Zip Car Strategy Analysis
Nowadays, organizations find themselves in a business environment that is changing at a significantly fast rate than ever before. In turn, a process of analyzing the effects of the changes in the business field, coupled up with the modification of an organization’s reaction to the alterations, is referred as business strategy. It is defined as a scope and direction of a company over the long term, which achieves an advantage in a constantly changing environment through its configuration of resources and competences (Rothaermel 27). Any business strategy developed by an organization must enable it to gain an absolute comprehension of the business environment a firm operates in. Today, Porter’s five force analysis is widely used by most companies to come up with the appropriate business strategy for a particular industry.
It would be appropriate to note that Porter’s five-force analysis aims at establishing an understanding of a business market, thereby, helping the management to come up with an evaluation that embraces the competitor’s influence on the market and its average attractive business attributes (Rothaermel 39). By using Porter’s five-force analysis model to interpret the Car-Sharing market, an organization would be able to construct an appropriate business strategy that will help it remain strong experiencing significant changes in the market. This paper will make a use of this analysis model to define the most prominent factors that affect the profitability of Zipcar, a company in the car-sharing industry.
By means of the analysis, there was identified that proximity to major transport hubs and one-way trip services are crucial for gaining more market share. Using the analysis model, it is possible to come up with five key factors that are significant in the car-sharing industry. Porter’s five-force analysis include competitive rivalry, the threat of new entrants, threat of substitutes, bargaining power of customers, such of suppliers (Rothaermel 30). Competitive rivalry tends to deal with what competitors focus on, understanding a competitor’s market strategy, and its actions of business nature. This will assist an organization in coming up with a strategy that is developed through a deep understanding of how rivals behave in a specific market. For example, the competitors of Zipcar include Hertz on Demand and Enterprise: We Car. These two firms have majored on services where Zipcar has failed to match to gain a significant market share and sustainable competitive advantage. The analysis of competitive rivalry showed that one-way trip services and proximity to major transport hubs, such as airports, and low hourly rates have intensified growing the market share in the car-sharing industry.
The threat of new entrants into a market, as well as an appearance of substitutes, is also a significant factor to key in when developing a business strategy for a given organization (Rothaermel 30). In the view of the car-sharing industry, the threat of new entrants is high due to the small up-front investment required for new players to enter the market. The low cost of investment, coupled up with a common technology base that defines the car-sharing market, has made it almost possible for companies to enter into the industry. Moreover, the threat of substitutes in the car-sharing industry is significant. This is due to the consideration that if any misfortune causes Zipcar’s market share to become vulnerable, Hertz on Demand and Enterprise will take the necessary measures to acquire the market share. Therefore, it is evident that the treats of substitutes and new entrants are aspects that must be directly addressed by Zipcar.
Bargaining power of suppliers and customers are considerable in defining a specific operational cost budget, which significantly affects the profitability of a given organization. In this case, sellers would be providers of fuel for the cars, vehicle manufacturers, labor, and other suppliers of regular car servicing and maintenance. Consequently, customers are mostly people who hire cars for travel use. If the costs of resources do not match the product’s price in a profitable manner, then an organization will stand to lose significant potential profits in the car-sharing industry. Therefore, using Porter’s five-force analysis to analyze the car-sharing market, it is evident that suppliers and customers have an exceeding influence in affecting the company;s profitability.
In turn, an analysis of Zipcar’s competitive strategy shows that it is pursuing a differentiation approach. One of Zipcar’s main competitors, Hertz on Demand, has applied cost strategy as a way to gain a significant market share. The company achieved this through offering one-way trips, scrapping off enrollment fees, and annual membership fees. This prompted Zipcar to alter its business strategy and offer one-way trips to the customers. Furthermore, the company adopted further changes that geared towards a differentiation approach, which leads to higher chances of financial performance, which is sustainable in the long term (Banker, Mashruwala and Tripathy 875). On the issue of offering one-way trips to the clients creates a basis for differentiation through creating a willingness to pay. To clarify, when a customer uses Zipcar’s services for one-way trip, he or she becomes willing to pay the same amount or even more than a client would be charged if he or she had to return the car to the pick-up point. This is due to the possible time saved from driving back to return the car. This positively affects the willingness to pay higher prices. However, it might increase costs for the company if the cross-region of one-way trips numbers does not match, causing a low supply of Zipcars in one region and an excess in another region. Therefore, the organization employs a competitive strategy of differentiation to overcome its competitors in the long-run.
