Uber in China: What's next? (Study from DDIM 10 class)

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UBERGroup K

PRESENTED BY:

Alessio Mascolo Andrea Saponaro Marcella Ancona Elido Caputi Zhao Xinyu Liu Ling Xu Shang

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AGENDA

Part 1 Part 2

Part 3

Part 4

UBER DESCRIPTION AND INDUSTRY ANALYSIS COMPETITOR ANALYSIS

NEW OPTIONS

ACTION PLAN

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PART 1UBER DESCRIPTION AND INDUSTRY ANALYSIS

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1American Multinational Online Transportation Network Company Founded by Garrett Camp and Travis Kalanick Headquartered in San Francisco, California.

WHY

2010

WHAT

WHEN

Inspired by a bad experience of getting a cab in Paris

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Online/Mobile market is increasing rapidly

2010 2011 2012 2013 2014e2015e2016e2017e0.0%

10.0%20.0%30.0%40.0%50.0%60.0%70.0%80.0%90.0%

100.0%

0.00

100.00

200.00

300.00

400.00

500.00

600.00

4.0%

77.3%

91.7%81.2%

57.5% 50.6%

44.4%34.9%

Mobile Market Value(yuan) Growth Rate

ONLINE/MOBILE MARKET IN CHINA

ONLINE CHAUFFEUR INDUSTRY— A RAPID INCREASING MARKET

CAGR (COMPOUND AVERAGE GROWTH RATE) OF LAST 5 YEAR:

52,96%

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Private car ownership is increasing rapidly

PRIVATE CAR OWNERSHIP IN CHINA

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

5

10

15

20

25

0

20

40

60

80

100

120

140

3.4 4.36.1

8.810.9

13.1

18.621.5

Number of private-owned vehicles(Millions)

ONLINE CHAUFFEUR INDUSTRY— A RAPID INCREASING MARKET

CAGR (COMPOUND AVERAGE GROWTH RATE) OF LAST 5 YEAR:

21,95%

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The number of taxi is increasing slowly

NUMBER OF TAXIS IN CHINA

2005 2006 2007 2008 2009 2010 2011 2012 2013850000

900000

950000

1000000

1050000

1100000

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%3.7%

-0.9%

3.3%

1.0% 0.3%1.5%

1.7%2.4%

2.6%

Numberof Taxis in China Growth rate

ONLINE CHAUFFEUR INDUSTRY— A RAPID INCREASING MARKET

CAGR (COMPOUND AVERAGE GROWTH RATE) OF LAST 5 YEAR:

1,69%

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2013 2015Aug Nov 2014 May Aug Nov 2015 May Aug

Uber Black pilot program in Shanghai8/23/2013

Price Reduction in Shanghai

Launch of People's Uber

10/22/2014Partnership with BAIDU12/6/2014

UberGreen in Wuhan

5/13/2015 - 10/10/2015

People's Uber Price Reduction 30%

11By 2015.6, Uber had covered 11 major Chinese mainland cities

1 million1 million rides per day in the Chinese market

NOWADAYSKalanick

«At the current market growth rate, Chinese market will surpass the United States market before year-end»

But let’s have a look at the market share…

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2 78.3%

2.4%

10.9%

8.4%

Didi KuaidiOther

Uber

Chinese Online Chauffeur Market,Fist Quarter,2015

Yidao

Source: Analysys International, « Online Chauffeur Business Growing Rapidly in China in 2015 Q1, » May 12, 2015, www.analysys.cn/yjgd/8926.shtml, accessed July 1, 2015

MARKETSHARE

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PART 2 COMPETITOR ANALYSIS

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20152012 2013 2014 2015

Kuaidi Launched

8/13/2012Didi Launched10/10/2012

Yihao Zhuanche by Kuaidi --> Chauffeur market

Didi Zhuanche -->Chauffeur market

1/13/2014 - 2/14/2015Promotion Price War2/15/2015 - 11/26/2015

Didi Kuaidi Strategic Merger

They make war…

Then they make love

DIDI KUAIDI IN CHINA

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2010: Founded

2014.6: APP was launched

High Customized Services

2 YIDAO

Focus on Chauffeur Service

Riders enter a pickup location

Choose preferred kind of vehicles

The Uber system automatically match a driver and a rider

Riders enter both pick-up location and destination

Wait for drivers to respond

All taxi drivers currently using the app decide whether to take the order

Riders choose the time of using a car

Riders select their preferred vehicle type

Riders choose which driver to fulfill the order

UBER

DIDI KUAIDI

YIDAO

BUSINESSMODEL

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Option Service

UBERPeople’s Uber Non-profit ride-sharing

Uber X Cheaper than Uber Black & Regular cars

Uber Black Luxury cars for each trip

DIDI KUAIDI

Kuaiche Private car owners & Regular cars

Taxi Taxi - hailing

Shunfengche Carpooling

Zhuanche Different kinds of vehicles options & Licensed rental companies & Travel insurance & high-end service

