Question

Porters five forces model analysis on Uber

How does Uber develop and implement a business strategy to deal with the Porters five competitive forces?

Create one strategy for Uber that fit its business model. A strategy in SWOT is a specific action for the business to take. It comes from combining one or more internal factors with one or more external factors.

Answer 1

Answer: (1)

(1) Bargaining Power of Buyers: Bargaining power of consumers is fairly high at this stage as there's strong ride-hailing competition, alternate means of transports and taxis. Beyond a particular market share, Uber may have a far better pricing position. Switching barriers for the demand side is low. Almost like the drivers, customers are multi-homing. But this might change if the industry finishes up becoming a winner-takes-(almost)-all. Thanks to the indirect network effects, waiting times would increase for competing platforms. Value proposition for customer is compelling. Lower transaction and search costs, shorter waiting times and lower costs. This is often as compared to other means of transport. But as compared to other ride-hailing companies there's little or no differentiation, thus price will play an enormous role. Buyer information availability is high. Those people that realizes Uber also know Lyft and other ride-hailing companies. Power of distribution channels is low. During this case, we are talking about the app and every one competing apps are often equally easily installed. All competing ride-hailing are often used equally easily. If Uber becomes the dominant player thanks to the network effects then they become the predominant channel for all (or the majority) of hailed rides amplifying their advantage.

(2) Bargaining Power of Suppliers: Bargaining power of supply side: is weak at this stage as there's no unionization, something that Uber is closely monitoring. Switching costs of the availability side: are low. Some drivers are multi-homing by driving for Uber and Lyft (or other ride-hailing companies) at different times. But given hourly wages are similar (and there's no reported shortage of drivers), there's no significant bargaining power gain for drivers at this stage. Value proposition for supply side: compelling. Thanks to the indirect network effects and therefore, the scale that Uber has reached in some cities, they will offer low idle times which cause comparable per hour wages as taxi drivers, but in less absolute time on the road. This might also increase switching costs for drivers if Uber takes a bigger market share. Barriers to entry for the availability side: it's easy to hitch Uber and other ride-hailing companies as a driver. But the lower switching costs make it easier for brand spanking new drivers to hitch (no multi-year apprenticeship, certificates, etc) effectively reducing the bargaining power of the availability side and – interestingly – increasing the worth proposition for brand spanking new joiners at an equivalent time. The bargaining power of drivers is low but likely rising: after a string of issues co-founder and ex-CEO Kalanick stepped down over a video that showed him arguing and yelling at one among the drivers. One among the primary things the new CEO did was concede to a long-standing request of the drivers to introduce tipping which Kalanick had refused for therefore, long. Also, in some European legislation, riders for food delivery company, now, are ruled to be employees of the platform. This might set a precedent for ride-hailing companies further increasing their bargaining power.

(3) Threat of the latest entrants Barriers to entry: On the surface, they're low. Any new entrant must get to critical mass. This is often costly regarding acquiring the availability side, and therefore the demand side. Uber has spent billions on demand generation. Customer acquisition costs are very high as seen within the battle with Didi. Will investors be willing to hand over capital for a replacement entrant to fight an already established brand like Uber? Could new entrants come from unexpected areas? Maybe Apple, Microsoft, Ford, Toyota, Volkswagen or other companies that have already got an enormous customer bases and a brand who can mobilize them at low marginal costs? Possible, but Uber is getting into many adjacent/complementary areas, like freight, meal delivery which will cause better asset utilisation which other players might not want (or be able) to enter. Economies of scale: Can Uber proportion during a way that they need lower unit costs that create it very hard for brand spanking new entrants? the solution likely is yes. Can this help Uber increase their lead? Same drivers could work for UberEATS or other conceivable ideas (“the Uber of X”). If they're ready to negotiate better terms for operational, maintenance and servicing for his or her drivers, this is often something which will bring cost further down Brand equity: while tarnished temporarily, it's still a serious asset and within the long-term Expected retaliatory action: little question, Uber will fight hard against new entrants as they need to fight hard within the cities they need to enter. This may discourage investors to support new entrants in markets where Uber is robust (mainly the US). The most likely scenario here isn't that another global Uber emerges but rather several local competitors. Tons of locally-focused entrants may dilute Uber’s strength enough to capture enough market share in those regions.

(4) Threat of substitutes: Car sharing companies like Zipcar Self-driving cars: many of us debate what self-driving cars will mean for the whole transport industry. I'm not getting to join this speculation. As you certainly know, Uber is investing tons in self-driving technology themselves Bike sharing can become a far better option in cities that are growing fast and traffic jam becomes a problem The threat of substitutes are low thanks to the very different value proposition of the substitutes.

(5) Rivalry among competitors Rivalry is stiff. Though, there's no as large player if you look globally, there are many strong players in various geographies: Ola in India, Didi has managed to fend Uber off in China, Lyft is now concentrating its resources to the US. A lot of locally-focused entrants may dilute Uber’s strength enough to capture enough market share in those regions. It is likely that the competition will need to be taken very serious by Uber and it's going to keep a cap on prices, and possibly even on Uber’s pace of growth.

Answer: (2) Marketing strategy for Uber ( Segmentation, targeting, positioning):  

Segmentation is that the process of dividing the market into the groups of homogeneous characteristics. Uber uses a mixture of demographic and geographic segmentation variables which helped the corporate pricing its services accordingly.

Both geographic and demographic segmentation is vital because Uber must know which areas to focus on for patrons who are able to use an “on order transportation service” over conveyance services.You'll not find Uber in Rural areas but mainly in urban areas only where it replaces taxis.

Differentiating targeting strategy is employed by Uber so as to the share of wallet customer brings in and the way to extend wallet size by upselling. If we would like to define the sort of differentiation employed by Uber, then we will use the terminology “Cost based differentiation”. due to the very structure of Uber as a corporation , there's an enormous pricing advantage to the top customer once they compare Uber taxis vs Publicly available modes of transport.

User benefit based and pricing positioning strategy is employed by Uber to draw in customers from different strata of the society. Because day to day travel may be a huge cost to customers, positioning on the idea of Economy makes an enormous difference within the mindset of the purchasers.