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Application software has been very popular as distribution platforms since 2008 due to rapid spread of smartphones all around the worldwide. According to a marketing research done by Gartner (2013), there is an increasing trend in mobile apps usage worldwide, He indicates that 21.58 billion dollars of revenue has been made by mobile apps in 2013. Uber was established in 2009 as a digital platform that connects cab drivers and customer, by downloading the online application. Uber determines the location of customers and shows the location of the cabs nearby.
Once the customer accepts to get a ride with push of a botton, the application is then authorized to take the payment based on the credit card information that has been registered under the customer’s name, without any further exchanges.
Uber was established in San Francisco and has become the world’s most valuable startup in the past five years. Uber’s latest market value has been determined as 18.2 billon dollars in June 2014. However, as a disadvantage of developing markets, the entrance of Gett and Hailo in the UK market, decreased Uber’s market value.
The major advantage of Gett in this compétitive market against Uber is charging flat fees unlike Uber. Uber has a surge pricing strategy depending on the demand, weather and distance, which is not a cost efficient way for customer.
Therefore Uber it is not the cost leader in the UK e-hail market. On the other hand surge pricing has persuaded more driver to work for Uber, as it is more in their favor so that, they will not have to go through bad weather conditions or give rides in the rush hour with the usual flat fares.
2.a Organizational environment
The increasing trend of smartphone usage especially in younger generation, technological improvements and increasing value for time perception established Uber’s increasing value.
2.b Uber’s business model
Uber employs driver after they and their cars have been screened by Uber to ensure comfort and safety of customers, Drivers are also given an iPhone once they have become a member of Uber. Uber drivers have higher income compared to traditional taxi drivers also they do not have to pay for the taxi license and the taxes that black cab driver are obligated to pay. On the consumer side, after downloading Uber, they can track the car as it approaches them on their as well as having some information about their driver before arrival such as previous reviews and ratings and their photo. Uber ‘s pricing strategy is based on the demand, distance and the car type, incase of high demands or bad weather conditions customers may have to pay a higher fee for their journey or depending and the type of car they request prices are different.
Payment is done by the credit card information that the customer is registered the app with. Transactions are totally safe and secure. Uber splits the ride receipts with the driver. Uber originally used to take 20% margin of the transaction between the customer and the driver, which is now reduced to 15% due to high compétitions with Gett and Hailo. Uber covers its Research and technology developments, marketing and employees expenses by the percentage they take on each transaction.
Another advantage is that Uber does not own a fleet of cars so they are much less costly than their competitors, This low cost business model enables Uber to keep the large percentage of it’s revenue as profits. Uber grows by reinvesting in R&D and acquisitions rather than investing in cars or expensive infrastructures. In the spotlight of this information, it is possible to say that Uber’s business model is low inventory, high transaction and high margin. Moreover, its business model is receiving the majority of funding from Google Venture.
2.c External and internal analysis of Uber
Analyzing Uber from the resource-based view is crucial to understand competitive advantages of it in London taxi hailing app market. Constraints imposed by environment can have a big impact on Uber’s strategic planning and marketing. Therefore, six external conditions (Political, Environmental, Social, Technological, Economical and Legal) will be examined in relation to Uber’s business situation by using PESTEL analysis.
Political factors effects transport services external environment in terms of CO2 emissions and climate change. Even though Political factors are more in favor of public transport in order to decrease CO2 emissions and help with the climate. Uber however is providing a superior service comparing to their competitors for instance Uber is offers hybrid cars, which is low in emissions and makes it easier for Uber to have some advantage when it comes to the political factors.
Environmental factors such as weather conditions can affect Uber for instance higher demand due to bad weather conditions is evident. The price of the journeys also increases when the demand is higher.
Social factors including the change in lifestyle and high percentage of younger population using smartphones, indicates the customer needs, which brings them to the market.
