GBUS 3030

Global Business Case Studies

New pricing strategy and Media
campaign to increase annual profit
by 2.62MM
Abacus Consultancy
Lee, Xiang Ying
Soo, Yi Xin
Wong, Lan Ching Lorraine
Yip, Jasper

Rivals will emerge to challenge Becks market

leadership in 2 years

Market
Share (%)

40
35

Beck
Column1
Diamond
Column2
Kingsboro
Column3
Co-op
Column4
Maple Leaf
Column5

30
25
20
15
10
5
0
2006.0

2007.0

Background

2008.0

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

2009.0

Recommendation
s:
Ad and App

2010.0

Financials

2011.0

Timeline & Risks

Conclusions
2

Drivers income reduce significantly by $1400

during summer
Driver Income ($000)

5.5
5.3
5.1
4.9

$1,400 Less

4.7
4.5
4.3
4.1
3.9
3.7
3.5
Jan

Feb

Background

Mar

Apr

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

May

June

Recommendation
s:
Ad and App

July

Aug

Financials

Sept

Oct

Timeline & Risks

Nov

Dec

Conclusions
3

Pricing is the most important consideration

among drivers
Reasons for Drivers Dissatisfaction
Price

Inefficiency

Lack of support

Network
0%

Background

10% 20% 30% 40% 50% 60% 70% 80% 90%

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
4

Gap analysis

Curre
nt

Beck has stagnant growth despite

being market leader

Drivers
dissatisfaction with
current pricing

Challenges

Ideal

Background

Source: Team analysis

Limited revenue
stream

Higher revenue for both Beck Taxi and

cab drivers

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
5

Gap analysis

Curre
nt

Seasonal and
differential pricing

Recommend
ations

Ideal

Background

Source: Team analysis

Beck has stagnant growth despite

being market leader

Advertising and
applications

Higher revenue for both Beck Taxi and

cab drivers

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
6

Seasonal pricing increases volume of monthly

radio subscription by 20%

500

450

450

400

Price reduces by $50 (i.e. 11%) 400

350
300
Price of Radio fee / month ($)

250

200
Winter (Jan-Mar)

Summer (Jul-Sep)

150
100

Volume increase
by 20%

50
0
No. subscriptions/month
No. subscriptions/month
= 1,476
= 1,771
Cumulative No. of radio subscriptions

Background

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
7

Differential pricing for radio service are offered

Background

Number of dispatch/cab per

month

Price

0-100

$400

101-200

$425

201-300

$450

301-400

$475

>400

$500

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
8

with the assumption of 500,000 dispatches per

month and that 60% cabs make >300 calls/
month
700

590 cabs (40%)

886 cabs (60%)

590

600
500
400
Frequency

350
296

300
200
100
0

140

100

0-100

Total no. of dispatch =

500,000

101-200

201-300

301-400

>400

Number of dispatch/cab per month

Background

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
9

Owners will not switch away because of Becks

professional dispatch service and extensive
network

90 professional operators in call

center

100

zones of extensive network

in Toronto

Background

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Google image

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
10

Open up new revenue streams Cab advertising

Approa
ch
Adverti
sing
Agency

Background

Installa
tion of
cab
domes

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Receive
monthly
advertisi
ng fees
($800/m
onth)

Financials

Reimbur
se plate
owners
$150

Timeline & Risks

Conclusions

Develop Apps

Increase
Convenien
ce

Background

Increase
demand of
phone
order

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Increase
the usage
of dispatch
services

Financials

Source: 23 Sept 2012. <http://media.greenradio.topscms.com/images/ec/99/8b730d72413aa310a01ce3906540.jpg>

Timeline & Risks

Increas
e
revenu
e

Conclusions

Dramatic increase in smartphone users call for

the development of Apps

60%

50%

40%

30%

Number of smartphone users as of percentage of the population

0.24

20%

10%

0%

Background

Source: The Nielsen Company

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions

Annual profit can increase by 2.62MM after

adopting the recommendations

Annual profit
(MM)
6

4
3
2

3
.
2
0

0.
5
6

1.
5
9

0.
2
2

5.
8
2

0.
2
5

Extra 2.62MM
per year

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
14

Seasonal discount will attract radio business

from other brokerage to Beck Taxi

Annual profit
(MM)
6

4
3
2

3
.
2
0

0.
5
6

1.
5
9

0.
2
2

Key Assumptions

5.
8
2

0.
2
5

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Average radio fee

(yearly)
decreases by
2.8%
20% increase in
volume of radio
business

Timeline & Risks

Conclusions
15

Through differential pricing, Beck Taxi can

generate more profit from drivers frequently
using the dispatch service

Annual profit
(MM)
6

4
3
2

3
.
2
0

0.
5
6

1.
5
9

0.
2
2

Key Assumptions

5.
8
2

0.
2
5

Weighted average
price after
differential pricing
= $464

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
16

Advertising will become a strong revenue stream

to support the core business

Annual profit
(MM)
6

4
3
2

3
.
2
0

0.
5
6

1.
5
9

0.
2
2

Key Assumptions

5.
8
2

0.
2
5

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Avg. $800 per

month
60% occupancy
rate
Even split with
partner
$150 per month
for cab owners

Timeline & Risks

Conclusions
17

With minimal cost, App development will lead to

a surge in radio business

Annual profit
(MM)
6

4
3
2

3
.
2
0

0.
5
6

1.
5
9

0.
2
2

Key Assumptions

5.
8
2

0.
2
5

10% Increase in
radio business
$100,000
development and
maintenance cost

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
18

Implementation Timeline

2009 3Q

2009 4Q

2010 1Q

2010 2Q

2010 3Q

2010 4Q

Seasonal
Pricing
Set up Differential
Pricing
Diff. Pricing Phase I (Independent
Owners)
Diff. Pricing Phase II (All
Drivers)

