Zipcar (NYSE:ZIP) is a dominant player in the car sharing market that has grown amid fewer and scattered competitors until very recently. But of late, the landscape has turned more challenging for the young car sharing company, with much stiffer competition from traditional car rental companies which have launched their car sharing arms like Hertz On Demand as well as the new peer-to-peer car sharing formats, which offer relaxed membership fee and other benefits to compete with Zipcar.
However, we still believe Zipcar has an edge above its competition and a bet on Zipcar is really a bet on the nature of the future of transportation. Zipcar serves 700K members with a fleet of over 9K vehicles in North America and Europe. Aside from competing with traditional rental companies and car-sharing services like Hertz On Demand, Enterprise’s WeCar, UHaul’s UCarShare and City Car Share, it also faces competition from new low-cost, peer-to-peer (P2P) car sharing services like RelayRidesand GetAround.
Zipcar competes with established daily car rental giants like Hertz and Avis, but has differentiated itself by focusing on hourly rentals that are more profitable than daily rentals, pushing for a more attractive mix. It differentiates itself from competition not just through a different model of car-sharing, but also through its focus on latest technology, sustainability and eco-friendliness.
While cost is the prime motivation for people to prefer car sharing and accessibility over ownership, the newest generation of drivers also weighs the aspects of technology and eco-friendliness while choosing their preferred car sharing service and vehicles. Zipcar has pioneered in using advanced vehicle technologies, starting from introducing EVs and hybrids to tying up with Honda and Ford to source its latest technologically advanced, low emission vehicles for its fleet.
Hertz’s Aggressiveness With On Demand Service
One of Zipcar’s most formidable competition in the U.S. could be car rental giant’s Hertz’s new On Demand car sharing service which not only offers one-way rentals, it does away with membership fee altogether, unlike Zipcar. With its usual car-rental business, Hertz also has access to sufficient parking spots across the U.S. and has a fleet size of 375K, 30 times that of Zipcar. It is now equipping its entire fleet with the car-sharing compatible Eileo technology and plans to complete it by 2013. This will enable Hertz to take reservations via computer or smartphone from an On Demand service.
Hertz has recently entered one of Zipcar’s biggest markets in Washington D.C. and could pose a more serious threat to Zipcar’s growth over the coming years. However, while Hertz and Avis might make a push into the hourly rental business, Zipcar still has a substantial first mover advantage with already secured access to preferred and limited supply parking spaces in the biggest U.S. cities.
P2P Lacks Quality & Reliability of Zipcar
Zipcar also faces new competition from up and coming low-cost, P2P car sharing services like RelayRides, GetAround, Sprideshareand Jolly Wheels. By investing in smart web interfaces, online marketplace, smartphone apps and car-kits to enable keyless entry, P2P players such as RelayRides and GetAround are making credible attempts to match Zipcar’s accessibility and convenience with the cost advantage of not requiring to purchase or rent a fleet. A lower cost structure makes P2P more ideal for sub-urban areas with lower population density and usage demand, which will actually help expand on potential market size for car-sharing services. However, we believe the consistency and quality of service and reliability of rented fleet still gives Zipcar the edge over P2P services in bigger cities.
Zipcar’s Focus Market
Zipcar’s primary target is to penetrate deeper into its largest markets like New York, Washington D.C., Boston and San Francisco. It estimates that more than 9 million people who have not signed up yet, live within 10 minute walking distance of Zipcars, suggesting tremendous growth opportunity, particularly in locations with huge parking costs. Apart from typing up with government agencies and business, it is increasingly seeking to collaborate integration of its car sharing services with new housing developments and satellite cities to grow membership. Its is also expanding to new markets apart from tapping on university students who constitute a strong potential future market demographic for car sharing. The success of Zipcar is significantly rooted in the overall market expansion by selling the concept of car sharing to people over ownership as a lifestyle choice, rather than just beating competition.
Zipcar’s High Membership Retention Says a Lot
Zipcar provides a cost effective alternative to car ownership through hourly charges which includes the cost of insurance, registration and maintenance, as well as fuel costs and can save up to 70% of the total transit costs for its members. It also saves from from high parking costs, that can cost up to $400 with limited supply in crowded cities. Zipcar reduces these charges for its members having occupied prime parking spots in cities where it offers services. Members can pick the cars up easily after making a booking through their mobile phone or internet.
Zipsters are a loyal bunch who are encouraged to vote on fleet options and the services. As a result, Zipcar has consistently managed retention rates as high as 98%. This indicates sufficient customer satisfaction despite the premium its members pay while using Zipcars, including the membership fee compared to its competition. Means people who try Zipcar’s tech-savvy car sharing services with latest fleet, automated Zipcards, smartphone apps are highly likely to continue subscribing to Zipcar and the more Zipcar can convince people to try its service, the higher traction it can achieve.
We have a $18 Trefis price estimate for Zipcar, at a 70% premium to the current market price
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