Wednesday, December 5, 2012

Zipcar: How it exploited the strategic ‘sweet spot’

In the HBR article ‘Can you really say what your strategy is?’ authors David Collis and Michael Rukstad talk about the strategic sweet spot, among other things. The strategic sweet spot is characterized by fulfilling customer needs using unique capabilities that are unavailable to competitors. I think that Zipcar is a great example of a company that fully exploited this sweet spot.

Zipcar was founded in early 2000, at the height of the dot-com period. Car rental services had been around for a significant period of time. Hertz had been around since the early 1920s while Enterprise was founded in 1958. They dominated the market space with their huge fleets of cars and had market presence in several different countries. Cars could be rented by the day or by the month from any rental office, but not by the hour. These services were primarily aimed at individuals who traveled long distances or frequently for long periods of time.

Zipcar pioneered the concept of ‘car-sharing’.  Entering the market by competing on numbers would be next to impossible. However, existing car rental services were missing a big customer need; there was a significant percentage of the population who were infrequent drivers and needed them only for a short period of time, sometimes at short notice. Therefore, the company focused on two aspects of customer needs. One, it made wireless technology its core capability and leveraged it to create a quick, hassle-free car rental experience.  It enabled people to rent cars by the hour at the spur of the moment by reserving a car online. After completing the rental process, the car was remotely configured to open only for the renter. Zipcar members had member access cards that they could swipe on the reader placed on the car windshield to open it. The whole rental process took just a few seconds. The second thing Zipcar did was to improve access to its fleet of cars. It put its cars in reserved parking spots near downtown business areas and universities. Cars were unmanned and could be accessed 24X7 only by the specific renter using his or her Zipcar member card. This eliminated the need for the individual to travel to the rental office and fill out lengthy paperwork to get the car.

Zipcar’s strategy to provide by-the-hour, quick car rental services (customer need missed by competitors) using hassle-free, wireless technology (capability) worked: its revenue at the end of 2011 was $242million and it offers services in five countries. More importantly, Hertz is sitting up and taking notice; it started its own car sharing service in 2008, and is in the process of revamping it for a re-launch in the middle of 2013.
While Zipcar has first mover advantage, Hertz plans to use its huge fleet of cars to give Zipcar a run for its money. Do you think Hertz will be successful in its endeavor? What changes should Zipcar make in its strategy for the future?

Collis D and Rukstad M (2008) "Can you really say what your strategy is?" Harvard Business Review

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