Porter’s Five Forces Analysis-Radio Cab Service in Mumbai

Rajesh Ravindran 44Sudeep Paranjape 34Dhanvi Kapadia 19Prashant Sharma 49Abha Gupta 14Anup Pawaskar 39Rinto John 18Supriya Panchbhai 32

Agenda

• Background • Existing scenario of Taxi Service in Mumbai • Rivalry among existing players• Threat of new entrants• Threat of Substitutes• Bargaining power of suppliers• Bargaining power of customers• SWOT Analysis

Background of Mumbai Traffic

• Mumbai has a population of 20 million people.

• 88% of commuters in Mumbai use public transport mainly suburban trains as a means of transport

• The public transport is overcrowded and does not offer point to point service

• Most of Mumbai’s arterial roads are congested

• Improvement has been taking place in the train and bus systems through public investment

• But very little attention has been paid towards improving the intermediate modes i.e. the taxis

Taxi Service in Mumbai• Only 20,000 old black and yellow taxis on Greater Mumbai

road and 35,000 New taxis like Maruti Alto, Wagon R, Omni, Tata Indica, Santro etc

• 5% of the commuters in Mumbai use taxis

• There are 54,524 taxi permits

• 2,32,002 drivers hold Taxi Driver’s Badge (Billa) which authorizes them to drive a taxi

• Issue of new permits for Premier Padmini taxis have been frozen since November 1997

Why go the Radio Cab route?• Radio cabs constitute just about 8% of the four lakh registered taxis in

the country. • With a maximum fare difference of Rs5/km with regular taxis, these

cars that come equipped with GPS systems offer good value for customers

• The next decade will see about 450,000 taxis and auto-rickshaws being replaced in major Indian cities, presenting an over US$2 billion opportunity for the radio cab business

• Increased efficiency• The radio cab business has tremendous potential for growth in India

as the transport needs of the corporate world and even of middle-class and affluent will be met efficiently

• With enormous parking problems, many residents would prefer to call up or SMS

Rivalry among existing players

Key Players

OfferingsCompany Estimated Fleet

Size(Mumbai)Value Proposition

Meru Cabs 2000 Largest fleet,60 sec. to book, Brand Equity

Tab Cabs 1600 New,Fresh,LuxuryToyota Etios,Infotainment

Easy Cabs 800 By Hertz,Car Rentals,Corporate Leasing

Mega Cabs 600 Drivers from reputed institutes like the Institute of Driving and Training Research (IDTR) and Hubert Ebner (HE)

Viira Cabs/Forshe - By Women For Women

Factors affecting Competitive rivalryCharacteristics (Current) Future Trend

Degree of seller concentration?

Few Expected to rise

Significant cost differences among firms

Not much Not Much

Degree of product differentiation among sellers

Firms compete on quality of services offered

Expected to rise

Buyers cost of switching Low Low

Are prices and terms of sales transactions observable?

Yes Yes

Factors affecting Competitive rivalryCharacteristics (Current) Future Trend

Can firm adjust prices quickly?

NA NA

Large and/or infrequent sales order

Yes Yes

Strength of exit barriers High High

Note:• Few players in the market.• Providing employment options to more than 5000 people.• Presence of strong unions.• Govt. decides on the price

• Rivalry among players High and will be Rising• Price is not a differentiating factor• Prompt Response, Luxury, Comfort will be key• Innovative schemes• Apart from vehicles, companies spending on Technology,

drivers and Call Centers to gain an edge.

In Short….

Threat of New Entrants

Barriers to Entry

• Initial Investment•Government Regulations• Taxi Permits•RTO• Skilled drivers •Branding

Factors affecting the threat of entry

Characteristics Characterization (Current)

Future Trend

Significant economies of scale?

Only few players As demand grows, it will rise

Importance of reputation or established brand loyalties in purchase decisions?

Yes due to existence of many options to the customers

Will definitely increase

Entrants’ access to distribution channels?

NA NA

Entrants’ access to technology and know-how?

High Very High

Entrants’ access to favourable locations?

High Very High

Factors affecting the threat of entry (Cont.)

Characteristics Characterization (Current)

Future Trend

Experiences based advantages of incumbents?

High Very High

Network externalities: demand side advantages to incumbents from large installed base?

