Zipcar Case Study

Design and Entrepreneurial Thinking

ZipCar Assignment                                                                                 Esha Sood | MA IntAR

Who knew that Danielson’s trip to Germany could result into a new start-up idea of car-sharing concept which she would partner with Robin Chase? The two women had met at their kid’s kindergarten and became good friends. In late 1999, Chase an MIT business school graduate and Danielson a Harvard Geochemist, decided to take on their entrepreneurial ambitions and started working on their new car-sharing venture- ZipCar.

According to Chase’s initial research the idea of car sharing was viable, especially in North American marketplace. The service she envisioned would deliver convenience, ease of use, freedom to travel, and hassle- free “ownership” for urbanites. The primary emphasis was on convenience and cost savings, but eventually the concept was also marketed as environmentally friendly.

The business model was refined in the initial couple of months based on pricing structure and cost assumptions. Choosing Boston to launch the idea was smart; as it had insufficient and expensive off- street parking, a good public transportation system, a network of cars positioned close to transit stations and a large population of college- educated and web-connected individuals. Chase also believed there were 14 other cities in the US that would be excellent long-term growth targets. Keeping initiation cost low was a good plan to target a maximum of 40% utilization.

When ZipCar started, reducing the annual membership fee from $300 to $75 per year was great move to attract potential customers and compensating it by implementing a tiered pricing structure by raising the hourly charge. To attract daily renters $44 per day was within the price umbrella established by traditional rental car companies.

By mid- October of 2000, ZipCar had spent the approximately $375,000 that Chase had raised from angel investors, family, and friends. Chase had further developed ZipCar’s technology platform, filed a patent on the wireless technology, deployed vehicle at parking locations throughout the city, and enlisted nearly 250 members. Demand for the service had led Chase to increase the number of vehicles from the planned dozen to 19 by month’s end. The high amount already spent therefore led to low- budget marketing strategies. But even after the company was launched the technology had not been ready and there were additional costs which were anticipated later.

By September end, Chase understood the new operating and financial parameters of the business as well as customer’s actual usage patterns and anticipated the parking, lease costs of cars, fuel bills, attrition and access equipment to be a bit higher in the final Exhibit 8b. Overhead costs were now suspected to be running at $44,000 per month for Boston, and $30,000 for other cities. On the marketing side, they had succeeded to keep pretty close to the budget spending between $1,000 and $1,500 per month.