Answered: Identify THREE (3) global challenge…

Understanding Business

12th Edition

ISBN:9781259929434

Author:William Nickels

Publisher:William Nickels

Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment

Section: Chapter Questions

Problem 1CE

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1. Identify THREE (3) global challenge trends, discuss each trend and how it is applicable to the Uber case? Provide adequate information linking to the case to support the discussion. Other relevant background information and examples linking to the case can be incorporated.

Transcribed Image Text:A-Grade Investments), Jay Z (co-founder of Roc-A-Fella Records), and Jeff Bezos (founder of Amazon). Uber faced many obstacles and criticism in its early years. One criticism was directed at the "surge pricing" model, which referred to the practice of charging customers higher prices at peak hours. It garnered a lot of attention during a snowstorm in New York in December 2013, when rates increased up to eight times its standard rates, attracting a flood of negative publicity. Kalanick defended this practice with economics - it reflected demand and supply at any given point in time, and effectively allocated capacity to customers who were willing to pay even during super-peak periods. To ameliorate public outrage, Uber eventually tweaked its pricing model and limited fare hikes to a maximum of 2.8 times the normal fares in the face of snowstorms in New York. Uber proudly announced in January 2015 that it had more than 160,000 active drivers in the US who provided more than a million rides a day. Uber's operations covered 75% of the US population, and even as it sets its sights on international markets, it remained focused on growth at home. Its efforts were mainly channeled towards building a strong network of drivers and improving service for consumers. These efforts paid off-40,000 US drivers joined Uber in December 2014 alone; service efficiency saw improvements with 91% of UberX rides arriving in less than 10 minutes in Philadelphia; and the demand for Uber peaked when people celebrate and consume alcohol, testifying to Uber's position as a "better late-night option". Uber also started to pay more attention to corporate social responsibility. For example, its program Uber MILITARY led to the hiring of 10,000 veterans - ex-military personnel as drivers, while the use of Uber POOL was calculated to save more than 13,000 gallons of fuel each month in San Francisco alone. By stretching its network of drivers to different demographic segments in society, offering alternative ridesharing options and reducing waiting time, Uber was able to build on network effects for drivers and loyalty among consumers, making it difficult for competitors to enter and grow in its markets. LYFT'S RISE AND RIVALRY Lyft was founded in 2012 by John Zimmer and Logan Green, launched primarily as a low-cost competitor to Uber. Its focus was on short, urban rides. Lyft logged an impressive 2.2 million rides in December 2014, with revenues for that year estimated at $130 million. In May 2015, Lyft was valued at $2.5 billion, its promising growth bolstered by estimates of 2015 revenues to be $796 million, an impressive 512% jump from 2014. While Uber touted its iconic black cars to differentiate its luxury services for professionals, Lyft adorned its cars with a pink moustache, which had become an identifying factor for the company when driving down the streets of San Francisco. This was accompanied by the greeting of all Lyft passengers with a fist bump. While these tongue-in-cheek communications were successful in positioning Lyft differently, Lyft's › management announced plans to tone down the carstache and scrap the fist bump practice in January 2015. This decision was made with the realization that what worked in the West Coast would not work in Lyft's plans to expand to other cities in the US, or even internationally. Regardless of Lyft toning down its practices, it still prided itself on its friendliness and laidback driving experience when compared to Uber. An internal presentation from March 2015 that was leaked to Bloomberg revealed its criticisms of Uber for its "top-down model", "exclusive mentality", and "anti-social culture". On the other hand, Lyft claimed its growth to be bottom-up and led by drivers through positive word-of-mouth marketing, 32% of whom were female. All in all, Lyft believed itself to be a "trusted brand" delivering a "social experience" with memorable quirks — the carstache being one of them. Apart from its more relaxed brand image, Lyft mainly positioned itself as a lower-cost alternative to Uber. Since 2014, the company announced big price cuts - they first cut prices by 20% in early 2014 and then reduced them again by 10% in May. Lyft also used a surge-pricing model; to ward off potential criticism, it provided discounts of 10-15% during off- peak hours. While both companies engaged in aggressive price cutting strategies whenever they operated in the same city, Lyft drivers typically charged - and earned - less than Uber drivers, which was consistent with Lyft's positioning of being a lower cost alternative. While Lyft enjoyed strong branding and was expected to spend a generous 60.5% of its revenue on marketing in December 2015, its operations were not as entrenched as Uber's. One example can be seen in its attempts to break into New York's tight network of taxis in July 2014, where Uber had already operated for three years. A public exposé occurred, in which the company was issued a cease-and-desist letter by the New York State Department of Financial Services just days before it planned to open operations, for non-compliance with safety requirements and licensing criteria.

