EXPERIENCE hbr.org Case Study Susan Fournier is a professor of marketing at Boston University. Giana M. Eckhardt is a professor of marketing at Royal Holloway, University of London. Fleura Bardhi is a professor of marketing at City University London. Can an auto rental company fully integrate its car-sharing start-up without losing customers? by Susan Fournier, Giana M. Eckhardt, and Fleura Bardhi The Experts Marc McCabe, product and business development lead, Airbnb Illustration: Antony Hare Andre Haddad, CEO of RelayRides HBR’s fictionalized case studies present dilemmas faced by leaders in real companies and offer solutions from experts. This one is based on the case study “Acquiring Zipcar: Brand Building in the Share Economy,” by Susan Fournier, Giana Eckhardt, and Fleura Bardhi (Boston University School of Management, 2012). Learning to Play in the New “Share Economy” H enry Beyer walked up to a Mini Cooper in the city parking lot across the street from his office in downtown Houston. He waved his brand-new VillageCar card near the door handle and got in. “It looks like someone left something behind,” his colleague Tony Cummins said, reaching into the back and picking up a pair of socks. He laughed; Henry grimaced. The two were executives at Beacon Car Rental, one of the industry’s most established and respected firms. Henry was the senior vice president of operations. Tony, the chief marketing officer, had suggested taking a drive so that they could talk about Beacon’s latest acquisition—VillageCar. He knew that Henry would be making the call on how to integrate the car-sharing company, and he wanted to bend Henry’s ear about it. “Have you ever been in one of these things? I thought we weren’t going to fit,” Henry said, looking around the inside of the Mini. Both men were more than six feet tall. Tony admitted that the car was a strange place to meet. “But I wanted to talk with you,” he explained. For the past five years, Henry had led the integration of all Beacon’s acquisitions, and he had the process down to a science. Bloomberg Businessweek had featured the firm in an article about companies that take speedy approaches to M&A while remaining sensitive to the human costs. “This one is going to take a little more time than usual,” Henry said, “but I assured Mark this morning that we’d get it done, like we always have.” Mark Lewis was the CEO. “Still, I don’t want us to lose sight of what a game changer this acquisition is,” Tony said. Henry rolled his eyes. “Let’s not overstate it,” he replied. They’d been having the same conversation for months. “It can’t be overstated,” Tony said. “Think about it: We’re not in a rental car, we’re in a shared car.” “Rental, shared. Same difference.” July–August 2013 Harvard Business Review 125 EXPERIENCE to pay to temporarily access something. He leaned across the desk. “Think As they turned onto Fannin Street, It’s not just car sharing. It’s music sharing, about it from a risk management perspecjust a few blocks from their office, Tony bike sharing, apartment sharing, designer tive, Annabel. This may be just what we pointed out another VillageCar, and then clothing sharing, dog sharing. Even dogs, need.” Their industry was struggling. The another. Instead of sitting in rental car Henry! That Forbes cover story estimated basic business model hadn’t changed in lots, they were parked in dedicated spots that the share economy will be a $3.5 bil30 years, and Beacon, like all the other in public areas, for easy access. One was lion category this year. I’ve said it before, major players, was forced to compete a Prius, the other a Nissan pickup truck. and I’ll say it again: The best path forward more and more on price. Annabel had “We’ll be able to tap into a big demographic is to keep VillageCar separate—the operabeen saying that this was a big risk and that dreads being seen in a Ford Taurus tions, the branding, everything.” was turning car rentals into a commodity, from Beacon—or in anything from Bea“Come on—we both know the costs of with no way to win. con,” he said. “These are people who get that,” Henry said. “Mark would balk at “Hmm—I hadn’t quite thought about it dewy-eyed about sharing. When they get the inefficiencies.” The CEO was known that way,” she said. a Village­Car, they’re making a statement for running a tight ship. “And we haven’t Now that he had her attention, Tony that they want to access things, not buy seen any evidence that VillageCar’s model kept going: “Maybe we need to go out with them. It’s anticonsumerist, pro-environis a radical departure from ours or that its VillageCar in front. We don’t want to miss ment, pro-community—everything Gen Y customers behave differently. Sure, there the boat, like Kodak did with digital pholoves.” are things about the model we should tography. Maybe it’s time to shake things “I know I’m an ops guy and you’re the adopt—hourly rentals, more-convenient up.” He told her he’d been at the Village­ marketing guru, but I don’t buy it,” Henry locations. Fine. But when it comes to cars, Car headquarters the previous week with said. “The experience just doesn’t feel spe‘sharing’ is just a fancy word for ‘rental.’ Mark. “The energy there is great. We need cial to me. The guy before us didn’t fill the some of that: the start-up feeling that gas tank, and he barely showed up on time. The only thing customers are sharing is the crap they leave in the backseat.” anything’s possible, that we can change He didn’t even wave as he ran off. What’s the world. I worry that if we gobble the so pro-community about that? Apart from company up and treat it like a business the empty gas tank and the socks, this A Third Opinion unit, we won’t innovate on our existing seems exactly like a rental. Why should Later that afternoon Annabel Howard, model, and we’ll be left behind.” the VillageCar deal be any different from Beacon’s CFO and Henry’s boss, leaned The three of them were silent for a moStarr?” The year before, Beacon had acback in her chair. “I’m hardly ever the ment. Then Henry spoke: “We’d be adding quired a smaller rental car chain that had tiebreaker,” she said. costs instead of taking them out.” hundreds of locations in the Southwest. “We don’t want you to settle anything. “That’s true,” Annabel said. “But maybe Tony shook his head. “You know I We just need another opinion,” Henry told the costs of not changing our model would think we mishandled Starr. It was clear the her. He and Tony replayed their debate. be even bigger.” brand had cachet in the region, which we “What’s the big deal? Clearly a full intecould have leveraged. But we ended up ingration is the most cost-effective approach. tegrating it to death. If we treat VillageCar We’ll get rid of the overlaps, maximize the Consumer Research the same way, we’re going to lose all the synergies, and be done with it,” Annabel A week later Henry hurried down the hall potential benefits and miss out on a huge said. “I have no interest in creating an to Tony’s office. He knocked but then opportunity.” unwieldy bureaucracy. Managing multiple quickly opened the door without waiting “We’ve gone over this already,” Henry brands, running separate IT systems, setfor a response. said. “The goal should be to use our scale, ting different price structures—it would be Tony swung around in his chair. capabilities, resources—everything we’ve a mess.” “What’s the emergency?” got—to make VillageCar more profitable. Henry smiled at Tony, gloating a little. “Remember what I said about sharing It’s going to benefit from our fleet-­ “But this is different,” Tony countered. being hype?” He set a paper down on purchasing power. And its in-town park“VillageCar isn’t like Starr or any of the Tony’s desk; it was an article from the ing spaces will help us build our presence others. Starr was a straight-up rental car Journal of Consumer Research. in urban areas. Not to mention, it will give company, same business model as ours. It Tony stared at the title and abstract, us access to a younger customer base.” gave us access to a new geographic market. trying to decipher the academic language. “But this is our opportunity to get in I thought there was some marketing “Bottom line,” Henry said, “this is on a trend,” Tony said, rapping gently on benefit to retaining the brand, but you a study of car-sharing customers. Out the dashboard. “More and more people all disagreed, and I lived with it. This is a of all the things they value about their are opting out of owning; they’re willing much bigger opportunity.” experience, the biggest one is access. The 126 Harvard Business Review July–August 2013 hbr.org HBR.ORG Tell us what you’d do. Go to hbr.org. environment and community aren’t even on their radar. They care about affordability and convenience, just like Beacon’s customers do. Functionality is all that matters.” Tony up picked the paper, stared again at the abstract, and shrugged. “Take my word for it,” Henry said impatiently. “I’ve been studying this for the past hour. And it’s pretty clear: We need a clean, straightforward integration, like I said. We get VillageCar’s customers, we can adopt its shorter-rental model, we take over its locations, but ultimately we give those customers what they want: good prices and convenience. And no socks in the backseat.” “And the name? We’re going to kill ‘VillageCar’?” Tony asked. “No one over there is going to like that. They agreed to the acquisition assuming we’d keep their brand intact.” “But we didn’t make any promises. I say no separate brands.” Henry argued that two brands would be too complicated for customers; they wouldn’t know which company they were dealing with. “That’s not necessarily true,” Tony said. “Look at Toyota and Lexus: two different “If we just gobble the new company up, we won’t innovate on our existing model.” brands, two entirely separate consumer groups. Yet everyone knows they’re the same company. Besides, if we merge the brands, we alienate the VillageCar customer base. It’s growing every day, and we don’t want to lose those people. Their loyalty is fanatical. They don’t call themselves ‘villagers’ for nothing. They’ll revolt, and VillageCar’s employees might join them. ” “‘Villagers’—hah,” Henry said. “Maybe that’s what VillageCar’s marketers call them, but I doubt customers call them- selves that. This study shows that the emotional connection is a sham. VillageCar’s not about community. It’s about finding the most convenient, economical way of getting from point A to point B.” “If that’s true, why are our customer bases so different?” Tony asked. “Why is everyone in the world talking about the share economy? Why is that market ballooning?” “Nice Wheels” Henry had already ordered by the time his son Kyle showed up at Jasper’s restaurant. “Sorry I’m late,” Kyle said. “My marketing professor wouldn’t stop talking.” Kyle was studying business at the University of Houston. He and Henry tried to meet for lunch once a week. This was their favorite spot, because it had outside tables and amazing burgers. Henry asked Kyle if he was liking the class. “Yeah, it’s interesting stuff—how to make people want things they shouldn’t,” Kyle replied. Henry laughed. “Is that what you’re taking