Explain Uber’s strategy of disruption and innovation in the metered taxi industry.
Explain Uber’s strategy of disruption and innovation in the metered taxi industry.
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Explain Uber’s strategy of disruption and innovation in the metered taxi industry.
![flexible times. Unlike Uber, traditional taxis are usually located at central depots or central places
discounts. Uber's partnership with Hilton Hotels around the world to provide hotel guests with a
such as bus stations or train stations. In some instances, the customer keeps the taxi's cellphone
reliable means of transport to and from hotels, airports and restaurants directly takes away
number
contact the driver whenever the customer needs the service. This means that a
customers that were traditionally served by metered taxis.
customer needs to physically walk and search for a taxi or place a phone call to order a taxi and
wait for the taxi to arrive. This process is relatively more cumbersome from the perspective of
Uber appears to have identified a gap in the taxi market and used innovation to gain a competitive
consumers. With Uber, a customer simply orders a taxi right at their doorstep at the least cost
edge over incumbent traditional metered taxis. Incumbent operators have been forced to search
with the added service to track the arrival time of the Uber taxi through a dedicated driver-
for new solutions in order to respond to new forms of competition driven by technological
passenger Uber application. Uber may thus be filling a 'convenience gap' in the market.
developments. Competition policy has its objective to encourage competition not only on price,
but through innovation, effort, consumer choice and quality. To the extent that the introduction
It is likely that the app-based service is tapping or inducing new demand of customers that were
of new services such as Uber encourages these outcomes, existing and new consumers are likely
previously using their own vehicles through providing a reliable and apparently safer mode of
to benefit significantly. It is worth cautioning, however, that directional selling and instances of
transport that is an attractive alternative to driving. Uber is attractive for its consistent shorter
below-cost pricing (as alleged) can lead to anticompetitive outcomes as demonstrated in several
waiting and travel times rendering the service more reliable than traditional taxis. Customers
other markets such as air travel in the relationship between airlines and travel agents. Similar
know with precision the approximated time of travel to their destinations using the dedicated
practices and the use of loyalty rebate schemes provided by airlines have been investigated by the
driver-passenger application which tracks the entire journey. Uber also has a quality-based
competition authorities in the context of the South African market. It is important for those that
competitive advantage in terms of cieanliness and customer service standards including a rating
have raised concerns regarding these services, and those regulators tasked with addressing these
system for drivers. The current system is that the driver's details are sent to the customer upon
new challenges, to consider carefully the propensity of incumbent firms to use regulation and
ordering an Uber taxi which provides some degree of passenger security.
lobbying behaviour to protect their position in the market. On the other hand, there are clear
socio-economic issues resulting from the displacement of traditional service providers through
In terms of fares, customer requirements for a secure, transparent and easy payment system are
technology that cannot be ignored in a developing country context, and regulation at least has to
important considerations. Uber's transparent, standardised way of calculating fares per kilometre,
ensure that conditions for competition (including licensing requirements) are consistent and fair
which is all available on the app, is likely to be appealing to customers. Customers are able to
across competing services where possible.
request a quote for a trip before hailing an Uber taxi allowing the customer to know beforehand
the cost they are going to incur. Uber's ease of payment means that customers are not required
Source: Dube, S. 2015. Uber: A Game-Changer In Passenger Transport In South Africa? Centre for
to hold cash for the purposes of paying for the trip as the application deducts the cost of the trip
Competition Regulation and Economic Development (CCRED). [Online]. Available at:
directly from the customer's bank account. In a context like South Africa with a high crime rate,
http://www.competition.org.za/review/2015/11/22/uber-a-game-changer-in-passenger-
security of payment is essential as holding cash is dangerous.
transport-in-south-africa [Accessed: 27 February 2017].