Technology developments have a major impact on Uber’s business. Increasing role of Internet in people’s life is also crucial for Uber to make innovations.
Economical factors such as recessions influence directly the customer’s budget, therefore their buying power. On the other hand volatile fuel prices can have a huge impact on pricing and they are also quite unpredictable.
Legal constraints also have a direct impact on Uber. Governments have the possibility to ban Uber, which is already the case in Germany, or even set new regulations for Taxi hailing apps such as Uber which can affect their performance in the market.
In the next section we under take a SWOT analysis in order to analyze Uber’s Capabilities, which enables us to determine the company’s Strengths and Weaknesses as well as pointing out Threats and Opportunities. It is essential in a competitive market to be aware of the weaknesses and threats in order to be able to find solutions for them and also use the opportunities to gain more of them market share and hence increase the revenues.
Figure 2: Presents SWOT analysis
Strengths; which consist of internal capabilities, Uber was first in the market which creates a competitive advantage by high consumer awareness. One of the strengths of Uber is that, it has different alternatives for different customers. For example, Uber POP and UberX car alternatives are available for a cheap and fast drive, whereas if the customer is searching for quality it offers them the Uber Black Car and Uber SUV. Another strength of Uber is that it has spread worldwide starting from USA. It has expanded through 200 cities worldwide. Moreover, the transactions are easy, safe and trustworthy. It offers a convenient way of travelling for costumers.
Weaknesses indicate the areas that could be improved internally. The major point that is considered as a weakness for Uber is that they do not charge flat fees whereas Gett, which is their main competitor, offers flat and predictable prices. Moreover, Uber drivers do not have a taxi license, which can cause legal problems by time. However it operates in many cities, Uber does not operate in rural areas, which can be considered as a weakness. One of the complaints that Uber is facing is the poor consumer service. Uber offers a surge pricing for its drivers and do not hire them, but find them through agents.
Analyzing the opportunities in depth we can determine that the most influential aspect in Uber’s business model is the fact that it’s a service rather than a product hence they do not have the high sunk costs that their competitors have to deal with. Moreover, being a mobile platform and not having a fleet of taxis, which is highly costly, has enabled the firm to turn most of its revenues into profits. These revenues are made from transaction costs rather than production cost. Uber does not employ drivers, which in this case allows the drivers flexibility also permit Uber to employ more drivers.
The most important external threat for Uber in UK e-hail app market is the decreasing market share due to competitors such as Gett. The flat prices of Gett and some other competitors are creating a disadvantage for Uber. Not having the proper taxi license is another disadvantage for Uber. aside from that, there have been many protests by taxi companies in Germany, France, England and other nations accusing Uber to be illegal due to the fact that their driver are not paying the same tax rates as other taxi drivers, and other taxi companies accuse Uber of compromising passenger safety, and undermining legislations which exists for them.
According to the statistics of market shares of taxi hailing apps in London, Gett with 20-30% of market share is the market leader, Uber with 20% shares is the market challenger and Hailo with 10% is the follower in the market. Uber as the challenger is in a position where they can undertake some of the facilities and services that Gett is already providing for their customers in order to be able to improve their service, gain more customer and consequently gain more market share over time.
Outlining the competitive landscape is important to appraise competition and indicating the strengths of the competitors can give the company objectives on what can be improved and examine weather they can be implemented by Uber. According to national statistics from department for transport, it is estimated that there are 78 thousand taxis and 153 thousand licensed private hire vehicles in England. The fıgures present that the number of PHV are twice the number of taxıs operatıng in England. 31% of total licensed taxis and private hire vehicles in England are in London from which we can assume that private hirıng is a popular choice for Londoners.
Analyzing Gett-Taxi as the market leader we can imply that some of their most influential advantages are:
Competing with flat and predictable prices: People who take taxis are not usually loyal to a specific brand and most people would choose the cheaper option and Gett has the advantage by having predictable prices without surge pricing. Enables Advance booking: Unlike Uber, Gett offers advance booking 2 weeks prior to journey whereas Uber has failed to implement this feature in their app. Offers 24 hours customer service for driver and customers: Uber has proven to be quite poor at following through with customer enquiries.
