How does Zipcar apply Porter’s Competitive Forces Model on IT decisions

zipcar logo
Porter provides the general manager with a classic view of the major five forces that shape the competitive environment of a firm. These five competitive forces are:

  1. Potential threat of new entrants
  2. Bargaining power of buyers
  3. Bargaining power of suppliers
  4. Threat of substitute products
  5. Industry competitors

When a firm resolves those competitive forces, it wins the game.

The main tools to resolve each of the forces.

  1. Potential threat of new entrants
    • Economies of scale
    • Assets availability
    • High cost to enter this industry
    • Good Image

    2. Bargaining power of buyers

    • Buyer selection
    • Differentiation
    • Good Image again

    3. Bargaining power of suppliers

    • Cooperate with suppliers

    4. Threat of substitute products

    • Improve products & services
    • Improve price/performance

    5. Current Industry Competitors

    • Cost-effectiveness
    • Differentiation

How did or will Zipcar use those tools to resolve the problems?

  • Economies of scale:

Zipcar is already the largest car sharing company in the U.S..

So its overhead cost per service is really low and definitely an advantage.

  • Assets availability

Parking lots count a lot for a car sharing company, and Zipcar owns quantities of good parking lot positions.

  • High cost to enter this industry

Zipcar has done an excellent R&D, it owns some patents and built a well- run system that cannot be easily imitated.

  • Differentiation

Students and school staff have considerable discount over normal people

  • Cost-effectiveness, Buyer selection, Good Image

IT is applied closely in every corner of Zipcar’s business from making reservation, picking a car, and fulfilling and returning a car, to paying the bills. The company operated with a very small staff compared to traditional rental agencies. Very little human interaction was required between the customer and Zipcar for a transaction. This saved the company a fortune on cost. A customer reserved a car online, entered into the reserved car by waving the RFID-enabled Zipcard against the card reader mounted behind the windshield on the driver side, returned the car to the same location, and was billed on the credit card alreadyon file.

Customers can easily get detailed information to his or her retail on the online system.

Customers can also easily find and reserve a nearest car using a cell phone.

Their system keeps collecting and analyzing the real time information of the rental vehicle.

All cars were outfitted with patented wireless technology. Their proprietary IT platform carried information flow between customers, vehicles, and the company. It was used to monitor car security, fulfill reservations, record hourly usage, and maintain mileage information. It also relayed vital technical information such as battery voltage and fuellevel. It even informed the central system if a customer forgot to turn offheadlights, which can quickly drain battery power. Additionally, the company built an online social community to encourage Zipcar members to share their personal experiences with Ziptrip.

This business model provided unique advantages over traditional car rentals. The customer did not have to stand in line or fill out papers to rent a car. The customer knew exactly which make and model he or she would be getting. Unlike most off-airport rental agency locations, which were only open during business hours, Zipcar locations were open 24 hours. The Zipcar rates also included the cost of gas and insurance, as well as reserved parking spots at some locations. Customers’ words in the online social community helped build good image of the company, and attract more customers to come.

  • High cost to enter this industry

Obviously, new entries would need to develop or buy the systems, to rent the highly limited parking lots, spend lots of money on advertising to build good images..etc. All of those need a lot of money.

  • Cooperate with suppliers, Improve price/performance

Zipcar recently reached a agreement with Ford, that Ford would produce and put in 1,000 new mini car Focus around 250 campuses. Each Focus would be equipped with a new system named MyFord Touch. With the subsidy of Ford Inc., the rental fee of Focus and Escape would be $7.5 per hour, which is less than the $8.5 standard hourly rental fee ofZipcar.

Who is Zipcar’s biggest competition? What should Zipcar do?

I believe it is Hertz.

Membership in Connect by Hertz (Hertz car sharing club) includes insurance, fuel, roadside assistance, maintenance and cleaning.

Similar to Zipcar, to unlock and engage the Hertz vehicle, members simply swipe their membership card, the Connect card, over the car’s radio-frequency identification (RFID) reader. However, Hertz has a hands-free audio kit system that Zipcar does not have, which is a competitive advantage over Zipcar. “In car, a hands-free audio kit connects members to a Member Care Center representative should they have questions, need assistance or need to extend their rental. The in-car technology also enables Connect by Hertz to ‘communicate’ with the vehicle enabling representatives to unlock, engage and locate vehicles. The technologically savvy cars are also equipped with iPod connectivity and , in the U.S., NeverLost® in-car navigation systems and EZ Pass transponders.” (John Addison, http://www.cleanfleetreport.com/fleets/car-sharing-competition-hertz-and-enterprise-chase-zipcar, 2011)

So I believe, won’t be too long, Zipcar would improve their services and equip with iPod connectivity and a in-car communication system as well.

Additional References
For details about Zipcar. move your step to the reference:
“A Self-Service Rental Car”, by Paul Boutin, BusinessWeek, May 4, 2006

About the cooperation between Zipcar and Ford, please see:
“美国福特汽车(Ford)牵手Zipcar 攻学生市场(2011/9/3)

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