The Indian Taxi Industry - A Cost gulping Business?

Hi Guys,

TaxiForSure, Ola Cabs, Uber – three names that have been dominating the headlines of Startup sites in India. If you are living in any of the metro cities of India, there is a lot of possibility that you would have used their services or at least downloaded their App. While Uber is an international phenomenon, the other two startups are home based and are heavily funded by investors.

As the articlein Live Mint today rightly points out, these players are doing the same as that of ecommerce companies. Throwing huge discounts in order to win Customer Loyalty. Deep down, I feel there is a flaw in the entire model of winning the customer loyalty.

There have been too many organized cab models in India before the advent of these firms – Meru, Easy, Fast Track, etc. Many of them were regional players. Though there was some customer dissatisfaction, generally customers were happy since they got a Taxi on call. The price model was good enough that everyone in the model – the owners, the drivers, the customers were happy and satisfied.

Now enter the new arrivals. To disarm the existing players, what can you do? Offer better services – Mobile App, GPS Tracking, etc. Still, Customers don’t switch? Well, then there is only one thing you can do. Play with the cost (in most of the marketing case studies, students’ first option would be cut the price. And any professor would advise not to use that option unless other options are exhausted as price directly hits your margin). All the new entrants reduced the cost by nearly 25-30%.

As the articlein Mint points out, these firms provide the discount to the taxi drivers. That is if the actual fare was Rs. 500 and the passenger paid just Rs. 280 due to discounts, then the driver would have got Rs. 200 less. Ideally the owner should have got Rs. 100 (20% of 500) as commission. But instead they now give Rs. 120 as discount. Imagine the situation – Cost: Rs. 120. Revenue: Rs.0. For the driver, it doesn’t make a difference, the customer wins, the owner loses.

Why are these firms doing it then? All in the hope of gaining Customer Loyalty. If you travel in Ola cabs today and like it, you will become a customer of Ola is their thought process. So, the Rs. 120 they lose today would be compensated if you travel twice tomorrow (when they increase the fares back). But then, what is the logic behind the fact that you would stick with them in future?

Michael Porter in his famous five forces strategy would look at the five forces that drive the competition. A simple analysis of the five forces for the Taxi Industry looks like this (pardon me for the very simple analysis).

What can we arrive based on the analysis?

• Too low switching costs
• No Product Differentiation
• Industry operating completely based on cost factors.

Even if these players can consolidate at some point down the line and increase the price, what is the probability that a new player who has Deep Pockets won’t jump in and give low fares?

Is there Economies of scale in this business? With no Fixed Assets, no employees (in the form of drivers), the Economies of scale boil down to the marketing spends. It does help when you have a large market share, but it’s nothing compared to the economies of scale enjoyed by the retail industry or manufacturing industry.

With virtually no costs associated for the driver or the customer to switch players at a later stage, the industry looks like another cost gulping business, where you are going to lose a huge chunk of money in the name of gaining a false market share. Well the investment might look like a solid pillar, but then the pillar might well be laid on a sand dune waiting for a storm to wash it away.

Till the storm, I think as customers we might well enjoy our share in gulping the money.

Happy Reading!

The Big Billion Day and the Lessons learnt!

Hi Guys,

‘The Big Billion Day’ will remain a most spoken about term in the Indian E Commerce Space. There are lot of chances as to that a case study would be written about it and lot of analysis would be done as to what went wrong and how it could have been done correctly. Flipkart made a blunder with the sale and it not only backfired on them, but boosted Snapdeal and Amazon by a huge magnitude.

Flipkart claims that it achieved the target of a billion dollar sale, but no one can verify their claims from the outside. If it did achieve, then Flipkart grossly miscalculated the potential they had. This is one problem with most of the flash sales. Big Bazaar had the same problems with their sales during their starting stages. Flipkart already experienced backlash with the flash sales of Xiaomi mobile phones and still I’m not sure as to why they headed for a day sales. A week long sales like what Amazon is doing would have been a better deal.

Another question is as to whether Flipkart made an attempt to fool people with false sales and stock outs. If it did try, then it has done nothing but eroded the trust people had on Flipkart. If it was unintentional, then it is a wakeup call for Flipkart. What the day has done is leave a black mark on Flipkart, but I don’t think people would move out soon. But, if people face the same issue a few times, then surely its going to hit the sales of Flipkart.

