The Zipcar Case: Zipping From Very Good To Magnetic

Zipcar

What makes a product magnetic—irresistible to customers of many stripes, and preferred over its closest competitor by 5:1, 7:1 or 10:1? It obviously varies by product, but what's key to understand is that there's a fine line between very good and magnetic—and often the only way to cross it is to experiment and iterate.

Take Zipcar, the on-demand, in-your-neighborhood, Internet-based car-rental service. It's a magnetic product that inspires accolades from customers. "We can do things with a Zipcar we could never do without it," one Zipster told us. "We've stopped using a grocery delivery service, and we save money by buying a case of wine instead of a bottle or two. Last week, we brought home a Christmas tree on the roof of our Zipcar. Try doing that on the subway."

Zipcar, which now has 605,000 members in 50 cities and revenues of $131 million, didn't always have such appeal. In 1999, its first year, 75 people signed up. By 2003, Zipcar had a mere 6,000 members in three cities and was running through its venture capital. Founder Robin Chase was ousted by the board for Scott Griffith, who had a background in aerospace and high-tech startups. He listened to a litany of theories about how to jump-start growth—most involved advertising or merchandising schemes—but he keyed on the business design.

"If the nearest Zipcar were more than two blocks away," one member told him, "I would get annoyed having to walk there in the middle of the night." Another said, "If the car was more than a five-minute walk from my door, I wouldn't bother." These and hundreds of similar comments clarified the issue—but how to make Zipcars plentiful when Zipcar's lack of popularity limited the number of cars available?

Griffith solved the problem by redefining it. The key to Zipcar's future, he realized, was density. To achieve this, Griffith decided to concentrate Zipcar's efforts in a few carefully selected locations populated by young, tech-savvy, environmentally conscious clientele. Different neighborhoods got different kinds of cars: eco-conscious Cambridge, for example, was stocked with Priuses, while Boston's posh Beacon Hill was seeded with Volvos and BMWs.

The hyper-local strategy enabled instant density. Put one Zipcar in a neighborhood and the average customer had to walk 10 minutes to reach it. With seven cars spread about, the average walk was cut to five minutes; 20 cars cut that to two minutes. Once a critical mass of locals became Zipsters, the company expanded to the next community, then the next and the next, fueled by word of mouth.

Encouraged by the growth in demand, Griffith found new ways to achieve density, like partnering with universities (more than 150 to date) to provide cars for students and faculty. Griffith also began promoting Zipcar as the "company car" for small businesses. This broadened demand beyond evenings and weekends, prime time for the first wave of customers. At the end of 2010, more than 8,500 businesses were customers, accounting for 15% of revenues.

In the beginning, Zipcar attracted eco-conscious customers. Today, more people are attracted by the convenience and low cost. High density in Zipcar neighborhoods guarantees proximity and convenience, the cars are regularly cleaned and maintained, the RFID chips work, the insurance paperwork is taken care of, and the GPS devices in each vehicle ensure that the cars are where they say they are.

The resulting product is magnetic—incredibly so. When we asked Zipsters whether they'd recommend the service to friends or acquaintance in the past month, an amazing 88% answered yes—28 points higher than for the second closest competitor. And 80% agreed with the statement "I love this product"—30 points more than the closest competitor. That's magnetic. No wonder Zipcar counts 605,000 members to Hertz Connect's 8,000.

Demand is tricky. Zipsters save thousands of dollars a year compared with car owners, not to mention countless hours dealing with hassles like parking, maintenance, repairs, and insurance. Yet what catalyzes their decision to go with Zipcar is often the discovery that a car is available five minutes from home rather than 10. That trigger unlocks the magnetic properties of Zipcar.

Adrian Slywotzky is a partner at the global management consulting firm Oliver Wyman and a best-selling author. This article is based on material from his new book, Demand: Creating What People Love Before They Know They Want It (Crown Business), to be released on October 4, 2011. Follow the Demand blog at www.demandthebook.com.

[Image: Flickr user interactoid]

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