Zipcar Tries Boosting Membership Revenue With Monthly Option In Chicago, Toronto

June 12th, 2012 by Trefis Team
10.48
Trefis
ZIP: Zipcar logo
ZIP
Zipcar

Having built a strong loyal customer base for its tech-savvy and service-oriented car sharing service through its annual membership plans, Zipcar (NYSE:ZIP) is now trying to attract a wider membership base with a more flexible ‘monthly membership plan’ and has launched pilot programs in Chicago and Toronto.

The new monthly plan would provide a more flexible option for customers and would attract users who want to test out the company’s services for a few months without an upfront annual commitment. A more flexible membership plan across its services should allow Zipcar to better compete against Hertz On Demand, Daimler’s ‘Car2Go’ and Enterprise’s WeCar that currently offer more flexible membership terms.

See our complete analysis for Zipcar’s stock

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New Innovative Monthly Membership Hopes To Attract New Members To Experience Car Sharing Through Zipcar

Chicago and Toronto residents who opt for Zipcar’s new monthly membership plan will now have to pay a $6 per month membership fee (compared to $60 annual membership fee option), in addition to the standard $25 application fee at the time of joining ($30 for Toronto). Members joining under this plan will have the option to add an additional member to their account for just $3 per month. The lower price point and shorter term should attract customers that find the upfront annual membership costs prohibitive, particularly in this tough macro-economic climate.

The flexible membership should also attract users who want to test Zipcar’s services before opting for an annual membership. The timing of the monthly membership pilot is also meant to woo increased traffic of summer travelers and vacationers who plan road trips and excursions during the season. The pilot programs should allow Zipcar to test the viability of the monthly memberships and potentially roll out the option to other cities in the future.

Zipcar Hopes To Increase Membership Based Revenues In The Future

Zipcar has managed to build a loyal membership base and has consistently maintained retention rates as high as 97-98%, suggesting very high customer satisfaction of Zipcar’s services despite the premium its members pay compared to competitors. Currently, Zipcar generates approximately 12% of its revenues from membership fees and 88% from usage revenue.

Over time, Zipcar aims to generate over 17% of its revenue through fees by increasing the number of customers that use Zipcar through a monthly or annual membership rather than on a per use basis. The introduction of a monthly membership option should increase the number of customers that sign up for Zipcar memberships. This mix shift would grow earnings even faster since membership fees have a higher gross margin (over 90%) than usage margins.

We have a $18 Trefis price estimate for Zipcar.

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