High High

Perceptions of entrants about expected retaliation of incumbents/reputation of incumbents for “toughness”?

Low Moderate

Threat of Substitutes

Substitutes• Public bus service (BEST) - 90% of public transport in India• NMMT-Navi Mumbai Municipal Transport operates its Volvo buses • TMT-Thane Municipal Transport operates its buses from Thane to

Mulund and Borivali.• Suburban electric trains: local railway lines• Western, Central & Harbour lines• The rail network traverses through the length and breadth of the

country, covering 6,909 stations over a total route length of around 63,465km

• Transporting over 18 million passengers and more than 2million tonnes of freight daily

• Auto rickshaws - 246,458 auto rickshaws in Mumbai MMR as of 2008

• Ferry services for Gateway, Elephanta, Manori• Public Taxi (Black&Yellow)• Radio Cabs

Factors affecting Pressure from Substitutes/Complements

Characteristics (current)

Future Trends

Availability of close substitutes? Easily Available Easily Available

Price-value characteristics of substitutes? NA NA

Price elasticity of industry demand? Moderately Elastic(Substitutes)

Moderately elastic(Complements)

Highly Elastic for Substitutes

and compliments

Availability of close complements? Easily Available Easily Available

Price-value characteristics of complements? High High

Bargaining Power of Customers

Bargaining power of customers• Moderate• Low switching costs• Multiple modes of travelling• Buying a two-wheeler/car• Private vehicles account for 30% of the total transport demand in

urban areas of India• The number of automobiles produced in India rose from 63lakh

(6.3 million) in 2002-03 to 1.1 crore (11.2 million) in 2008-09• India still has a very low rate of car ownership• Low price cars introduced

• Airport and Corporate Buyers

Fare StructureCompany Flag-down (Rs) Subsequent km

(Rs)Night/Extra (Rs)

Meru, Mega, Easy, Gold

24 17 • Waiting:0.5/min• 30 + 21.25• Waiting at night

time 0.62 Rs.Cool 20 40% more than

B&Y25% on the fare

Premier Padminis 17 ~10 Starts at 20, 25% on the fare

New Black & Yellow Cabs

17 ~10 25% on the fare

Forshe 200 for 10 kms 15 250 (10 kms)+20

Viira 22 17 30+22

Priyadarshini 200 for 10 kms 15

Factors affecting Power of BuyersCharacteristics (Current) Future Trend

Buyer’s industry more concentrated than industry?

NA NA

Do buyers purchase in volumes? Does a buyer’s purchase volume represent large fraction of typical seller’s sales revenue?

No No

Can buyers find substitutes?

Yes Yes

Do firms make relationship specific investments to support transactions with specific buyers?

Yes Yes

Factors affecting Power of BuyersCharacteristics (Current) Future Trend

Is price elasticity of demand of buyer’s product high or low?

Low Low

Do buyers pose credible threat of backward integration?

NA NA

Does product represent significant fraction of cost in buyer’s business?

NA NA

Are prices in the market negotiated between buyers & sellers on each transaction or do sellers post a ‘take-it-or-leave-it’ price that applies to all transactions?

Take-it-or-leave-it Take-it-or-leave-it

Bargaining power of Suppliers

Major Suppliers

1. Car Dealers

3. Skilled drivers

4.Technology Providers

2. FuelSuppliers

1. Car DealersCompany Cars used

Meru Cabs Maruti Suzuki Esteem Mahindra Logan

Tata IndigoTata Indica

Toyota CorollaEasy Cabs Maruti Suzuki Esteem

Tata Indigo Mahindra LoganHyundai Accent

Ford IkonTab Cabs Toyota Etios

Maruti Suzuki Sx4*

Mega Cabs Tata IndigoTata Indigo Marina

1. Car Dealers Company No. of dealers in Mumbai & Navi

Mumbai

Maruti Suzuki 18

Mahindra 3

Tata Motors 8

Hyundai Motors 7

Ford Motors 6

Toyota Motors 9

Source:

1.Car Dealers• Bargaining PowerLow since Many Car dealers

-Bulk Ordering -Best Deal -High end Models

2.Fuel Supply• Radio cabs in Mumbai operate on CNG fuel• Rs. 33.10 per kg• Reliance Industries, GAIL (India) & Mahanagar Gas play a big role in the supply grid. • The Government of India, too is keen on promoting use of CNG

since it is cleaner and less expensive.

