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).
Henry 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.”
As they turned onto Fannin Street, just a few blocks from their office, Tony pointed out another VillageCar, and then another. Instead of sitting in rental car lots, they were parked in dedicated spots in public areas, for easy access. One was a Prius, the other a Nissan pickup truck. “We’ll be able to tap into a big demographic that dreads being seen in a Ford Taurus from Beacon—or in anything from Beacon,” he said. “These are people who get dewy-eyed about sharing. When they get a VillageCar, they’re making a statement that they want to access things, not buy them. It’s anticonsumerist, pro-environment, pro-community—everything Gen Y loves.”
“I know I’m an ops guy and you’re the marketing guru, but I don’t buy it,” Henry said. “The experience just doesn’t feel special to me. The guy before us didn’t fill the gas tank, and he barely showed up on time. He didn’t even wave as he ran off. What’s so pro-community about that? Apart from the empty gas tank and the socks, this seems exactly like a rental. Why should the VillageCar deal be any different from Starr?” The year before, Beacon had acquired a smaller rental car chain that had hundreds of locations in the Southwest.
Tony shook his head. “You know I think we mishandled Starr. It was clear the brand had cachet in the region, which we could have leveraged. But we ended up integrating it to death. If we treat VillageCar the same way, we’re going to lose all the potential benefits and miss out on a huge opportunity.”
“We’ve gone over this already,” Henry said. “The goal should be to use our scale, capabilities, resources—everything we’ve got—to make VillageCar more profitable. It’s going to benefit from our fleet-purchasing power. And its in-town parking spaces will help us build our presence in urban areas. Not to mention, it will give us access to a younger customer base.”
“But this is our opportunity to get in on a trend,” Tony said, rapping gently on the dashboard. “More and more people are opting out of owning; they’re willing to pay to temporarily access something. It’s not just car sharing. It’s music sharing, bike sharing, apartment sharing, designer clothing sharing, dog sharing. Even dogs, Henry! That Forbes cover story estimated that the share economy will be a $3.5 billion category this year. I’ve said it before, and I’ll say it again: The best path forward is to keep VillageCar separate—the operations, the branding, everything.”
“Come on—we both know the costs of that,” Henry said. “Mark would balk at the inefficiencies.” The CEO was known for running a tight ship. “And we haven’t seen any evidence that VillageCar’s model is a radical departure from ours or that its customers behave differently. Sure, there are things about the model we should adopt—hourly rentals, more-convenient locations. Fine. But when it comes to cars, ‘sharing’ is just a fancy word for ‘rental.’ The only thing customers are sharing is the crap they leave in the backseat.”
A Third Opinion
Later that afternoon Annabel Howard, Beacon’s CFO and Henry’s boss, leaned back in her chair. “I’m hardly ever the tiebreaker,” she said.
“We don’t want you to settle anything. We just need another opinion,” Henry told her. He and Tony replayed their debate.
“What’s the big deal? Clearly a full integration is the most cost-effective approach. We’ll get rid of the overlaps, maximize the synergies, and be done with it,” Annabel said. “I have no interest in creating an unwieldy bureaucracy. Managing multiple brands, running separate IT systems, setting different price structures—it would be a mess.”
Henry smiled at Tony, gloating a little.
“But this is different,” Tony countered. “VillageCar isn’t like Starr or any of the others. Starr was a straight-up rental car company, same business model as ours. It gave us access to a new geographic market. I thought there was some marketing benefit to retaining the brand, but you all disagreed, and I lived with it. This is a much bigger opportunity.”
He leaned across the desk. “Think about it from a risk management perspective, Annabel. This may be just what we need.” Their industry was struggling. The basic business model hadn’t changed in 30 years, and Beacon, like all the other major players, was forced to compete more and more on price. Annabel had been saying that this was a big risk and was turning car rentals into a commodity, with no way to win.
“Hmm—I hadn’t quite thought about it that way,” she said.
Now that he had her attention, Tony kept going: “Maybe we need to go out with VillageCar in front. We don’t want to miss the boat, like Kodak did with digital photography. Maybe it’s time to shake things up.” He told her he’d been at the VillageCar headquarters the previous week with Mark. “The energy there is great. We need some of that: the start-up feeling that anything’s possible, that we can change the world. I worry that if we gobble the company up and treat it like a business unit, we won’t innovate on our existing model, and we’ll be left behind.”
The three of them were silent for a moment. Then Henry spoke: “We’d be adding costs instead of taking them out.”
“That’s true,” Annabel said. “But maybe the costs of not changing our model would be even bigger.”
A week later Henry hurried down the hall to Tony’s office. He knocked but then quickly opened the door without waiting for a response.
Tony swung around in his chair. “What’s the emergency?”
“Remember what I said about sharing being hype?” He set a paper down on Tony’s desk; it was an article from the Journal of Consumer Research.
Tony stared at the title and abstract, trying to decipher the academic language.
“Bottom line,” Henry said, “this is a study of car-sharing customers. Out of all the things they value about their experience, the biggest one is access. The 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 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.”
“If we just gobble the new company up, we won’t innovate on our existing model.”
“‘Villagers’—hah,” Henry said. “Maybe that’s what VillageCar’s marketers call them, but I doubt customers call themselves 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?”
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.
What Would You Do? Some advice from the HBR.org community
What should Henry recommend for the VillageCar integration?
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 family 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.
There’s a trend toward independence when an acquisition is a potential disrupter. Think of Google and YouTube.
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 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.
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 peer-to-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, technology-focused 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.
Henry should push for integration—to a point. Everything that isn’t customer facing should be merged.
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 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.