Directional selling by companies such as Discovery, which in this case involves the use of customer
incentives agreed between Discovery and Uber to channel customers or traffic towards using
Uber services, may also affect competition in the taxi industry, enabling Uber service to tap into
new passengers or market segments. This is akin to similar partnerships between Discovery and
selected airlines operating in the South African market. Discovery, which provides various health
and general insurance products, encourages its customers to use Uber with attached benefits and](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F96ade17b-b86c-45b6-bffe-b20b548da57b%2Fcc7d3345-a251-45f2-89ac-494986044831%2Fknknsv_processed.png&w=3840&q=75)
Transcribed Image Text:flexible times. Unlike Uber, traditional taxis are usually located at central depots or central places
discounts. Uber's partnership with Hilton Hotels around the world to provide hotel guests with a
such as bus stations or train stations. In some instances, the customer keeps the taxi's cellphone
reliable means of transport to and from hotels, airports and restaurants directly takes away
number
contact the driver whenever the customer needs the service. This means that a
customers that were traditionally served by metered taxis.
customer needs to physically walk and search for a taxi or place a phone call to order a taxi and
wait for the taxi to arrive. This process is relatively more cumbersome from the perspective of
Uber appears to have identified a gap in the taxi market and used innovation to gain a competitive
consumers. With Uber, a customer simply orders a taxi right at their doorstep at the least cost
edge over incumbent traditional metered taxis. Incumbent operators have been forced to search
with the added service to track the arrival time of the Uber taxi through a dedicated driver-
for new solutions in order to respond to new forms of competition driven by technological
passenger Uber application. Uber may thus be filling a 'convenience gap' in the market.
developments. Competition policy has its objective to encourage competition not only on price,
but through innovation, effort, consumer choice and quality. To the extent that the introduction
It is likely that the app-based service is tapping or inducing new demand of customers that were
of new services such as Uber encourages these outcomes, existing and new consumers are likely
previously using their own vehicles through providing a reliable and apparently safer mode of
to benefit significantly. It is worth cautioning, however, that directional selling and instances of
transport that is an attractive alternative to driving. Uber is attractive for its consistent shorter
below-cost pricing (as alleged) can lead to anticompetitive outcomes as demonstrated in several
waiting and travel times rendering the service more reliable than traditional taxis. Customers
other markets such as air travel in the relationship between airlines and travel agents. Similar
know with precision the approximated time of travel to their destinations using the dedicated
practices and the use of loyalty rebate schemes provided by airlines have been investigated by the
driver-passenger application which tracks the entire journey. Uber also has a quality-based
competition authorities in the context of the South African market. It is important for those that
competitive advantage in terms of cieanliness and customer service standards including a rating
have raised concerns regarding these services, and those regulators tasked with addressing these
system for drivers. The current system is that the driver's details are sent to the customer upon
new challenges, to consider carefully the propensity of incumbent firms to use regulation and
ordering an Uber taxi which provides some degree of passenger security.
lobbying behaviour to protect their position in the market. On the other hand, there are clear
socio-economic issues resulting from the displacement of traditional service providers through
In terms of fares, customer requirements for a secure, transparent and easy payment system are
technology that cannot be ignored in a developing country context, and regulation at least has to
important considerations. Uber's transparent, standardised way of calculating fares per kilometre,
ensure that conditions for competition (including licensing requirements) are consistent and fair
which is all available on the app, is likely to be appealing to customers. Customers are able to
across competing services where possible.
request a quote for a trip before hailing an Uber taxi allowing the customer to know beforehand
the cost they are going to incur. Uber's ease of payment means that customers are not required
Source: Dube, S. 2015. Uber: A Game-Changer In Passenger Transport In South Africa? Centre for
to hold cash for the purposes of paying for the trip as the application deducts the cost of the trip
Competition Regulation and Economic Development (CCRED). [Online]. Available at:
directly from the customer's bank account. In a context like South Africa with a high crime rate,
http://www.competition.org.za/review/2015/11/22/uber-a-game-changer-in-passenger-
security of payment is essential as holding cash is dangerous.
transport-in-south-africa [Accessed: 27 February 2017].