On the other hand the only major advantage of Hailo that we came across is the fact that they are the only company, which has a real taxi license for all their cars.
3. Strategic Options:
According to Porter, competitive advantage is derived from the value a firm is able to create for its buyers that exceeds the firm’s cost of creating it. Utility of Uber can be increased by the following three categories: • Service: Reducing the time to reach customers when they need the service can enhance Uber’s service. The cab and the driver have to be reliable and can provide modern and comfortable cabs for service. • Personnel: service can be provided with professional drivers, drivers must be trained to provide personalised customer service. • Image: Advertising, promotions on special days and to first users.
Porter’s Generic Strategies:
Porter called the generic strategies has three direction where the market can be segment or focused on particular path. They are
1. Cost Leadership,
The Focus strategy has been subdivided into two parts: “Cost Focus” and “Differentiation Focus”. (Refer below figure)
The Cost Leadership Strategy
This strategy will help to gain competitive advantage through two main methods such as maximising profits by declining costs while selling for average price in the particular industry or growing market share through selling for lower prices, although still producing a even-handed profit on each sale as you’ve focused on lowering the cost.
The Differentiation Strategy
This strategy involves in creating your goods or services different from others and more eye-catching for your customers as well as to your competitors. Differentiation strategy can be achieved in a success way through good exploration about the goods or services, expansion and innovation of the goods or services, and the ability to provide superior quality products or services. This will create an inimitable image in the particular industry and alongside some scopes will lead to be valued by consumers.
The Focus Strategy
The Focus strategy is concentrating on specific niche markets through considerate the associations of that specific niche market and the exceptional needs of consumers in it. This can be exclusively low-cost or well-specified goods or services on that particular industry. This will construct strong brand loyalty among consumers. This will lead the market segment to be less attractive to the competitors. Uber’s marketing strategy is to provide a premium service at premium price and have loyal customers. It aims at hip, tech-savvy customers whose time is valuable and who are willing to spend money for convenience. The campaign of Uber focuses on the service.
The ice cream campaign in NYC is an example of the difference in convenience and experience. Where else could you have an on demand ice cream truck pull up in front of your house delivering ice cream for few people? The focus is on providing an extraordinary experience for the customer and let them do the talking about the brand and the unique service. Uber is having partnerships with Virgin America, which offers Uber’s points to its flyer members which increases awareness and credibility to their service. And Trulia is a real-estate company provide prospective renters a discount for up to three apartment visits as long as they registered for this promotion.
Potter’s Five Forces Analysis states that business can be affected by some facts which are determine the competitive power of the business to drive in reality. The fact can be classified into five important forces. They are Supplier power, Buyer power, Threat of substitute, Threat of New Entry and Competitive Rivalry.
1. Supplier Power: the number of suppliers involved determines the supplier power in the particular business and the exclusivity of their goods or service, their business strength and power over your business, and the cost of swapping from one supplier to another. UBER’s suppliers power is high because UBER don’t employ drivers, free-lanced drivers get register with UBER and get the training and the guidelines before start their self-employment.
2. Buyer Power: the number of buyers involved determines the buyer’s power in the particular business, the cost to the buyer to swapping from your goods and services to someone else. UBER’s buyer power is high because it’s a mobile platform and customers have different alternative services like Gett and Hailo.
3. Competitive Rivalry: the number of capability of your competitors determines the competitive rivalry. When the business has more competitors, and if the competitor can offer equally attractive products and services, then the competitive rivalry is high. UBER’s competitors are Gett and Hailo, they provide service in lower cost and they have their own drivers.