The relative cost analysis of the acquisition of Zipcar by Avis shows that the cost would be considerably lower, and the margin in projected profits are high. Making use of the largest member-based car-sharing network and existing Avis rental car infrastructure, Zipcar’s relative cost becomes significantly low. The reason is that the company has in its hand’s infrastructure, market share, and customers base in order to realize higher profits in the future. The resources available including Zipcar’s proprietary technology, which makes it a leader in terms of innovation in the car-sharing industry, will assist the organization in experiencing a significant growth in the operation and gaining a sustainable competitive advantage.
Looking at Zipcar from a resource based view, it is obvious that the company has passed the VRIO test. It is a test that defines the resource capability of an organization, which, in turn, defines its competitive advantage (Pesic, Milic and Stankovic 577). The VRIO test asks four question relating to Value, Resource/Capability, Imitability, and Organization. The value of Zipcar is high due to a few factors that include a significant market share and relatively large size and a variety of the fleet. Zipcar also passed the resource capability portion of the test due to its association with a well-established rental company, which provides the necessary vehicle infrastructure for the organization to grow their operations (Kell 7). Zipcar also passed the imitability test das it has an almost impossible nature to imitate their operations, which are attributed to proprietary technology that drives Zipcar to be a leader in innovation. Lastly, Zipcar’s customer bases and highest member-based car-sharing network show its inevitable ability to make an absolute use of the resource capability because it has to capture value in the car-sharing industry.
Zipcar boasts of an advantage in the car-sharing industry. To be more specific, it is attributed to a variety of factors, which include proprietary software, a hold on the largest market share, a significant amount of vehicle infrastructure, adequate financial support from its owner Avis, wide and strong customer base, and the largest member based car-sharing network in the world. Hence, these aspects enable the organization to reach a sustainability in overcoming its competitors.
The paper represented the application of Porter’s five forces analysis with an aim to determine the most influential factors affecting the company’s profitability in the car-sharing field. The car-sharing industry is changing at a very fast rate. The modern customer base for the industry requires services that encourage the players in the market to up their operations. By enhancing their operation and making use of available resource capabilities, the organizations stand to increase profits due to an improvement of value of the products provided. Organizations can follow the path of creating one way trips, low hourly rates and a larger fleet of cars. If an organization takes this business path in the car sharing industry, they are guaranteed a significant increase in customer base, market share and revenues on a long-term basis. Furthermore, organizations can be able to gain sustainable competitive advantage through the utilization of technological resources, particularly proprietary software. However, the major organizations in the car-sharing industry face some significant challenges that may stand in the way of the enhancement of their operations. These challenges include lack of adequate financial support, high competition in the business market and the high short-term cost of creating or acquiring proprietary software.
Works Cited
Banker, D. Rajiv, Raj Mashruwala, and Arindam Tripathy. “Does a Differentiation Strategy Lead to More Sustainable Financial Performance Than a Cost Leadership Strategy?” Management Decision, vol. 52, no .5, 2014, pp. 872-896.
Kell, John. “Avis to Buy Car-Sharing Service Zipcar.” Wall Street Journal January 2 (2013).
Rothaermel, Frank T. Strategic Management. McGraw-Hill, 2015.
Pesic, Marija Andjelkovic, Vesna Jankovic Milic, and Jelena Stankovic. “Application of VRIO
Framework for Analyzing Human Resources’ Role in Providing Competitive Advantage.” Encontros Científicos-Tourism & Management Studies 2 (2013), pp. 575-586.
