Last weekend I read the following FT newspaper article: Uber faces challenge from car-booking app backed by Chinese. It is talking about Taxify, which already operates in 19 countries, and it is opening in London with "the aim of taking thousands of drivers and passengers away from Uber". While reading the article my biggest question was, why would a Uber customer switch to Taxify anyways? The article offered only one answer to this question: lower price.
Taxify founder and chief executive Markus Villig is quoted in the article saying that he expects the business to get up to 50 per cent of the London market for ride-booking by undercutting Uber on price, but paying higher rates to drivers. That sounds like a double negative hit on their P&L. I'd be curious to see their business plan.
When your marketing objective is acquisition of customers, you have basically two options, convert non-users by stimulating demand or earning share from the competition. Therefore based on what I read, Taxify is going to earn share from Uber by differentiating on price. That is an older strategy than marketing itself, but it's also a low profit and high risk strategy. And to even work, market research must have shown that the answers to two key questions: "Why do they use Uber? What would make them switch?" are price and cheaper offering, respectively.
Now the sustainability of such a strategy is even more risky if you take into account that according to another FT article Uber makes vast losses — $3bn last year. FT states that Taxify aims to increase payments to drivers compared to Uber by charging lower commission, of about 15 per cent. It could be that Taxify expects to "recruit" the majority of the drivers and therefore improve their customer KPIs (waiting time, response rate, etc). But that's never mentioned.
https://www.cnbc.com/2017/05/24/goldman-sachs-ride-hailing-companies-will-dwarf-taxis.html
https://seekingalpha.com/article/4031752-will-uber-ever-make-money-bezeks-daily-briefing
Disclaimer: I'm no expert in this industry and I solely based this blog entry on the referred publications.
Taxify founder and chief executive Markus Villig is quoted in the article saying that he expects the business to get up to 50 per cent of the London market for ride-booking by undercutting Uber on price, but paying higher rates to drivers. That sounds like a double negative hit on their P&L. I'd be curious to see their business plan.
When your marketing objective is acquisition of customers, you have basically two options, convert non-users by stimulating demand or earning share from the competition. Therefore based on what I read, Taxify is going to earn share from Uber by differentiating on price. That is an older strategy than marketing itself, but it's also a low profit and high risk strategy. And to even work, market research must have shown that the answers to two key questions: "Why do they use Uber? What would make them switch?" are price and cheaper offering, respectively.
Now the sustainability of such a strategy is even more risky if you take into account that according to another FT article Uber makes vast losses — $3bn last year. FT states that Taxify aims to increase payments to drivers compared to Uber by charging lower commission, of about 15 per cent. It could be that Taxify expects to "recruit" the majority of the drivers and therefore improve their customer KPIs (waiting time, response rate, etc). But that's never mentioned.
While I do believe in competition and would be happy to see other players competing with Uber, I don't think that a price cut as strategy is sustainable in the long term. It's important to notice that Mr. Villig believes that Uber is profitable in developed countries such as the UK. But even so, a solid strategy should be based on sustainable competitive differentiation. Unless Taxify has a very different business and/or operating model from Uber. One that allows Taxify to charge less and still be profitable (for example, like Walmart or Dell supply chain capabilities allowed them to be profitable at lower prices and at the same time almost impossible to copy).
And then there's the discussion on self-driving cars and that will certainly disrupt the business model, but I'll leave that for another time. You can read more about it here:
https://seekingalpha.com/article/4031752-will-uber-ever-make-money-bezeks-daily-briefing
Disclaimer: I'm no expert in this industry and I solely based this blog entry on the referred publications.
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