4. Threat of Substitution: the number of alternative options of your customers determines the threat of substitute. When the service or the goods has more substitute, then the threat of substitute is high. UBER’s threat of substitute is high because in London there is many substitute such as tubes, trains, buses, and black cabs.
5. Threat of New Entry: the capability of other business can enter into your market space by starting up a similar business like you is the threat of new entry. If the startup cost is low in terms of capital, time, and technology the new competitor can enter in to your market easily. Uber’s threat of new entry is very high because entering to taxi service business is very easy because the new business needs a simple mobile application and some free-lanced drivers.
Alternative Market Directions for Uber
Uber can focus on Event specific marketing like special events such as Valentine’s Day, Harvesting day, Children’s Day, Christmas and New Year days. Uber can provide special offers or promotions for its loyal customers. Personalised Car/Cab with the special trained driver for business people, celebrities and high-class tourists. Market development Strategies/Path:
• Expand the market with average pricing in nearby small cities and rural areas to attract more new customers. • Initiating and developing new long term partnership with local hotel chains and airport local travel unit to provide transport service such as site seeing, and airport pic & drop to their customers. • Initiating and developing new long-term partnership with local schools to proved service for their students. • Initiating and developing new business wing/unit for disable people to accommodate their transport need with the special features they need. • Initiating and developing new long term partnership with courier service organisations like Royal Mail, DHL, and FedEx to provide their delivery service to their customers. • Initiating and developing new long term partnership with local manufacturing companies to support their logistic service such as transporting to shipping, delivering goods to their customers, and transporting their raw materials for their production.
4. Marketing Strategies
Uber focuses on hiring local drivers in each city. They are trying to localize the company in each city in every aspect they see. The effect of that is building a trust between the company, the drivers, and the customers all together. After hiring local drivers, Uber give these drivers trainings and guidelines to teach them the “Uber Way”. They also provide their employees with a global chat room that they interact in, talk, give ideas and suggestions, and best practices are shared across the company. So by cultivating collaboration and building trust internally and externally, Uber is trying to gain a competitive advantage in order to increase their market share, therefor increasing revenue.
Uber likes to surprise and delight their customers. For example they delivered kittens and ice cream in New York. This is on of Uber’s ways to allow customer actions to go viral on social media and offline to try to send their message to new markets in order to gain new opportunities. Uber uses a unique way in serving their customers. They have a special team whose mission is to make sure customers get their taxi when and where they need them in no more than 9 minutes.
They created a referral program integrated in the Uber app. It gives customers the ability to share a special code between their friends, and in that way Uber can track how many shares made, which indicates the percentage of Uber’s customer’s acquisition.
Uber’s Marketing Objectives:
1. Offer Better Service.
2. More Reliability.
3. Improve Customer Support.
4. Unique Style.
5. Provide Comfort.
6. Reduce Frustration.
6. Critical Analysis:
The SMART analysis indicates that Uber can have many ways to improve every aspect in the company. Their objectives are not time-oriented. On the other had, their objectives are all achievable and relevant to the company’s mission. The analyses also show that most of the strategies and suggestions given are specific, achievable, and relevant. That indicates that Uber has many opportunities that they can benefit from in order to gain more competitive advantage and to operate better in the market.
Overall market share of Uber in e-hailing market can be increased by implementing some strategies.The report shows that Uber has many opportunities to increase their market value, market share and gain a competitive advantage over their competitors. Looking at the analysis we realise that Uber has a very high potential in achieving their objective about gaining customers and eventually increase their revenue. Along the side of improving some of their services, following some of the strategies mentioned above and solutions suggested by us, proves that Uber has a high potential and can use the first mover advantage. Distribution channel of Uber can be improved by targeting other parallel industries and move customers into greater contribution. Branding image of Uber can increase its value by providing good service and the operating areas can be increased to reach a higher volume of customers. Moreover, the opportunities discovered by using the analysis might be considered as a useful way of taking Uber to a higher position in the e-hail market in London.
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