Bloomberg News

Zipcar CEO Sees Loyalty Program for Heavy-Use Customers

September 27, 2012

Zipcar CEO Sees Loyalty Program ‘Likely’ for Heavy-Use Custome

Leslie Mottla, vice president of product and experience for Zipcar Inc., at company headquarters in Cambridge, Massachusetts. Photographer: Kelvin Ma/Bloomberg

Zipcar Inc. (ZIP:US), the company that rents cars by the hour or day, said it’s “pretty likely” to begin offering a loyalty program that rewards frequent users.

Chief Executive Officer Scott Griffith said in an interview yesterday that such a program may go into effect as early as next year. Customers may also be rewarded based on the condition of returned vehicles, he said.

“We’re looking more narrow and deep, our best members, as opposed to thin and wide for all members,” Griffith said at the company’s Cambridge, Massachusetts, headquarters. “They tend to be frequent users. But it’s more than how often you use it. We’re building a community, right? Are you back on time? Do you fill up the gas when it’s below a quarter of a tank?”

Zipcar, which created the business of hourly car rental in Cambridge in 2000, has suffered as competition has increased. Enterprise Holdings Inc. and Hertz Global Holdings Inc. (HTZ:US), the two largest U.S. rental car chains, have expanded their hourly rentals this year.

Zipcar, which peaked at $29.27 after its April 2011 initial public offering, has declined 41 percent this year. The shares fell 0.7 percent to $7.97 at the close in New York. Zipcar still leads in hourly rentals, with about 500,000 U.S. members and about 9,000 vehicles.

Hertz plans to equip its entire 375,000-vehicle U.S. fleet for hourly rental within about a year. Closely held Enterprise in May acquired Mint Cars On-Demand, an hourly car-rental company with locations in New York and Boston. It already owned two smaller brands and this year said it plans to bring them all together as Enterprise Car Share. Earlier this year, it increased its New York fleet by about 50 percent.

Analysts’ Ratings

Analysts have become more skeptical as Zipcar’s membership growth has slowed. One of the 11 who follows the company rates the shares a buy, six say hold and four recommend selling the shares, according to data compiled by Bloomberg. The average estimate (ZIP:US) of four analysts is for the stock to fall to $7 in the next 12 months.

Zipcar membership grew by 21 percent to 731,000 members globally in the second quarter, lower than the company expected. A radio advertising campaign was costly and ineffective and Zipcar dropped the medium from its marketing for the rest of the year, Griffith said on an August conference call.

The company is offering monthly memberships, instead of $60 annual ones, in some test markets. Zipcar may start offering a limited version of its membership at a lower rate.

“I think we’ll always have some level of fee,” Griffith said. “The question is what will you get for that? If we had no fee offering, you wouldn’t get all the same features you’d get in the Zipcar system. That’s the idea behind an easy trial. Certainly by the end of this year, we want to take steps in that direction.”

Researcher IBISWorld estimates the market for hourly car rentals to be about $1.8 billion, or about 6 percent of the $30.5 billion U.S. rental car market. Hourly rentals may reach $3.3 billion in North America by 2016 and $10 billion globally, market researcher Frost & Sullivan has projected.

To contact the reporter on this story: Mark Clothier in Cambridge, Massachusetts, at mclothier@bloomberg.net

To contact the editor responsible for this story: Jamie Butters at jbutters@bloomberg.net


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