Daijia Substitute drivers

YIDAOZhuanche Chauffeur service

Shijia Test driving of selected cars

Daijia Substitute drivers

SERVICE

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PRICING • Based on distance & time• Different base rate for different service• Pay additional tips to attract drivers to

pick up

• Based on distance & time• All services require base rate

• Based on distance & time• Surge Pricing ( based on current

supply-demand ratio, eg. 1.2X,1.8X)

Didi Kuaidi

Yidao

Uber

Base Rate Rate per KM Rate per min

Didi Fast Ride 0 1.5 0.25

People’s Uber 0 2.17 0.35

Base Rate Rate per KM Rate per min

Didi Chauffeur One 15 2.9 0.5

Yidao 10 2.8 0.4

UberX 15 2.3 0.4

Note: The prices listed are the lowest offerings available in Beijing; km=kilometer; unit=yuan;Source: Case writer, data collected on the Uber official site, the Didi Kuaidi official site and the Yidao official site.

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顶部“开始”面板中可以对字体、字号、颜色、行距等进行修改。顶部“开始”面板中可以对字体、字号、颜色、行距等进行修改。

2Payment Solution Didi Kuaidi Yidao Uber

Cash √ ╳ ╳

Wechat √ √ ╳

Debt Card / Credit Card √ √ （ Credit Card Only） √Alipay √ √ √Charge the account √ √ √

PAYMENT SOLUTION

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OUTSIDE

Fierce competition in Chinese market

Conflicts with local drivers and ride- hailing services

Legal issues

ISSUES & PROBLEMSINSIDE

Surge pricing may charge too much on customers regardless of the nature of the change

Payment solution is not as convenient as competitors

The quantity of Uber drivers is small compared to the amount of taxi drivers

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PART 3 NEW OPTIONS

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STRATEGIC PRIORITIES

REMAINING IN CHINA

YES

GREATER MS MORE GENEROUS SPENDING

TO GAIN CONSUMERS & PROFIT FROM ITS

BUSINESSANOTHER WAY

NO

We decided among those 4 options according to the following criteria…

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New Options

•Price War• Imitation

•M&A

• Strategic allieances & Partnership

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M&A Price War

Strategic Alliances

& Partnershi

p

Taxi Hailing

OPTIONS

Low

Costs to sustain

High

HighResults in terms of level of competition

Low

Product to be pushed: People’s Uber

Main aim of the strategy: Market Share

Through a penetration pricing strategy Uber could set lower prices with the goal of exponential growth of both customers and team drivers together with the possibility of gaining market shares.

PriceWar

Competitive advantage: Cost Leadership

GAP

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PROS

• Stimulate the market• Enlarge customers base• Create more trade through

”word of mouth”• Discouraging new possible competitors• Exploiting demand elasticity

CONS

• ST solution not sustainable in the LR• Incurring high costs (2,4b RMB

spent by Didi and Kuaidi)• No economies of scale available• Never ending price war with

competitors• From a penetration to a predatory

strategythreat(government legal issues)

PRICE WAR

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PRICE WARPROS

• Stimulate the market• Enlarge customers base• Create more trade through

”word of mouth”• Discouraging new possible competitors

• Exploiting demand elasticity

CONS

• ST solution not sustainable in the LR

• Incurring high costs (2,4b RMB spent by Didi and Kuaidi)

• No economies of scale available• Never ending price war with

competitors• From a penetration to a predatory strategythreat(government legal issues)

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New Options

•Price War

•Imitation: Taxi-Hailing•M&A

• Strategic alliances & Partnership

Product to be pushed: new services taxi-hailing (based on Didi Kuaidi)

Main aim of the strategy: Increase the number of app’s users and increase the market share

Imitation:Taxi Hailing

Competing with Didi Kuaidi in both businesses: Taxi-hailing and Chauffeur Online

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IMITATION STRATEGY: TAXI HAILING

PROS

• Improving relationships with taxi drivers and government

• Increasing new channels• Increasing number of users

CONS

• Difficult to find an agreement• Deteriorate brand image and core

value• Didi monopoly • Government banned the practice

of taxi drivers to monitor different taxi-hailing apps

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IMITATION STRATEGY: TAXI HAILING

PROS

• Improving relationships with taxi drivers and government• Increasing new channels• Increasing number of users

CONS

• Difficult to find an agreement• Deteriorate brand image and core

value• Didi monopoly • Government banned the practice of taxi drivers to monitor different taxi-hailing apps

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New Options

•Price War

• Imitation: Taxi-Hailing

•M&A • Strategic alliances & Partnership

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time

salesSTART UP DEVELOPMENT STEADY STATE DECLINE

• M&A• Alliances/strategic Partnerships• Defence advisory

• Corporate refocus• Turnaround• Takeover advisory

M&A strategy: acquisition of Yidao

Product to be pushed: People’s Uber, Yidao Zhuanche, Uber Black, Uber XMain aim of the strategy: Acquiring shares on the high-end market

Assumptions:Yidao estimated value 1.22 Billion dollars, 10.9% of the market sharesUber estimated value 41.2 Billion; 8.4% of market shares

Forecast:Being a growing industry, Uber acquiring Yidao can strategically maximize its financial position.

