Analysis of Business Model of Zipcar - Case Study Example

?Zipcar Table of Contents 0 Evaluation of the Potential Venture and the Progress made by Chase 3 2.0 Business Model and Changes between Dec. 1999 and May 2000 4 2.1 Business Model 4 2.2 Changes between Dec. 1999 and May 2000 5 2.3 Operations in September 5 3.0 Action to Be Taken due to the September Numbers 6 1.0 Evaluation of the Potential Venture and the Progress made by Chase Robin Chase and Antje Danielson, the co-founder of Zipcar had made a plan to start up the business venture in 1999. They made the plan at the end of the year 1999 and in January 2000, after raising the fund of $50,000 from angel investors they had incorporated the business plan. For expanding their business in other cities of the US, they required sufficient funds from other investors. Their plan was to render convenient delivery and easy access to the urban subscribers. The car sharing idea was the best for urban people as they can access it with low cost and it was also an alternative of private car. From their research, it was found that majority of the Americans lived in urban areas and the car sharing business was less in number in the US. Thus, it would be a good business in the US. But in 1999, several competitors of Zipcar already existed in the market and they had to make profit in spite of the competition. They had taken various pricing strategy by analyzing the existing price model of the competitors. Chase considered that they would make average revenue of $10,000 to $12,000 per year for each vehicle. In Boston, they planned to start up as the place had less parking charge and a good transportation system. The place also had college educated and web connected individuals. The entrepreneurs had used maximum of their capital for technology development of Zipcar. In May, Chase had decided to change the pricing model of the Zipcar. The membership fee was lowered and the hourly charge was increased. The daily rate had also become $44. Thus, they could earn $5.50 per hour per customer. With the loan of $25,000 from another investor, they hired 12 cars in June 2000 for expanding their business in Boston. Therefore, in June 22, 2000 they deployed first three cars in the market. Chase was steady to maintain the image in every marketing material. Zipcar in June 2000 got first press publicity. This attracted the press both nationally and internationally. In October 2000, Zipcar spent $375,000 and development was done in various fields. The technology platform of Zipcar was improved; a patent on the technology was enlisted; vehicles at perking locations throughout the city were deployed and 250 members were enlisted. Due to huge demand, the vehicles were increased to 19 in numbers and there were 250 members by the end of October 2000. They were progressing from that period. 2.0 Business Model and Changes between Dec. 1999 and May 2000 2.1 Business Model The cofounders of Zipcar confirmed that the car sharing idea was feasible in North American market place. The cars would provide a solution for people who did not require a car to go to work but wanted the ease of a private vehicle to fulfill the need for a few days. The subscribers would open the website of the company to reserve specific cars in particular locations. Telephonic facilities were also provided. Reservations of the car were done in advance at least before two months but it could also be made without notice according to the availability. Pricing of the Zipcar was structured by the existing price of that model. The assumptions of the business plan were: prospective customers would be necessary for membership and they would pay $25 non-refundable application fee, security deposit of $300 which was totally refundable and annual subscription fee of $300. Chase assumed a renewal rate for members of 95%, which converted into a 5% attrition rate each year. From the research, they observed that mature European companies had 50% utilization of each vehicle. Thus, Chase had planned to initially target maximum of 40% utilization as the actual usage patterns were uncertain. They planned to hit the road in Boston in June 2000 as the place had less parking charge and the transportation system was excellent. Since the individuals were well educated, it gave them the benefit to easily access the technology of Zipcar. The funding was raised from different investors for expanding the business. 2.2 Changes between Dec. 1999 and May 2000 Chase and Danielson made the business plan and research of car sharing at the end of the year 1999 and incorporated it in January 2000. They received the funds from angel investor amounted to $50,000. Chase had provided full attention to the funding of the business in order to expand it. The technology of the Zipcar was developed therefore the customer could make online reservation. There was insufficient fund for expanding the business. Thus, Chase conducted presentation to the group of angel investors called “Investor Circle” and tried to convince them about the Zipcar. Various pricing models had been structured during this period. The name, logo and tagline of the company were also created. 2.3 Operations in September The loan which they had taken in the month of January had been used up till the month of September. The expenses for the technology development of the Zipcar were rising quickly. The miscellaneous expenses were also costly compared to the revenue from the business. The revenue was not sufficient to fulfill the demand as their strategies called for low cost with convenient servicing. A person from large company was hired to make a strong team but the case was reverse. He wasted fund by indulging in unwanted expenses which were not required for the business. Thus, they faced problems in earning revenue from the business. It was of concern as the cost was rising in comparison to the revenue of the business. 3.0 Action to Be Taken due to the September Numbers Various actions should be taken for overcoming the problems of revenue. Pricing strategy should be structured in a precise manner in order to gain revenue from the business. The low cost strategy with convenient servicing should be removed and in place of it cost should be fixed according to the services provided to the customers. As the Zipcar is technologically updated, the charge could be fixed depending on its features and facilities. The revenue could be gained easily by the strategy of high cost with qualitative and convenient services to the customers. Read More