ABSTRACT
Uber allowed people to book and share rides in private cars via their smartphones. With it headquarters in the US, it operates in 60 countries and has a strong presence in the Asia-
Pacific region. This case study explores Uber's development and growth, first in the US, then its global expansion and subsequent foray into China. Despite enjoying international
success with deep penetration in major cities, Uber flopped in the Chinese market. What were the reasons for its failure in China, given its spectacular performance in many other
countries?
INTRODUCTION
Uber was founded in 2009 by Travis Kalanick (current Chief Executive Officer) and Garrett Camp (Co-Founder) in San Francisco. Its business model rested on the use of an app
to call for a driver at any time and location. Uber managed to build a spectacular network of drivers and passengers in just three years, thriving in what some people term as an
"instant-gratification economy", powered by the smartphone as the remote control for life. "If we can get you a car in five minutes, we can get you anything in five minutes,"
Kalanick said. Expanding outside of the US, Uber was a threat to taxi services in Europe and Asia, triggering protests in France, Germany, and India. Despite resulting government
scrutiny, tighter regulations and disputes with local taxi companies, Uber's disruptive business model successfully posed an effective challenge to taxi monopolies in the countries
it operated in. As of August 2015, Uber clinched the title of the most valuable startup in the world, valued at $51 billion. Enjoying first mover advantage in app-enabled
transportation services and ridesharing, Uber was far more successful in its number of users and drivers than its main American competitor, Lyft. Lyft positioned itself as a more
informal, community-centered way to travel, with the expectation that drivers and shotgun-riding passengers would strike up a conversation during the ride. By being a late entrant
to the market entering three years after Uber, Lyft managed to operate in only 65 American cities by the end of 2015. In contrast, Uber had been operating in a total of 300 large
cities in 60 countries. Both companies offered a myriad of services at different price points (Exhibit 2). China, with a projection of 221 cities containing a population of one million
or more, was a highly attractive market for any internationally minded taxi company. Uber pioneered its taxi service in Shanghai in 2013. Entering difficult markets was not new to
Uber, which had previously successfully navigated diverse markets in the UK, India, and South Africa. Nevertheless, Uber encountered unique roadblocks in China - strong
competitors, existing low-cost taxi services, and a lack of know-how to navigate around local regulations and even corrupt officials. Uber also faced tough competition from a
much larger local player, Didi-Kuaidi (known locally as yH). Didi boasted more than one million drivers in 360 cities in China, whereas Uber only had about 100,000 drivers in
20 cities.
UBER'S GROWTH
The first conceptualization of Uber's business model started in Paris in 2008, when founders Kalanick and Camp could not get a cab after returning from a conference. The two
discussed solving the problem with a mobile app — push a button and get a car. In 2009, UberCab was born. After downloading its app, registering and entering credit-card
information, customers could summon a car with the press of a button. G.P.S. took care of the location, and the cost was automatically charged to the customer's credit card, with
tips included. It did not take long for the company to run into regulatory issues when the San Francisco Municipal Transportation Agency objected to the use of "cab" in Uber
Cab's name a few months after its launch, given its operation without a taxi license. After changing its name to Uber, things went on an upward trajectory. Valued at $60 million
after only six months of operation, Uber received support not just from angel investors and venture capitalists, but also from prominent celebrities like Ashton Kutcher (founder of

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