Pricing

Set up business
division
Approach advertisers

Advertising

Full-scale launch of advertising

business

Smartphone
Application
Development

Development of
Application

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Launch of Application

Timeline & Risks

Conclusions
19

Risks and Mitigations

Concerns
Concerns

Price
Price war
war led
led by
by
seasonal
seasonal pricing
pricing

Mitigations
Mitigations

Competitors has
smaller market
shares; less muscles
for price war

Operational
Operational difficulty
difficulty
in
in
differential
differential pricing
pricing

Insufficient
Insufficient demand
demand
for
for
car-body
car-body advertising
advertising

Background

Source: Team analysis

Recommendation
s:
Pricing Strategy

First-mover
advantage to attract
Sufficient time for
plate owners
preparation

Some drivers in
support of differential
pricing
Currently no other
competitors on this
business

Very common in taxi

business in other
places

Recommendation
s:
Ad and App

Financials

Actions
Actions

Fast,
Fast, significant
significant
promotion
promotion of
of
seasonal
seasonal pricing
pricing
Use
Use long-term
long-term
contracts
contracts to
to
ensure
ensure
Multi-stage
Multi-stage
sustainability
sustainability
differential
differential
pricing
pricing
Hire
Hire part-time
part-time to
to
help
help with
with the
the
initial
initial hassle
hassle
Approach
Approach
marketing
marketing
companies
companies and
and
large
large firms
firms with
with aa
track
track record
record of
of
innovative
innovative
marketing
marketing

Timeline & Risks

Conclusions
20

Summary

Higher
market share

Background

Recommendation
s:
Ad and App

Higher
revenue

Customer
satisfaction

Brand loyalty

Recommendation
s:
Pricing Strategy

Source: Back Taxi Case and Team analysis

Increase
dispatch
usage

Financials

Timeline & Risks

Conclusions
21

Appendix: Structure of Taxi Industry in Toronto

Regulator
Municipal Licensing &
Standards (ML&S) issue
limited number of
licence
Taxi licence owners
About 5000 licence at
$200,000 each.
Licence leasing
brokerage
35 brokerages. Beck Taxi
is a market leader with
33% market share.

Taxi radio networks

All operators must
affiliate to a network.
Beck provide network to
33% of all operators.

Taxi operator
4851 operators. 2212
(46% owner operators)
and 2639 (54% lease
drivers)
Authorized taxi
drivers
About 10,000, of which
Beck owned 2000-3000.

Background

Recommendation
s:
Pricing Strategy

Source: Back Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
22

Appendix: Drivers income breakdown

Radio fees; 450

Income; 1050
Gas; 1050

Plate fee; 1150

Car & Insurance; 1350

Background

020910 Chris Doran

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
23

Appendix: Cab industry structure

Municipal Licensing &

Standards
Plate
holders

Shift
drivers

Background

Manage
plates

Lease
drivers

Recommendation
s:
Pricing Strategy

Source: Back Taxi Case and Team analysis

Taxi Brokerages

Recommendation
s:
Ad and App

Provides radio
service

Indepen
dent

Financials

Timeline & Risks

Fleet
owners

Conclusions
24

Appendix: Four options for Cab advertising

Taxi Top: Range of $200 - $500 per ad per 4 week period.

Taxi Trunk: Range of $200 - $500 per ad per 4 week period.
Taxi Top and Side (Door Wrap): Range of $500 - $800 per ad
per 4 week period.
Taxi Full Wrap: Range of $950 - $1,950 per ad per 4 week
period.

Background

020910 Chris Doran

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
25

Appendix: Cab advertising outsourcing is

preferred over in-house

Cost

In-house Cab
Advertising
Benefit

High search cost

Larger share of
advertising revenue
Installation cost
Insurance Cost
Open new business
division
Cab Advertising plan
cannot be
implemented
immediately
Recommendation Recommendation
Other costs
Background
s:
s:
Financials
Timeline & Risks
Conclusions

020910 Chris Doran

Pricing Strategy

Ad and App

26

Appendix: Cab Industry in Toronto

4851 cabs

1403
Ambassador
license

809
No
lesse
No
agent

Background

020910 Chris Doran

534
Had
lesse
No
agent

1474
No
lesse
Had
agent

631
Had
lesse
Had
agent

Owner
operator

3448 Standard
license

Recommendation
s:
Pricing Strategy

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
27

Appendix: Demand for radio service is elastic

price reduction will increase revenue
Demand of radio service
460
450

450

440
430

Price elasticity = -1.82

420
Price

410
400

400

390
380
370
1450

1500

1550

1600

1650

1700

1750

1800

Quantity of cabs

Background

Recommendation
s:
Pricing Strategy

Source: Beck Taxi Case and Team analysis

Recommendation
s:
Ad and App

Financials

Timeline & Risks

Conclusions
28