away from it?” “More or less. Hey, can I get a ride back to campus after this?” Kyle asked. “Sure—if you’re OK going in that,” Henry said, pointing to the Audi A3 parked on the street in front of them. “Nice wheels,” his son said. “Did Mom really let you buy that?” “No way. I’m renting it. Or accessing it— I’m not sure what to call it. It’s from this company we just acquired,” Henry said. “You told me about that last time. Village­Car, right? I’ve seen a few of those on campus.” Henry explained that he was on the hook to decide about the integration. “Everyone’s talking about how your generation is different, how sharing is the wave of the future. But it seems like just a fad to me.” “Well, I’m not sure how to integrate companies. But I do know something about my generation, and we’re definitely not like you,” Kyle said. Henry rolled his eyes at the familiar refrain. “I’m not being a pain, Dad. I’m trying to help. Listen, I’m not into buying things. I just want to use them when I need them. I remember you told me how proud you were when you and Mom bought your first car—that Nissan—right after you got married. You remember everything about it—the smell, the salesman’s name, where you drove first. But I don’t really care about stuff like that. I don’t want to own lots of things. You’ve got a wall of CDs; I have this,” he said, holding up his iPhone. Henry listened intently. Kyle had a point. If Beacon took its typical approach, it risked losing a whole generation of consumers like Kyle. “Owning weighs you down,” Kyle continued. “Forces you to commit. Look, today you have an Audi. Tomorrow you can have a van and go to Home Depot. You can try different things out. Not owning is liberating.” Henry watched his son take a bite of his burger. He was amazed that his kid—he still thought of him as a little boy—was starting to sway him. “It’s a marketer’s dream, isn’t it?” Henry said grudgingly. “Telling customers that your product lets them change their identity by the hour.” It was an appealing prospect when he looked at it from this angle. Going out to customers with a message like that could transform the problems that had been plaguing rentals for years. But he knew his decision couldn’t be all about marketing. He had to consider efficiencies, too. “So help me sound smart in my marketing class,” Kyle said. “What are you going to tell the CEO?” Q What should Henry recommend for the VillageCar integration? See commentaries on the next page. July–August 2013 Harvard Business Review 127 EXPERIENCE The Experts Respond Marc McCabe is the product and business development lead at Airbnb. Henry should listen to Tony: VillageCar should remain as independent from Beacon as possible. The two companies have very different business models. A rental is something you use for several days when you go on a business trip or a vacation. A shared car is something you use for a short time to run errands, move a piano, or impress a date. VillageCar’s customers don’t want what Beacon offers. They want flexible access to a car on a regular basis. Henry is right that VillageCar’s customers care about convenience, but they also believe in community. Those aren’t mutually exclusive ideals; in fact, they’re interconnected. In the sharing economy, community is a bond around a common ideal. In the case of VillageCar, that might be convenience and affordability, or the ability to change up your car when you want to. At Airbnb we help our customers bond around common ideals: being able to stay anywhere, to meet other people, to have an adventure. The focus of our marketing is on fostering the community that makes sharing possible. We motivate our users by giving them opportunities to connect with people who have similar values and interests. That’s how we ensure that the listings on our site are treated with the same respect people would show to a fam- ily member’s home. It’s how you ensure that fewer socks are left behind. Henry’s concerns that the sharing economy is a fad are unfounded. There are myriad reasons why businesses based on sharing have come about now. First, advances in technology play a major role: Five or six years ago, people didn’t have the tools, and consequently the confidence, to conduct these types of transactions. Second, the economic downturn has forced people to think about what they own and what they need—and to question whether they need to own things in the way they previously have. Media is a good example. Ten or 12 years ago, you had to break the law to access music through the internet. But now that you can legally access any song with a couple of clicks, what’s the point of owning a CD? Specific trends like that one may continue to evolve, but the sharing economy is here to stay. Tony says that VillageCar’s employees will revolt if Beacon subsumes the brand, and I think he’s right. Chances are, the cultures of the two businesses are dramatically different. Those of us who work in a sharing business want an environment where the pace is fast, the atmosphere is fun, and decisions are made quickly. We see ourselves as pioneers in an emerging field. If Henry wants to make full use of what VillageCar has to offer, he needs to be mindful of why its employees come to work every day and what makes them happy. Successful acquisitions can take many different shapes. But when the acquired company is a potential disrupter, I see a trend toward allowing independence. Think of Google and YouTube, or Facebook and There’s a trend toward independence when an acquisition is a potential disrupter. Think of Google and YouTube. Instagram. In both instances