Out of the whole issue, Snapdeal has been the biggest gainer. With the dramatic advertisement in Newspapers, Snapdeal just ambushed Flipkart’s advertisement. If claims are true, they had 15 times more visit than a normal day. Snapdeal’s problems lie in the backend. Many people are unhappy with their processing of orders. So, for Snapdeal to set itself up, it needs to correct its backend issues before focussing on Ambushing Flipkart and Amazon.

There are lot of questions hovering on internet as to what would be the impact on Flipkart? I feel that this incident in itself would have a very low impact. Particularly it was a good strategy by Flipkart to apologize to its customers. E Commerce is just booming in India and Customer Loyalty is virtually non-existent in this space. If Flipkart can offer better price than other major players, surely people are going to choose Flipkart. But, as I said earlier, if Flipkart has two or three more incidents like this, it is going to take a hit on them.

The final question that arises in my mind is ‘what is the potential market size of E Commerce in India?’ From the way people flocked Flipkart and other E Commerce sites on Monday, it is humungous. With a country with a population of more than a billion and a country that gets more internet connectivity day by day, a country that gets more comfortable with online banking over time and gets comfortable with buying online every passing minute, it is difficult to predict the size. I think Flipkart created too much awareness on the sale beforehand and it boomeranged back.

It has created a small dent on the face of Flipkart. It is up to Flipkart to bring back its glory or fall back to a stage from recovery is difficult.  It is also a great lesson for other E Commerce players in India.

With Government announcing that it will look into trader’s interests, the space becomes more interesting. Lets see how this space develops over the next few months.

Happy Reading!

Marketing Lessons: How to dissatisfy a customer with and without delighting him?

Hi Guys,

It is so often said in Marketing that a mere Customer Satisfaction is not enough and you need to go ahead and delight the customer for Customer is always the king. I and my friends have been facing quite a few situations with a few service providers recently. So, I decided to jot down those experiences into a blog post.

When Twitter came to the Rescue

One of my team mates had got a postpaid connection from a Telecom Service Provider (whose name rhymes with the largest network provider) in northern part of the country where they are not very strong. He got into a scheme where he prepays and enjoys quite a few benefits. The provider charged him some prepayment charges and along with that usual monthly bills as well. Dissatisfied he called the customer care and they said nothing can be done and he needs to pay the bill. He wrote mails and contacted them some 30-40 times.

The main problem with many of our customer care centers is that they  don’t have a database for the complaints and every time we need to start from scratch. He had been asking for a revised bill and they cut off the connection after some point of time. Again he called Customer care and got the same response.

Frustrated, he tweeted about the poor service. And came the response! The largest Network Provider tweeted back saying that they have better offers and asked my friend to switch to them. These guys then realized and called back and requested my friend to stay with them and the issue will be resolved. That is how the situation is hanging in now. I hope they do a proper service.

When Customer service goes beyond delighting

There are two situations. First faced by a friend and second by me.

You buy a mobile phone using your credit card around 11 pm for around Rs. 15000. And then you doze off. The bank calls you back at 11.30 pm. They say they are suspecting a fraudulent usage of the card. The credit limit of the card is far higher and the amount is not that worrying to call you in the mid of the night and disturb. This is when you get annoyed, even though the customer service is good. This is what happened to my friend.

This happened to me the next day. I was trying to book tickets to travel home through a Ticket Booking service provider that is creating huge waves in South India through huge marketing spends. I have used their service before that too and their customer care unit is just great. They quickly respond and call you and help out in booking.

When I was trying to book the first time around 11.30 pm, the payment transaction failed and I was not able to book the ticket. I tried immediately and the ticket got booked. I got a call around 1.30 am. I was wondering who is calling in the middle of the night. It happened to be their Customer Care Center. They wanted to guide me booking that failed ticket. I got so aggravated and cut the call after giving a few harsh words.

At least, in the first case it was credit card and you could say it is better to be safe than sorry. The second case is a very poor customer service model where you service the customer based on reply back time and do not consider the privacies of the customer and the gravity of the situation.

I have very often seen scenarios similar to the Network service provider, but scenarios at the other extreme are new to me. It is good that companies are focusing on customer satisfaction, but it essential for them to know the limits as well.

Happy Reading!!!