GROUP
UBER REPORT: FEASABILITY
MOHIT CHETWANI NEHAL KHANNA NIHAR AGARWAL NITHIN KUMAR N
STUDY FOR ENTERING INTO
TIER 3 CITIES
- PGP34326 - PGP34327 - PGP34328 - PGP34329
India market insight There are few markets in the world that are as exciting and promising as India. But the Indian landscape can be equally challenging and riddled with idiosyncrasies. Price competitiveness, geography, demography and psychography are some of the important aspects that greatly influences the ease of doing business in the country. One such factor that needs an in-depth analysis is the characteristic of the city in which the business is to be done. In the last decade, the contours of ‘urban India’ have changed and blotted outside its well-known ‘metro’ cities. Businesses have opened their eyes to the fact that there is more to India than Delhi and Mumbai. India is urbanizing rapidly; the percentage of urban migration has seen a 4-fold increase. This is the market that companies like Uber can tap into as these markets are underserved and holds huge potential. This report shall focus on the characteristics of theTier2 & 3 cities and the factors that might influence the growth of cab service business in these cities. Tier II- III cities are emerging as the most promising middle-class markets. New businesses find them profitable due to the low real estate rates, while they have a large available market. There is a vast demand and supply gap in these new wave markets and due to urban migration, the demand for cab services has only increased. 23 of the Tier 2 cities represent 19% of the national household income hence the potential for growth is unparalleled.
Type of cities and demarcation between Tier 1 ,2 & 3 cities Cities in India can be classified into tier 1,2 3 all the way to 6 and these are followed by over 6 lakh villages in the country. Cities in India are classified on the basis of their population, as recommended by the 7th pay finance commission into Tier 1,2, or 3cities based on their population. India officially has 8 Tier 1cities that have a population of over 5 million. These cities include Hyderabad, Delhi, Ahmedabad, Bengaluru, Greater Mumbai, Pune, Chennai and Kolkata. Tier II cities like, Raipur, Rajkot, Jamnagar, Bhavnagar, Vadodara, Surat, Faridabad, Gurgaon, Srinagar, Jammu, Jamshedpur etc have a population between 5 lakh-50 lakhs, whereas minor cities with population below 5 lakhs are termed as Tier III cities. In the new emerging India, the growth opportunities in these cities (that have remained an untapped asset of the country for long) is primarily due to the gigantic gap between availability
and demand. The growth of these two tiers gestures towards a positive sign for the nation with their efforts to deviate the pressure on the metros which are dwindling under the burden of space, time and infrastructure. In a recent study of Top 10 emerging business destinations in India, conducted by Cushman & Wakefield, global real estate solution providers, the growth in Tier II and Tier III cities is aided by 'the increasing disposable income of the people that has created immense opportunities for companies like cab service providers looking out for new markets to grow'. The study also mentions that companies being drawn to these cities are being enticed due to the 'availability of talent pool at a lower cost, reasonable real estate prices and a 'conducive business environment' created by State and local governments.
Source: inrnews.com
Characteristic of tier 2 & 3 cities Mode of transport: The major transportation service providers in the tier 2,3 cities are through public busses and autorickshaw. These are the major competitors to the cab service providers. The major challenge is the fact that the public transportation is cheap and auto-rickshaws run on a shared fare basis thereby reducing the per head transportation cost. This is a characteristic and obstacle of the tier 2, 3 cities that needs to be overcome by cab service providers to make any meaningful inroads into this market.
Demography: 24% of the Indian population is of the age between 12-25 and 32 % in the age bracket of 25-37. This provides a huge market which is tech savvy and can be potential customers with promotion of the cab service. It also provides a large working population that can be employed by the company at relatively cheaper rate in comparison to the Tier 1 cities
Real Estate: Due to these cities being in their nascent stage of their infrastructure development cycle, the real estate boom is yet to take place and real estate prices are relatively lower. This provides the businesses with ample space to set up their offices at relatively low price.
Psychographics: The family and businesses are close knit and these cities are still holding the essence of older India and at the same time progressed into the new modern era. This provides Uber with the opportunity to tap into family transportation market which may be missing in the Tier 1 cities.
Learnings from Uber India Story: In august 2013, When uber entered the Indian market it wasn’t quite a startup behemoth that it is now, however it was young and hungry. After operating in 19 countries around the world, Uber set his eyes on India – “a market that had the potential to become one of the biggest in the world.” Since the first ride in Bangalore, Uber now serves 27 more cities in the country, and have 400,000 driver partners. Undoubtedly, Uber wasn't the first in India to offer cab services through an application. In 2013, Ola entered the market with its on-demand model. However, being in Bangalore, it felt like the cab revolution arrived with Uber.
Success parameters/factors: Clients were at first reserved in through the guarantee of top of the line autos for stunning charges. Uber's money related muscle, propped by VC dollars, proved to be useful. Individuals raved about getting rides in Audis at the cost of an auto. Thereafter, Uber started offering referral discount codes, which gained the attention of the urban India. Individuals got free rides if they convince their friends to sign up, and Facebook feeds and Twitter timelines were filled with shared codes, all wanting to transform into free rides. Soon the words spread, and Uber grew.
Challenges faced: When uber launched UberMOTO - bike taxi service, in Bangalore, required it to be on toes. Within a few hours, Ola launched its own bike taxis in the city. However, things were still fine until Karnataka government declared out that bike taxis weren’t covered under the law in the state, and the government issued a diktat asking bike taxis to be called off the streets. While Ola complied, Uber did something that exemplified its hard-to-kill nature. Uber then rebranded its bike taxis as bike shares and stopped earning money from those rides. As a result, Ola’s bikes sat in garages, Uber’s bikes were out on the roads, increasing market share, if no money.
