Monthly Memberships Can Help Zipcar Zoom To $18

ZIP: Zipcar logo

Early this month, Zipcar (NYSE:ZIP) came up with an innovative and flexible monthly membership option and launched pilot programs in Chicago and Toronto to attract more members and test its popularity and adoption. The move would be a step in the right direction at a time when competitor offerings like Hertz On Demand, Mint Cars On Demand and Car2Go are trying to rein in Zipcar’s strong membership growth by doing away with or charging negligible membership fee, beyond the first time registration fee. Zipcar currently serves 700K members with a fleet of over 9K vehicles in North America and Europe.

See our complete analysis for Zipcar’s stock

Monthly Subscription Will Boost Membership Growth

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The new monthly plan should allow Zipcar to better compete with its rivals by bringing down the initial entry fee from $60 annually to a much lower $6 per month. Members joining under this plan also have the option to add an additional member to their account for as low as $3 per month. The monthly option should help attract potential car drivers that rely on monthly budgeting amid tough macro-economic conditions and uncertainties. It will also help Zipcar tap on several potential users looking for a temporary solution to their short-term rental needs, who are otherwise likely to benefit competing services instead of Zipcar in the absence of a monthly fee option.

A lower entry-point and flexible terms will also attract more users to try out Zipcar’s popular services and its car-sharing experience before an upfront annual commitment. Zipcar boasts of impressive membership retention rates despite a higher membership premium charged compared to competition due to its focused and superior service compared to competition.

Zipcar’s USP: Superior Services And High Membership Retention

Zipcar has managed to build a loyal membership base and consistently maintain retention rates as high as 97-98%, suggesting very high customer satisfaction despite the cost premium. This means that people who try Zipcar’s tech-savvy car-sharing services with the latest fleet, automated Zipcards, and smartphone apps are highly likely to continue subscribing to Zipcar.

We believe the more Zipcar can convince people to test out its services through flexible membership, the higher conversion and traction it can achieve. We expect the company to gradually extend the monthly plan to all of its markets and believe the move will give a new boost to Zipcar’s membership growth and popularity in the overall car-sharing market as a lifestyle option.

We have a $18 Trefis price estimate for Zipcar.

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