Zipcar has a challenge beyond profitability. It needs to innovate in two ways: technology wise, and consumer service wise. As of September 2000 Zipcar has managed to start operations and gain subscribers in a constantly increasing rate. However we will analyze some key aspects Zipcar needs to address.
Financially Zipcar needs to keep growing in customers but especially in returns. Cost reduction is maybe a second point financially but by all means needs to be addressed in the near future. Today’s model shows us that 35% of the car days are being used in a daily manner, which is a traditional rent a car model. Zipcar is not only, not in that business, but also, that business represents 35% of their business comes from the least profitable source: daily rentals. On a per hour basis, assuming a 5.50 $/hr. average rate they could do the same $45 daily price in 8 hours, leaving the car to keep producing revenue during that same day.
This leads us to the customers. As of September 2000 more than a third of the customers are using Zipcar as any other rent a car. This shows a failure to convey the model, which may be due to the innovative it is in the US market, but is something Zipcar needs to solve in the near future to capture more profitable customers and at the same to change the habits of actual ones. This last, could result in some attrition for which we suggest Zipcar should start targeting corporate clients also. Finally it is important to mention that 77% of the miles driven and 58% of the hours used come from daily rentals which impacts further more in the profitability of such model due to increase in costs like maintenance.
The model as described before is working and has several issues to correct, but it is imperative that they solve the innovation issue. If they want to be a leader and capitalize from the first mover advantage they need to finish their R&D to fully implement their technology in all cars and for...