Porter's five force analysis of Indian Taxi Industry

1. Introduction to the
Company
Industry Analysis - “Porter's Five Force”

2. Industry Analysis - “Porter's Five Force”
Student Name: Vipul Gaur
Email id: Vipul.gaur@gmail.com

3. List down any two entry barriers of the Indian cab industry that has stopped
new players from entering it.
Threat of new entry Medium
Barriers To Entry
 High Cost of Setting Up
 Driver’s sign-up and verification is a time consuming and costly exercise with multiple 3ed party services are required.
 Many existing companies have moved from pure aggregation to hybrid model where part of the car fleet is owned by them. This
requires considerable costs for setting up.
 Government Interference
 Frequent disagreements between state taxi unions and managed taxi providers.
 State governments sudden interference like banning sharing cabs services in Karnataka and surge pricing in Delhi can impact the
existing models which they might have successfully replicated in other markets.
 Resource Crunch
 Established players like Ola and Meru are investing heavily in their cab leasing programs and zero commission for longer periods to
ensure loyalty.
 Demand for drivers is high and drivers loyalty is difficult to get.
Indian Taxi industry is expected to around 9 billion USD with organized sector contributing 6% ($ 500 Million). It is expected to grow to
approx. $ 2+ billion in next 5 years sustaining the growth rate of 25% CAGR.
Source: RedSeer consulting
Being a highly competitive industry with high growth potential it will continue to motivate new entrepreneurs or existing players to
collaborate and invest to test new models to make profit. However, metros are already saturated and expanding in smaller cities will be
difficult initially.

4. What do you think about the switching cost of customers concerning the Indian cab
industry? Is it high, medium or low? Provide your rationale for the same.
 Switching Costs for customers - “Regular taxi services” to “Managed Taxi
Providers”
 When customer is switching from regular taxi services to managed taxi
providers is switching costs are very less due to following factors:
 Free installation of Apps
 Free rides and discounts and promotions offered
 New customers however do worry about reliability and safety when
moving from a more traditional service provider due to high trust factor on
regular taxi service providers.
 Switching Costs for customers – Selecting different service provider within
Managed Taxi Providers
 In the short term, customer might loose out on repeat customer benefits,
free rides or cashbacks that they might be entitled to with usage of same
service provider.
 Similar benefits can be received from other service provider in a very short
period of continuous usage.
Buyer power Low

5. Do buyers have the ability to influence product pricing in the taxi market?
 Price Sensitive customer base
- High competition force players to give more discounts in
pricing and better customer retention benefits
(cashbacks , deal codes , discounts etc.). That is making
all major players bleed cash
 Demand Better product mix
- Customers are forcing existing players to provide better
services and product mix ( Pool services, Wi-Fi services
etc.) that is increasing the cost
 Demand Better quality
- Customers posts about service issues on various social
media platforms and safety incidents have forced the
companies to invest in features ( SOS buttons , ride
alerts ) to keep quality levels in check.
Buyer power Medium

6. Identify and list down suppliers for Olacabs, which is one of the major players
in the taxi market.
Supplier power
Supplier Category Power Rating Reason
Car dealers Low
Most of the orders from Ola will be bulk orders and they will
demand high discounts and payment terms
Skilled Drivers High
- Shortage of resources
- Will switch loyalty to a higher margin competitor
Call Center and Customer
support vendors
Medium
- Due to large volume changes cannot be done instantly
- Sufficient completion exists to replace the vendors if needed
Technology Vendors Low - Sufficient suppliers to replace existing supplier
Recruitment Agencies Low - Sufficient service providers are available
Local Operators Medium
- Can ask for better commissions if there are few players in the
region

7. Do suppliers have the ability to influence pricing in case of the taxi market?
 Primary Suppliers (Car fleet owners) have some Influence
 They have some influence over aggregators by asking
for better commissions from aggregators especially in
Tier 2 cities where there might be limited players
compared to metro.
 If requested commission is more, end suppliers run into
the risk of loosing business so influence is limited.
 They might decide to do business independently
 Aggregators and Managed Service Providers
 Their influence in low compared to end suppliers as
due to high competitiveness of many established
players they have limited ways to pass on costs to end
customer.
Supplier power

8. What do you think about the switching cost of suppliers concerning the taxi
market? Is it high, medium or low?
Supplier power Low
Most suppliers can be substituted
 Except drivers most of the suppliers can be
substituted.
 Certain suppliers like fuel providers and
internet providers have government policies
to control any unexpected surprises.
 Large number of suppliers are available to
keep the costs in check.
 Any supplier loss can be managed in medium
term.

9. List any two competitors of Olacabs.
Their are many direct competitors in organized taxi space who are competing with Ola to gain market share like Easycabs
(First major organized sector player) , Savaari ( larget city presence). Competition rivalry is intense in Indian organized taxi
market.
Competitive rivalry
UBER
• Present in 27 cities
• Total market share of about 6%
• Has a cash burn rate of approx. $10 million per month
Meru Cabs
• Has close to 10,000 vehicles
• Total market share of about 12%
• Has a cash burn date of approx. $2 million per month
High

10. Write down any 2 substitutes to Olacabs.
Threat of substitutes
Jugnoo ( and other Auto Rickshaw apps)
• Referred as Uber of Auto by Citescope
• Present in 39+ cities
• More then 85K drivers are registered
• Cheaper then cabs and has advantage in Tier 2 and 3 cities
ZoomCar ( and any other self driven car rentals)
• Has an ever increasing customer base in metros
• Fuel inclusive pricing and option to try out a new vehicle without owning one is a plus for end users
• Flexible renting options based on time and distance
• People can make their own car pools and recover the costs of rentals
Public Transport
Increased focus on improving the public transport by government and
launch of metro projects in many cities can reduce the demand for Taxi
services.
High

11. Indian Taxi Market’s “Porter's Five Forces Analysis”
• Suppliers
Power
• Threat of
Substitutes
• Buyers
Power
• Threat of
New Entry
Medium Medium
LowHigh
- To summarize, competitive rivalry is high in Indian Taxi
market and it is expected to rise further as many
managed taxi providers will fight for increasing their
market share. There is a moderate possibility of new
players coming due to high growth expectations in
short and medium term but government policy can be
roadblock for new investments.
- Buyers hold some bargaining power due to high
competition.
- Supplier power in low due to many options available
and expected to remain the same in near future.
- Taxi industry will face highest challenge from
substitutes like auto aggregators, self drive startups
and improving public transport as they have the
potential of providing better value for money.