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Porter’s five forces applied to Zipcar
Threat of new entrants:
Potential new entrants include existing car rental firms, companies that currently supply cars to car-sharing businesses (such as Volkswagen), and new start-up car-sharing ventures. As Zipcar is operating in only Boston, there are opportunities for new entrants (with sufficient resources) to establish themselves as dominant car-sharing service providers in other cities. This threat to the profitability of Zipcar’s planned future expansion activities would pressure Zipcar to expand rapidly in order to remain ahead of the competition. A major barrier to entry is Zipcar’s patented technology involving wireless transmission of usage data between the shared cars and a server. New entrants would require substantial time, human, financial and technological resources in order to design, build and implement technology to rival Zipcar’s patented systems. They would also need to reach agreements with car manufacturers concerning the supply of vehicles, and secure parking spaces exclusively for subscribers. Threat of substitutes:

Major substitutes are taxi, rental car and public transport services. As prices must remain below or equal to those of aforementioned substitute services, a price ceiling has effectively been imposed on Zipcar. 5

Bargaining power of suppliers:
Suppliers have little bargaining power as consumers are price sensitive and would face few switching costs in replacing Zipcar with available substitute services. Bargaining power of buyers:
Buyers have the power to force prices down by threatening to switch from Zipcar to substitute services. Rivalry among existing competitors:
Rivalry between car-sharing businesses is limited because car-sharing companies in the U.S. are not targeting each other’s geographical markets. Zipcar operates in Boston, Car-Sharing Inc. in Portland, and Flexcar in Seattle. Rivalry is strong between Zipcar and companies providing substitute services, and this competition revolves mostly around price rather than differentiation. 6

Business Model
Unlike car-sharing companies that already existed on the U.S. West Coast, Zipcar has represented itself as an environmentally friendly company. This image is emphasised by Zipcar’s green logo, which conveys simplicity and cleanliness. Zipcar further distinguishes its services from those of other car-sharing companies, and delivers value to customers, by focusing on: 1. Cost-effectiveness

2. Convenience
3. Technological advancement
Drivers pay only for what they use in terms of time and mileage. Fuel, insurance and parking charges incurred by drivers of shared cars are paid for by Zipcar. However, drivers are expected to maintain the cars and are responsible for any traffic or parking tickets incurred. In 1999 the price of usage was low, as profits were generated from subscribers’ annual fees of $300 each. However, the annual fee was reduced to $75 in 2000 in response to complaints from consumers who could not 7

afford to pay such a large amount. The decrease in annual fee was accompanied by the implementation of a tier pricing structure for vehicle usage. This tier pricing model has improved the cost-effectiveness of operations and secured more subscribers (those who would prefer to be charged primarily on the basis of personal usage rather than be required to pay a large fixed annual fee), resulting in profit increases for the company. Exhibit 1 illustrates that the tier pricing model implemented by Zipcar in 2000 is generating profit for the company. Monthly usage per member generates most of Zipcar’s revenue. The monthly cost of a car provided by Zipcar, $40.19 (Exhibit 2), is significantly less than the $575 monthly cost of owning a car. Zipcar has also adopted a low cost approach to marketing. The company relies heavily on word of mouth (estimated 30-40 per cent of advertising) and free media (25 per cent) for promotion, as well as cheap (to produce) postcards and brochures...
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