initial business plan was designed utilizing the comparisons and assumptions of a European market hence the necessity to revise it to adhere to the American market and utilize existing experience (Hart, Roberts & Stevens, 2005). Antje Danielson in 1999 came up with the idea of starting Zipcar and she consulted Robin Chase about the concept of car sharing. In fact, Danielson had learnt of the model of car sharing in her visit to Germany. Moreover, she discovered that it was an emerging trend across Europe. Chase and Danielson agreed to be business partners and they started to design their business plan and to pursuing its funding (Hart, Roberts & Stevens, 2005).
However, the main challenge the entrepreneurs encountered from potential investors was that no entrepreneur had an adequate practical experience to operate car sharing business or automobile industry. The business model in this industry was characterized by a complex operation. They also realized that the main team together with probable investors’ opinion of that team is important to acquiring support. The problem was also evident because Danielson and Chase could not obtain more funds ($1.3M) to finance their operations (Hart, Roberts & Stevens, 2005). Similarly, the vehicle cost was higher than they had originally planned. Customers were not eager to pay huge fees per year, but they would be eager to pay a higher amount of fees every hour. Additionally, it was quite challenging to acquire free car parking because all of them were charged. Furthermore, since the entrepreneurs provided a service, which was formerly nearly non-existent in the United States markets, it proved to be challenging because there was an absence of focus on the feedback of customers, which prevented Danielson and Chase from totally comprehending the public perception. In this regard, they could not understand the customer value associated with that type of service. The technology to interact with the customers was not developed on time hence it did not assist to achieve the goals of the company (Hart, Roberts & Stevens, 2005). For this reason, continuous revision of the Zipcar business model was required.
Based on the Zipcar case study it was essential for the company to understand the key challenges and the manner in which they could be solved. The firm should review its business model because the competing organization could make the business venture non-viable (Porter, 2008). Customers had the power to move to other brands because the cost of switching was low. The main business rivals included Flexcar in Seattle and Car-Sharing Inc., based in Portland. There was a limited number of principal organizations in the market including Budget, National, Avis, and Hertz (Hart, Roberts & Stevens, 2005).
The potential entry of new competitors is low because there are myriad of entry’s barriers. Precisely, high capital levels are required in the initial investment to facilitate exposure to distribution channels (Porter, 2008). Additionally, the market is characterized by low supplier’s loyalty and non-existent product differentiation. The industry does not have precise laws, which could influence the operations. The bargaining power of suppliers is quite high because there was a wide range of cars suppliers with a comparable offer of products. Furthermore, the industry lacks many alternatives or substitutes. The risk associated with the forward integration is quite high (Porter, 2008). The buyers’ bargaining power is also high because the market provides customers with lower changing costs and there are several operators delivering similar services.
Zipcar Study Questions
As VC for Zipcar, the business plan needs several revisions to make it viable. Zipcar idea is good for business because it seek to meet the needs of the people (customers) and have initiated a proprietary technology to safeguards its competitive advantage. There is an opportunity in the market to deliver convenient, low-cost and better services to customers (Porter, 2008). The context and deal is characterized by robust financial projections to imply a feasible business model
Based on the plan, I would ask Zipcar for a meeting because if they can revise their business model to deal with emerging issues it would be a profitable venture and key milestone in the industry (Elsbach, 2003). For instance, to deal with high bargaining power of buyers and suppliers, it should introduce differentiated products (Porter, 2008).
The planned business plan had several assumptions especially in the variable costs such as access equipment, lease cost, and parking costs. The initial fee formerly charged to customers was very high hence; it was turning out to be a substantial hindrance for new customers. On the other hand, the actual business plan increased the rate of usage per mile to balance the lowered annual fees and variable costs (Day, 2007).
By increasing the raising the variable costs to $474 from $414, (15 per cent) per member, it would lead to an upsurge to $1,890.4 from $1,347.4 per member which is a revenue growth of 40 per cent. The values represent a rise of 52 per cent to anticipated margin per member to $1,417 from $934 (Hart, Roberts & Stevens, 2005). Consequently, the firm could achieve the breakeven point with 269 members or 15 vehicles. Nonetheless, the company needs to make further changes to reduce the costs of parking, fuel, leasing by 25 per cent, 10 per cent, and 9 per cent respectively.
The management of Zipcar should take key measures to achieve its goals. Precisely, the organization should hire and retain knowledgeable staff and leadership that can use practical skills and information to steer the business forward (Sahlman, 2008). For instance, it should have an advisory board, which would establish a knowledge base that spurs organizational growth. In addition, the firm should institute processes that attract environmentally cognisant and financially savvy customers (Porter, 2008). In this respect, the firm should seek to have diverse revenue streams, which can inspire faster transformation. Zipcar should also use technological advancement in its business (Stevenson & Spence, 2009). For instance, installing patent-pending equipment in its vehicles it would facilitate customer satisfaction and communication. Moreover, it would also reduce the operating costs (Elsbach, 2003).
The firm should come up with ways of reducing the variable costs in its business such as parking, insurance, and gas costs which will translate to higher profit margins. More importantly, it should take advantage of the benefits of partnerships (Day, 2007). For instance, it can enter a partnership with one of the parking firms aiming to reduce the parking costs. Finally, it should also apply the customer feedback to retain customers and to continue to establish a robust brand and business (Sahlman, 2008).
Day, G. S. (2007). Is it real? Can we win? Is it worth doing. Harvard business review, 85(12), 110-120.
Elsbach, K. D. (2003). How to pitch a brilliant idea. Harvard business review, 81(9), 117-123.
Hart, M., Roberts, M. J., & Stevens, J. D. (2005). Zipcar: refining the business model. Harvard Business School Pub..
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Sahlman, W. A. (2008). How to write a great business plan(No. E70 90). Harvard Business School Press.
Stevenson, H., & Spence, S. (2009). Identifying and exploiting the right entrepreneurial opportunity…for you. Harvard Business School, 1(3), 1-12.
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