However, India is still one of few countries in the world where Uber isn’t the market leader. Also, Karnataka’s government have been a constant thorn for Uber, firstly by pulling up cab aggregators for running without licenses, and then by being unhappy with its surged pricing. As a result, Uber was nearly banned in Karnataka, however it managed to get its compliances at the last minute. After Karnataka’s government Delhi followed the lead, when the CM personally tweeted that the cab aggregators wouldn’t be allowed to charge surge prices. Uber dilly-dallied, got nearly banned, but ended up toeing the government’s line. Sometimes even the driver partners have turned against it. Yet it marches on, and in fact it is now the most valuable start up in the world.
Marketing Analysis & Growth Potential There are 100+ Tier-3 cities in India, which are defined as having population lesser than 1 lakh. Which gives a potential target population of more than 10 million. But as far as demand is concerned, not all entire population of the towns can be targeted. It is anchored around the following levers: 1.
Need for public transport
2.
Need for app-based cab services
3.
Technology adoption
4.
Road infrastructure
5.
Availability of drivers
Need for public transport: Since the commute distances in these Tier-3 cities are relatively smaller as compared to the Tier-1 and 2 cities, public transportation needs are fulfilled by city buses, auto rickshaws etc. quite efficiently. But since the commute distances are small, people mostly rely on their own vehicles Technology adoption: Smartphone and internet penetration in India has drastically improved in past 2 years thanks to the data revolution that India is undergoing. While general population has become more tech savvy in terms of social media usage and online shopping, usage of app-based cab services still requires a bit more of internet engagement. Such engagement is mostly driven by young and educated target population stationed in Tier-1 and 2 cities. And such masses are actually moving to Tier 1 and metro cities for education and employment. Converting relatively lesser tech savvy family customers residing in Tier-3 cities would be not as difficult as Metro, Tier-1 and Tier-2 cities.
Need for app-based cab services: Extra convenience of cab-based services would certainly add up to the ease of commute of the masses, but since in such cities, finding access to modes of commute i.e., city buses, auto rickshaws, self-owned vehicles is relatively easier, requirement of app-based cab services in day to day life reduces. Maximum requirement of such services would then be for commute between
the city and railway stations, airports etc. While railway stations are mostly present everywhere, airports are being currently built in such cities under Udaan scheme of the Government of India. But it will take next at least 3-5 years to materialize in Tier-3 cities.
Driver availability: Cab aggregators like Ola and Uber have been struggling to keep up with the market demand with required amount of driver supply. As we move from metros to Tier-1, Tier-2 and further, Tier-3 cities, business volumes and average ride amount keeps on falling. Which results in lesser lucrative business opportunities for drivers. This will restrict the drivers’ willingness to come onboard in Tier-3 cities.
Road infrastructure: Indian roads face severe overloading and hence, the quality of roads is substandard in most of the parts of the country. Inadequate road maintenance only adds up to the problem. Although Uber provides the value proposition of a comfortable air-conditioned rides to the masses, the substandard roads act as headwinds for the value proposition and thus restrict the attractiveness of the service
Learnings from the peers when they entered Tier 3 Cities: Bookcab.in – Bookcab.in entered the Tier – 3 cities as they a huge demand for outstation travels in some of the prominent Tier -3 cities of India like Ambala, Haridwar, Ooty, Ujjain, etc. They targeted majorly upon the tourist destinations which heavily depends upon the transport facilities and upon the outstation travels by the travelers, they were successful in their approach as these cities were lacking an organized and reliable taxi services. They also introduced some innovative day packages, so that the travelers can enjoy the site with hassle free ride on the go, which fulfilled the comfort of having a personal car. https://techstory.in/bookcab-635425/
Vihik Cabs – Vihik Cabs came up with this innovative idea of booking their cab service through Facebook messenger using an AI based chat-bot called “Vihik” on Facebook messenger. They have a quite unique business model as they allow the rider to connect with the cab driver and then negotiate the prices, just like the Indian thing where in we take an auto ride only after a bargain. They are targeting mostly the B2C business in the initial phase but their long-term plans are to get along with the B2B business to provide for employee’s cab booking services.
GetMeCab – They operate in 100+ Indian cities and they provided exceptional services for the outstation travels, they allow their customers to choose the type and model of the car as per their needs, customer can choose the car based upon the price that he/she wants to pay as every model has a different price which gives a lot of flexibility to the customer. As different customers have different type of requirements while some need a car with good boot space, some other customer might need a tempo traveler having a capacity of 11 suitable for a complete family outing. The major advantage that they offer to their customers is the option of paying only for one-way trip instead of burdening them with a two-way fare like most of the big cab aggregators.
Our Recommendation: We suggest that the market is ripe for expansion into Tier2,3 cities however the following factors needs to be taken into consideration:
1. Concentrate more on the Outstation Travels:
As the Tier – 3 cities are lacking an organized and reliable taxi services, the outstation rides are something that the customers are demanding for and as we saw in the cases above majority of them concentrated more on providing services for the outstation travel.
2. Tourist destination should be targeted first:
As majority of tourist spots are located in tier – 3 cities, those cities should be targeted first as these cities have a huge potential for an organized cab services, as most of the travelers coming to these destinations are looking for a cab at the fair rates and the organized cab services assure fair rates to their customers.
3. Focus on Flexibility:
Flexibility can be in terms of the model of the cab that the customer wants to choose, it can also be in the terms of the pricing model such as bidding which allows for a real time price negotiation with the driver. Tier – 3 customers feel more connected when they can choose what they want.