• Bargaining Power: Low to Moderate -Petrol Dealers Association of Mumbai -Fuel prices are set by the Ministry of

Petroleum and Natural Gas /Government of India

-CNG Kits

3. Skilled Drivers

• Difficult to find good caliber drivers• Taxi permits are controlled by the government • A deserving driver who has the aptitude and interest will not be able to become a unless he has a taxi badge which is difficult to obtain

• Bargaining Power Moderate but Rising -Unionization -Politicization e.g Meru Cab Strike (Swabhimaan Sanghatna)

4. Technology• Tamper proof Electronic Meters• GPS devices for Navigation• GIS devices for Vehicle Tracking• Television behind the head rest of Front Seats• Call centers Services

• Bargaining Power Low -Large number of Vendors

-ERP vendors

Factors affecting or Reflecting Power of Input Suppliers

Characterization (Current)

Future Trend

Is supplier Industry more concentrated than industry it sells to?

No No.Unlikely

Do firms in Industry purchase relatively small volumes relative to other customers of suppliers? Is typical firm’s purchase volume small relative to sales of typical supplier?

No. In fact it’s the opposite

No. Newer models may replace older ones

Few substitutes for supplier’s input? Yes Yes

Do suppliers pose credible threat of forward integration into the product market?

Highly Unlikely Highly Unlikely

Are suppliers able to price discriminate among prospective customers according to ability/willingness to pay for input?

Not all Not all

Five Forces Analysis

Force Threat to Profit (Present) Future

Internal Rivalry High High. Will rise

Threat to Entry Moderate Moderate

Substitutes High High

Buyer Power Moderate Moderate

Supplier Power Moderate Moderate

S.W.O.T. Analysis Meru Cabs Pvt. Ltd.

Strengths

• India’s largest radio taxi operator -a strong brand equity• Preferred Radio-taxi service at the Mumbai

airport• Fleet of around 2000 radio taxis in Mumbai• Location tracking GPS and a 24x7 Customer

Service Center- Makes use of Advance Techology• Tie up with Axis Bank –Credit/Debit card

payments• Won many Accolades

Weakness

• Complaints of booking cancellations, drivers being rude, overcharging about the company are rampant on Internet

• News of alleged exploitation of drivers by the firm(Revenue sharing model)

• Recent Strike by drivers – Damaged reputation

Opportunities• Expanding into cities like Pune, Ahmedabad, Kochi,Trivandrum

• Car rental service

• Infotainment services- Real time Flight Schedules

• Branding on Social Media

• Strategic partnerships with Online Travel Portals like MakeMyTrip.com, Cleartrip.com,Yatra.com and High End Hotels

Threats

• Stiff competition from players like Mega cabs, Easy cabs, Tab cabs• Politicization- Drivers Union-Management disputes may

rise• Unexpected Government Regulation

Strengths Opportunities

Largest Radio Taxi Operator

The market is expected to

double each year for the next two

years

Expanding into cities like Pune,

Ahmedabad, Kochi,Trivandrum

Fleet of around 2000 radio taxis in

Mumbai

In the next decade about 4,50,000 taxis and rickshaws will

be replaced in major Indian cities

presenting an over $2 billion radio cab

business

Car Rental Service – Without chauffer

Advanced Location tracking GPS

System, Technology driven taxi service

Most preferred service at Mumbai airport, Tie up with

Airport/Metro services to get daily

schedule

Real time Flight/Metro

Schedules

Leads

Strengths Opportunities

‘Book a radio cab in less than 60

seconds-Online’ facility available

Digital marketing manager, Youth

being the influencers, Respond to customer queries and feedback

Brand themselves on Social Media

Preferred taxi service at Mumbai Airport

With every domestic flight + car booking made

on Makemytrip.com

Strategic partnerships with

Online Travel Portals like

MakeMyTrip.com, Cleartrip.com,

Leads

Strategies

Offer them…• Cab-Pooling• Female Driving• Target Corporates -Premium Cars+ Airport Hotel Workspace• After Parties

Thank you