M&A strategy: acquisition of Yidao

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M&A

PROS

• Double market share• Improve relationship with government

& Chinese company• Acquire new resources and channels• Yidao insists on the high quality and

premium price of customized chauffeur service

CONS

• Extremely risky• Too expensive• Recently Yidao increased

its capital amount of 100 millions.

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M&APROS

• Double market share• Improve relationship with government & Chinese company• Acquire new resources and channels

• Yidao insists on the high quality and premium price of customized chauffeur service

CONS

• Extremely risky• Too expensive• Recently Yidao increased its capital amount of 100 millions.

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New Options

•Price War

• Imitation: Taxi-Hailing

•M&A

•Strategic alliances & Partnership

36UBER – DDIM 2015/2016

M&A Price War

Strategic Alliances

& Partnershi

p

Taxi Hailing

Results in terms of level of competition

Low

Low

Costs to sustain

High

High

Product to be pushed: UberX, Uber Black

Main aim: Acquiring shares focusing on the high-end market

In order to have success in this market, Uber needs to invest in the right wayStrategic

alliances &partnerships

Uber needs financial support and governmental protection from a Chinese partner

FIRM’S RELATIVE MARKET SHARE

OVERALL MARKET GROWTH

Question marks Stars

Dogs Cash cows

INVEST

MILKDIVEST

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Strategic alliances & partnership

PROS

• Direct contact with managers that knows chinese market

• Creating additional value• Financial availability • Improve relationship with chinese

government and customers.

CONS

• Hard to find partners• As you share resources

you have to share also profit• Long-time to be achieved

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Strategic alliances & partnership

PROS

• Direct contact with managers that

knows chinese market

• Creating additional value

• Financial availability

• Improve relationship with chinese

government and customers.

CONS

• Hard to find partners

• As you share resources

you have to share also profit

• Long-time to be achieved

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PART 4 ACTION PLAN

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ACTION PLAN

• Uber should focus on High-end market because of the congestion of low- and medium-end markets and because of the failure of the previous strategy.

• Uber should maintain the core value of the company of high quality.

• We should create a strong brand image.

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Short-Term plan

Short Term

Mid Term

Long Term

• SHUT DOWN PEOPLE’S UBER

• Expensive strategy with no effective financial returns:

• 30% price reduction without effect

• 1 billion spent for supporting the project

• Leads to a price war with competitors

NOT SUSTAINABLE IN THE LONG-RUN

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Strategic Alliances

Short Term

Mid Term

Long Term

Quick Deals with companies in order to gain more consumers

Aim of the SR alliances: expand in the high-end market using the

money saved by shutting down People’s Uber

Examples:

• Top quality Hotels and Restaurants (ShangriLa Hotels)

• Travels&Tours

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Government Collaboration

•Creation of a regulatory protocol for the chauffeur industry to help the Shanghai Committee of Transportation

•Construction of the chauffeur service platform in Guangzhou and other chinese cities

•Deals with government and car rental and chauffeur companies (based on estimation of the car needed in each city)

Short Term

Mid Term

Long Term

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Forecasted cars needed to bid

Short Term

Mid Term

Long Term

City Population Number of Cars estimated

Guangzhou 11 070 654 2950

Beijing21 500 000 5729

Shenzhen10 628 900 2832

Tianjin15 469 500 4122

Suzhou10 580 000 2819

Chongqing18 284 100 4872

Chengdu10 152 632 2705

Wuhan10 607 700 2827

Hangzhou8 892 000 2369

TOTAL 28 275

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New big partners

Short Term

Mid Term

Long Term

• Association with high-profile chinese companies, also in order to

build a good relationship with local government

• Continue to modify our portfolio to target with customized products

new cities (UberGreen in Wuhan)

• New booking channels (online platforms, apps, Wechat)

• Theatre industry and Cinema Industry (Wanda Group)

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Long-Term plan

• If the government regulates the industry, Uber will lunch in the market a new version of People’s Uber

• NEW People’s Uber• This time for profit• Customized version User can choose the driver

(Yidao) • Premium Price Differentiation advantage• Only licenced drivers are allowed to this service

Short Term

Mid Term

Long Term

2020Today

2016 2017 2018 2019 2020

People's Uber Shut Down

Partnership with local small high-end companies

Be an active player in the regolamentary process of the chauffeur market

Find new big partners and make alliances

Launch of New People's Uber--> more customized and for profit

Short-Term RunMid- Term Run

Long –Term Run

ACTION PLAN: FORECAST

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UBER THANKYOU!PRESENTED BY Group K