Zipcar: Refining the Business Model

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Zipcar: Refining the Business Model
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Zipcar: Refining the Business Model. Elevator Pitch. Objective . . . . . . . tell me more. The Logic of Analyzing New Venture Opportunities Source: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London. Potential Profitability of opportunity. Market domain. - PowerPoint PPT Presentation

Transcript of Zipcar: Refining the Business Model

  • Zipcar: Refining the Business Model

  • Elevator PitchObjective

    . . . . . . . tell me more.

  • Macro-levelMarket domainIndustry domainMicro-levelSustainable advantageMarket attractivenessTarget segment benefitsand attractivenessIndustryattractivenessMission, aspirations, propensity for riskAbility to executeConnectedness up,down, and across value chainTeamdomainWhat industry forces have thestrongest impact on profitability?

    How are industry forces likely to change in the future?What entrepreneurial or firm-level capabilities create a sustainable competitive advantage relative to rivals or potential rivals?Is the market large enough?

    What is the growth rate and the upside potential?To which target market Is the ventures value propositionparticularly compelling?

    Is the target market large enough tosupport the business model?

    Does the target market provide an Option to grow into other markets?Does the team have what it takes,in a human sense in experienceand industry know-how to deliversuperior performance for this particular opportunity?Is the team well connected up, down and across the value chain so it will be quick to notice any opportunity or need to change its approach if conditions warrant?Does the opportunity fit the teamsbusiness mission, personalaspirations, and risk propensity?Venture strategyPotential Profitabilityof opportunityThe Logic of Analyzing New Venture OpportunitiesSource: Mullins, J.W. (2003). The New Business Road Test. Prentice Hall: London

  • Market AttractivenessSizeGrowth ratePastFutureTrendsEconomic, demographic, socio-cultural, technological, regulatory, natural

  • Industry AttractivenessWhat industry?Ease of entry?Supplier power?Buyer power?Substitute products?Rivalry among existing firms?

  • Segment Benefits / AttractivenessCustomer pain? Incentive to buy?Who are the customers? What do we know about them?Benefits above other solutions?Will they buy?Will the segment grow?Other related segments? Can we serve them?

  • Sustainable AdvantageProprietary elements?Superior processes, capabilities, resources?Economically viable business model?Customer acquisition? Costs? Speed?Customer retention?

  • Contribution/CarRevenue/CarCost/CarTotal Revenue -Number of Cars Lease Access Equip. Insurance Parking Maintenance Fuel Monthly FiguresMay Plan / Sept ActualEvaluating Performance (Per Car)On per car basis

  • Contribution/Car$1,536 / $225Revenue/Car$2,259 / $1,003Cost/Car$723 / $778Total Revenue - $27,104 / $14,645Number of Cars 12 / 14.6Lease $367 / $400Access Equip. $42 / $42Insurance $142 / $142Parking $50 / $63Maintenance $33 / $33Fuel $90 / $99$723 / $778Monthly FiguresMay Plan / Sept ActualEvaluating Performance (Per Car)On per car basis

  • Contribution/MemberRevenue/MemberCost/MemberCost/CarMembers/CarMonthly Fee -Monthly Usage Per Hour FeesPer Mile FeesMonthly Interest

    SecurityInterest MonthlyMay Plan / Sept ActualEvaluating Performance (Per Member)

  • Contribution/Member$91 / $27Revenue/Member$130 / $94Cost/Member$39 / $67Cost/Car$723 / $778Members/Car18.33 / 11.62Monthly Fee - $6.25 / $6.25Monthly Usage $$123 / $ 87Per Hour Fees $88 / $73Per Mile Fees $35.2 / 13Monthly Interest$1 / $1.1

    Security $300 / $300Interest .33 / .37MonthlyMay Plan / Sept ActualEvaluating Performance (Per Member)

  • Hourly vs. Daily (September)Exhibit 8bHourly$9,327/1,351=$6.90/hourRevenue from hourly use / hours usedDaily$5,318/1,872=$2.80/hourRevenue from daily use / hours used (not hours billed)Diagnosing the Problem

  • EpilogueRobin was concerned when her analysis showed low revenue figures, driven primarily by the daily use of vehicles. Beginning in December, Zipcar increased the max daily rate from $45 to $55, increased the lowest hourly rate and changed from two-tier to four tier pricing.Still in business (http://www.zipcar.com/index) 36 US cities and LondonAppears that they did not get any venture capital funding until July 2005 ($10 million) (http://www.zipcar.com/press/releases/press-28)Raised $25 million in 2006 (http://www.redherring.com/Home/19957)http://gigaom.com/cleantech/zipcar-prices-ipo-at-14-to-16-per-share/

  • TakeawaysKeep business model fluid in early stagesUnderstand factors that provide sustainable competitive advantageNetwork externalities*Reputation and buyer uncertainty*Buyer switching costs*Legal restrictions (e.g., patents)Odd financing strategy? Not really.* First mover advantages

  • RemindersRead Writing a Business Plan: The Basics

    **Purpose of elevator pitch:Approximately 2 minutes to describe the business idea/conceptFactual but need to build enthusiasmGoal is to get the person interested and have them wanting to learn more**Again, using New Business Road Test to frame analysisMarket attractivenessAsked them whether it was an attractive market (at an overall level, not particular segments). If so, why?Why might it transfer from Europe or not transfer?Yes: worse public transport here; stigma of using public transportNo: more connected to cars here; less interested in environmental issuesTrends that might support or hurt this business ideaPerhaps people becoming more environmentally friendly (good)More use of Internet (good)Costs of parking going upAsked them to rate on a scale of 1-10*Industry attractivenessWhat industry is a key issue!!Car rental? Convenience transportation? Car co-op?B: Maybe it would be easier to ask them who the competition is (and then ask what they have in common)Matthew drew overlapping circlesGood point: a new idea may not fit well into existing industriesUsed Porters Five Forces ideas Asked for comments about industry attractivenessMay be a problem because its somewhat easy to get into (what if Avis or Hertz decide to move in)*Micro-Market (target segment benefits and attractiveness)Are target customers really feeling pain?Student assessment of the micro-market?

    *Sustainable advantageIf this gets launched, how would we build a sustainable advantage?Proprietary technologies (B: may be difficult)Customer loyalty and imageFirst mover advantage: network externalities!!Matthew used analogy of telephonesExisting companies like Avis and Hertz might find it difficult to adapt their systems to deal with this business opportunity*So, it looks like a lot of the problem is on the revenue side; cost per car is only off by $55 (see page 11 of case for differences)Why is revenue per car so low???*So, it looks like a lot of the problem is on the revenue side; cost per car is only off by $55 (see page 11 of case for differences)Why is revenue per car so low???*Hours: 4x4x5.5

    Not generating enough revenue/memberWhy?*Hours: 4x4x5.5

    Not generating enough revenue/memberWhy?*Problem: a lot of people taking the daily rate; need to push people away from this to hourly usage*She was unconcerned by the cost per car and utilization percentages, believing that they were simply a matter of more volume and experience.

    **