Zipcar Case Study

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Physical

Within the Physical environment, Zipcar is mainly facing the idea of helping the environment by cutting out the use of motor vehicles on an individual basis. One of their main selling points to Universities is the fact that they are helping the environment but lowering the CO2 emissions by cutting out nearly 15 personally owned vehicles per one Zipcar used.

Stakeholders

Zipcar has many stakeholders such as their customers who are interested in accessibility, low cost, sustainability and ease of use. Another stakeholder would be the universities and members of the cities in which they operate. These stakeholders are primarily concerned with the monetary savings that Zipcar can provide, as well as a marketing point for people to want to attend the universities and cities. Their employees and shareholders are also major stakeholders in the company, as they both rely on the overall success of Zipcar. The employees rely on Zipcar to grow to maintain their jobs, and possibly move up in the company, and the shareholders are concerned with the financial success of the company. They desperately need Zipcar to become profitable very soon.

Industry Analysis

Industry Definition

Zipcar is within the Passenger Car Rental industry of the NAICS classification system. Their code is 532111, and they are defined as “establishments primarily engaged in renting passenger cars without drivers, generally for short periods of time”. [2]

Industry Competitive Structure

While Zipcar is primarily Purely Competitive, they do have some oligopolistic tendencies simply because their market is mostly dominated by a few large companies. Zipcar claims more than 80% of the US car sharing industry, and over half of all car sharing members. There are also many smaller car sharing companies, which makes the competition possible, but these companies are highly unlikely to be able to take much market share from Zipcar.

Industry Life Cycle

The car sharing industry is currently still in its growth phase of the industry life cycle. This is evident by the fact that the entire worldwide car sharing market was just under 350,000 members in 2006. Navagant Research estimates that in 2013, the car sharing markets membership was over 2.3 million worldwide, and that by 2020, it will be over 12 million. Also, it is evident that it is still in the growth phase because many new competitors are still entering the industry. If the industry were in its maturity, or declining phase, there would not be as many car sharing programs evolving today. The car sharing industry has a long time before it reaches maturity, in my opinion, and with the constant focus on global sustainability, they will have a long time before they enter an industry decline.

Porters Competitive Forces Model

Threats of New Entrants (low)

Zipcar faces a large amount of competition, as well as the threat of new entering competition. For instance, companies like Enterprise and Hertz are taking advantage of their current customer base, and economies of scale so that they can possibly steal some of Zipcars current market share. However, for all their competition, any company trying to enter this market will face extreme barriers to entry. In order to become profitable, the company needs to achieve economies of scale, which is extremely difficult to do because any car sharing business will be extremely capital intensive, Zipcar is realizing. Although Zipcar has the majority of the market share, companies like Enterprise and Hertz have the resources to enjoy economies of scale. These companies are able to offset costs because they use their vehicles for multiple streams of revenue such as normal rental services, fleet services, and car sharing services. They also have the presence, in terms of brick-and-mortar, that Zipcar does not currently have. Another reason it is difficult for new entrants to begin competing in this market is because of the lack of real estate in parking. Most of the urban cities that Zipcar has operations in are extremely packed with vehicles, and have limited parking. This is one of the issues that Zipcar is attempting to overcome as well. There is simply not enough room for more than a few large car sharing companies.

Bargaining Power of Suppliers (medium)

Zipcars main “Suppliers” would probably be in the form of insurance companies, car manufacturers, and real estate companies. Zipcar is finding out just how powerful their suppliers are in many ways. Each one of these suppliers has very little availability of substitute products. The car industry is made of a very few number of manufacturers. At the same time, insurance agencies are relatively competitive with each other, making it nearly impossible for Zipcar to negotiate on insurance prices with these companies. Lastly, real estate in most of their cities is very scarce, making it difficult to lower prices. I do not believe that there is a possibility of car manufacturers to integrate forward, and Zipcar is not a significant customer of these manufacturers.

Bargaining Power of Buyers (high)

I would say that Zipcars buyers are extremely powerful when you look at them as a whole. Zipcars buyers purchase a majority of the company’s services, and their purchase are the main source of Zipcars revenues. There are also very low switching costs because of companies like Enterprise, Hertz, and of course taxi services and public transportation. Zipcar is ultimately at the will of their customers, and they need to satisfy their customers’ needs if they want to continue growing.

Threat of Substitute Products (high)

As mentioned previously, Zipcar faces multiple substitute products in the form of taxi services, public transportation, car ownership, and possibly even bicycle transportation in more urban areas. If Zipcar does not seem to be meeting customer demands, there are plenty of substitutes for customers to switch to.

Intensity of Rivalry among Competitors (high)

The Competitive Rivalry is extremely high within this industry. Major companies like Enterprise and Hertz have realized that there is a huge opportunity for them to expand operations into the car sharing and fleet management market, and they have the capital and resources to achieve it. These companies are equal and balanced,