Directional selling by companies such as Discovery, which in this case involves the use of customer
incentives agreed between Discovery and Uber to channel customers or traffic towards using
Uber services, may also affect competition in the taxi industry, enabling Uber service to tap into
new passengers or market segments. This is akin to similar partnerships between Discovery and
selected airlines operating in the South African market. Discovery, which provides various health
and general insurance products, encourages its customers to use Uber with attached benefits and
Transcribed Image Text:Uber: A game-changer in passenger transport in South Africa?
been argued in other countries, will lessen negative externalities and other market failures
| The entry of the app-based Uber service into South Africa's local passenger transport industry in
associated with this and similar services.
|2013 raises important competition and regulatory issues. Uber is a taxi smartphone application
that uses the customer's smartphone to detect their specific location using the global positioning
On the other hand, stiff competition from the entry of Uber in places like New York, has forced
system (GPS), and instantly connects the customer to the nearest available driver. Uber taxis work
traditional metered taxis to become more innovative, through the introduction of a new taxi app
in exactly the same manner as traditional metered taxis in that they both take the customer to
to compete with Uber. In South Africa, a new cabhailing app called Taxify was introduced in 2015
their intended destination for a metered fee. However, Uber is a technology-driven service that
in the main cities of Johannesburg and Cape Town as a direct competitor to Uber. In Vancouver,
uses a convenient electronic taxi-hailing system to find, book and pay for taxi services. This
Canada, the entry of Uber forced the four main metered taxi companies to integrate and develop
presents an innovative new technology platform in the local taxi industry. In South Africa, Uber
an eCab application in order to compete with Uber and ensure their survival in the industry.
operates in the major cities of Johannesburg, Pretoria, Cape Town and Durban and is planning to
expand into smaller cities. Beyond South Africa, the internet ride-sharing service has been
Price comparisons between Uber service and the average quoted prices of four anonymised
introduced in Nairobi, Kenya and Lagos, Nigeria. Uber's rapid expansion in terms of market share
sedan-based metered taxi companies for five different short and longer distance routes is used to
and geographic areas since 2013 shows an innovative new entrant that has disrupted the existing
assess the impact on prices following the entry of Uber into the industry. A cheaper line of Uber's
systems in the passenger transportation industry.
taxi offering, Uber X is used in the analysis. The routes assessed comprise a busy route from the
Sandton Gautrain station to O.R. Tambo International Airport, Johannesburg to Pretoria and short
However, the entry of Uber into the local taxi industry was met with hostile challenges around
distances within Johannesburg.
regulations and allegations of unfair competition practices in several cities such as Washington,
Paris, Mexico City, Lisbon in Portugal, Bandung in Indonesia and Cape Town in South Africa,
Uber is significantly cheaper than metered taxis across all distances. Metered taxis charge
amongst others. South Africa's Metered Taxi Council accuses Uber of engaging in unfair
significantly higher premiums for short distances reaching as high as 265% above Uber X.
competition practices and failure to comply with local transport regulations. Metered taxi
operators have alleged that Uber is using aggressive below-cost pricing and operating without
However, it is clear that price is not the only competitive factor driving the growth of Uber
metered taxi permits which are charged on an annual basis or as a once-off payment (approx.
services. Before the entry of Uber, the majority of Uber customers were indifferent about using
R 1500.00) according to Section 54 and 62 of the National Land Transport Act No.5 of 2009. Uber
traditional meter taxis as an option. Is growing demand for Uber service purely driven by cheaper
is apparently also failing to comply with transport rules and regulations for metered taxis such as
prices or is there other competitive aspects driving its rapid growth in market share? This also
sealed meters for the purpose of determining the fare payable, detailed description of the specific
raises the question of whether Uber is directly taking customers from traditional metered taxis,
route, stipulated minimum and maximum fares per kilometre, displaying of approved rates on the
drawing in new demand in the market, or a combination of these effects. Although metered taxis
vehicle and on the sealed meter, vehicle standards and safety specifications.
and Uber share common features they have different users and user experiences. Importantly,
the growth of Uber services demonstrates the responsiveness of consumers to lower prices and
Uber's business model appears to have enabled it to bypass local transport rules and regulations
improved services, and the ability for improved product offerings and prices to create benefits for
including successfully adopting technological solutions to overcome local transport regulatory
not only existing, but new customers as well.
barriers. In response, South African regulators are currently amending the National Land
Transport Act to include a new section for Transport Network Operators that caters for the
Uber has an additional convenience-based competitive advantage which allows the service to tap
regulation of operators using technology platforms such as Uber. Appropriate regulation, it has
into a whole new market of unmet demand for convenient, fast, and flexible point-to-point urban
transportation. The Uber application makes it easy to hail or order a cab from any location, at
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