the established company smartly refrained from completely taking over and rebranding. YouTube and Instagram were allowed to keep doing what they do best and to stay small and nimble. Beacon clearly has established its own model for handling M&A, one that involves close integration. But if Henry and his colleagues want to make a winning bet on the future of their industry, they’d be better off giving VillageCar room to remain the unique organization it is. What Would You Do? Some advice from the HBR.org community Henry needs proof that VillageCar solves customers’ problems better than Beacon does and that its business model is profitable and scalable. If that’s not the case, Henry should reconsider the investment and certainly not change Beacon’s business model. Robert Martigoni, senior business development manager, AutoScout24 128 Harvard Business Review July–August 2013 Keep the VillageCar brand and slowly transform Beacon’s culture to be more like the start-up’s. Eventually Beacon’s brand may become obsolete, but not if there are enough customers who value its uniform service and reliability. If this segment does become unprofitable, the company can sell it to a firm that still believes in the oldschool model. Akos Tolnai, CEO, AbilityMatrix The venture should be treated as a partnership, with shared branding—such as “Beacon’s VillageCar.” VillageCar has done an excellent job of connecting with the younger demographic, which is what Beacon is trying to tap into, but Beacon has an established name that is synonymous with experience, stability, resilience, and credibility. Sumeet Dhillon, project manager, Lloyds Banking Group hbr.org Save Your Back Issues Andre Haddad is the CEO of RelayRides. Henry has a point: In many ways Village­Car’s business is not that different from Beacon’s. Both companies provide mobility for customers by buying and managing a fleet of vehicles and offering those vehicles for a certain amount of time. And despite what Tony says, VillageCar’s model is not truly based on sharing and community. That’s just the spin the start-up uses to differentiate itself from traditional rental car companies. Real car sharing involves a peerto-peer model, with no intermediary. At RelayRides, for example, we don’t own a fleet of vehicles, or even a single car. We own the software that allows people who have cars to share them with people who don’t. But there are also important distinctions between Beacon and VillageCar. Tony is right that the companies have different purposes and target different audiences. Beacon primarily serves people who have cars of their own. VillageCar aims to provide an alternative to vehicle ownership. It serves urban young people who have chosen a lifestyle that doesn’t require them to own a car—they can access one instead. Beacon’s corporate brand is designed to appeal to business travelers. VillageCar is seen as an innovative, technologyfocused start-up. Trying to merge the two brands would be a complete turnoff for VillageCar users—and possibly for Beacon customers, too. Henry needs to take these differences into account when making his recommendation. He should push for integration, but only to a point. Everything that isn’t customer facing should be merged, as Henry and Annabel both advocate. Beacon should combine the back-end operations—fleet acquisition, maintenance, and disposal. Inefficiencies here are most likely what’s holding VillageCar back, and this is where Beacon can offer its strengths. However, the customer needs to see two distinct brands. Tony’s analogy to Toyota and Lexus is apt. Those brands are completely different in terms of what they stand for and the kinds of audiences they attract. Similarly, the VillageCar and Beacon brands need to coexist separately. Making one a sub-brand of the other would be a mistake. I can imagine handling it this way: Each of Beacon’s locations would have two Henry should push for integration—to a point. Everything that isn’t customer facing should be merged. counters—one for the Beacon brand, the other for VillageCar. That way the two brands would share buildings, systems, and fleets, but their customers would have distinct experiences. VillageCar customers could still rent by the hour and choose the car they want—and if they prefer, forgo the counter altogether. The underlying aims of the VillageCar acquisition are to give Beacon access to adjacent markets and to help the start-up run a more profitable business. If Beacon treats Village­Car just like its other acquisitions, it risks missing out on both opportunities. How to handle the VillageCar acquisition is not an easy decision, and Henry has to keep all the immediate financial aspects in mind. But he also needs to pay attention to what’s happening in the economy at large. There’s a clear trend away from ownership and consumption. With household incomes flat over the past 30 years, it’s challenging for consumers to buy assets, especially ones that depreciate quickly, as cars do. Although VillageCar may not use a true sharing model, it is at least moving in the right direction. HBR Reprint R1307M Reprint Case only R1307X Reprint Commentary only R1307Z Protect your issues of Harvard Business Review. Each one contains information that is just as relevant now as it was in the past. Keep these valuable resources fresh and available for reference. Slipcases are constructed with heavy bookbinder’s board and covered in a rich maroon leather-grained material. A gold label with the Harvard Business Review logo is included. Great for gifts! 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