Hertz vs. Zipcar: On-Demand Car Rental Competition

Introduction

The Hertz Car Rental company has been a dominant force in the market for decades. Recently, it added a new service to its menu of offerings — one that was arguably modeled very directly on services introduced by Zipcar. More specifically, Zipcar pioneered the practice in the rental car business of allowing customers to unlock and drive its vehicles remotely through a few taps on their smartphones. The Zipcar business model is based on an annual membership fee (currently $60) that entitles customers to select and use the vehicle of their choice without the normal inconvenience of having to pick it up at a company office. Its vehicle use fees range between approximately $9.00 per hour and approximately $16.00 per hour. In 2008, Hertz introduced a very similar concept intended to compete directly against Zipcar, initially called "Connect" and later renamed "Hertz on Demand."

Background

Zipcar currently dominates the market for on-demand rental cars, with approximately half a million paying members. Meanwhile, Hertz is the unquestioned leader in the overall rental car market but currently has fewer than 100,000 paying program members sharing fewer than 700 vehicles deployed in its version of the on-demand system first introduced by Zipcar. Nevertheless, the sheer size and potential market power of Hertz presents a significant threat to Zipcar. In that regard, Hertz has nearly 400,000 vehicles in its rental fleet and has revealed plans to convert all of them for compatibility with its Hertz on Demand program.

The magnitude of the potential threat that Hertz represents to Zipcar is demonstrated by the recent increase in the volume of Zipcar stock shares held by short sellers — investors who hope to profit not from the growth and strength of the company but precisely on the expectation that the entire venture will ultimately fail. One important advantage that Zipcar enjoys over Hertz is that Hertz still relies on its established rental office locations where customers must pick up and drop off vehicles. The Hertz on Demand program does allow customers to avoid waiting in lines and dealing with customer service desks, but it does not eliminate the problem of limited access based on proximity to Hertz locations. By contrast, customer access to Zipcar vehicles does not depend on proximity to company offices; Zipcars are parked on the street for customers to pick up much closer to where they live or work.

Zipcar's Strategic Response

Zipcar spent more than a decade developing a creative solution to circumvent the problem of reliance on established office locations, allowing its customers to pick up cars far more conveniently. Specifically, Zipcar has invested in securing more than 2,500 parking spots, enabling its customers to pick up vehicles right from their own neighborhoods. Moreover, Zipcar has carefully employed demographic information and what it refers to as "street-level data" — incorporating population density, rate of advanced education, and percentage of car ownership within its target areas. This approach has allowed Zipcar to place its vehicles strategically to maximize availability to the very consumers most likely to use its services in every city where it operates.

Conclusion

The current competition between Hertz and Zipcar is somewhat representative of the inevitable trends in contemporary business, particularly those that emphasize customer service interactions to negotiate services — especially in connection with business models whose provided services do not actually require any direct involvement of company personnel. That trend is already widely evident in transactions such as gasoline purchases employing smart card technology and will likely become standard retail procedure even in ordinary stores in the near future.