Why Is Explaining A Competitive Environment So Complex?

Entangled.

When was the last time you took a cab?

You might be a frequent traveller or business person and say yesterday, three days ago or a week ago. Or, you might be a less frequent traveller, so your last “ride with a guide” was a few months ago.

What if I asked you when was the last time you took a cab that was NOT part of a rideshare program á la Uber, Ola, Didi & Co? If you are anything like me, the answer would be hard to come by (unless you live in Germany where Uber and friends are unfortunately banned or bound to only be operated by “regular cab services).

I myself? I can not remember. Honestly.

Your “Value Proposition”

Not your official UBER cab. I would be highly interested if this building company ever ran into issues with their name. Spotted in Dallas, TX.

Source: Simon Beuse (USA, TX, 2019)

While the German market differs from many other transport markets in the world regarding the taxi industry, the “Uber vs. Traditional Taxi” fight has commenced with brutal force around many places in this world. I remember being in Indonesia before COVID and the rattling local disputes surrounding delivery and tourist passenger transportation (watch MSNBC video report here). Traditionally, in places such as Indonesia, cab drivers split up territory along village borders where you can serve passengers, so everyone is getting their share. We had to experience first-hand how Uber or Ola drivers in Indonesia were harassed when they picked up or dropped off passengers because they were working for these ride-share applications. In the end, we settled for a more “local” service (but still with an app) as we had more control over the money (e.g. not being asked for more money at the end of the ride or being mildly ripped off by local drivers seeking to make an extra buck from our missing language and currency knowledge.

Here in Adelaide, where I am currently living, the picture is somewhat relatable. Few people take the immediate left at the airport and jump into a “13cabs” taxi, one of the major providers around. Instead, most of them sprint straight to the “Ride-Share” sign, and most often, the cab is already waiting for them to board.

The reason some people join a taxi brand that has been around for a while and others opt for the ride-share option comes down to what we all hear almost as much as the term “innovation”. It is the term “value proposition”. What do you bring to the market? Why is one product better for a person than others? Where are you standing amongst your rivals? These are sometimes hard questions to answer. And throwing them all together into a mixer, making them a coherent “mixture” is ever more complex.

But why?

Baking a cake is easy.
Baking a new kind? Not so much.

Waiting in line for the “13cabs”? Your value proposition for choosing an established is, well, exactly the reason that the organisation is established. You might trust this organisation more as you might think they are bound to local taxi license schemes, or you dislike the “new way” introduced with apps. New in the city? Be prepared to download yet another ride-share app as your current one might not be around.

Running to the “Ride-Share” pickup sign? You might now care that the “established” taxi stands are closer to the airport entrance. You can walk for three minutes. Overall, you are not only getting a better price and a better service (that you perceive better), you also can gather a walk that freshens you after that long-haul flight.

Looking at both sides of the story, each potential “customer” of these ride-share apps sees value in different things. Of course, looking at the statistics (statista.com on ride-share services in the U.S.), the concepts of sharing a ride from private, independent drivers instead of opting for an already established taxi service, the trend of moving towards similar services such as Uber is heavily increasing. However, it is crucial to understand that both sides perceive the value they are receiving in a “subjective” manner. Subjective here is really the key. The value lies in different areas for different people.

To better understand, or for that matter, make the mix more complicated, renowned strategist Porter defines that five major forces should be considered when looking at generating serious value for the customer (see an article we wrote about this in more depth here). The “Five Forces”, as Porter describes it, consist of the following and can outline thinking and the “ingredients” you need to bake a “new cake” and not simply bake one following a recipe.

1) Degree of rivalry

How many providers are you competing against? Are there any players emerging soon that you have to watch out for? Is the market relatively untouched (also referred to as the blue ocean strategy which we covered here) Unfortunately, determining the degree to which amount of competition you might face in terms of sheer numbers is hard to predict.

2) Barriers to entry

Developing user-friendly apps is expensive. Entering a market where some users expect this is even harder.

3) Threats of substitutes

Depending on the length of your trip, you might be competing not only with other taxis or ride-share apps but also transport options such as electric city scooters or train stations.

4) Supplier power

Are your suppliers (e.g. your taxi drivers) able to influence the way you do business?

5) Buyer Power

Or is it the other way around and your customers tell you what to do?

Forces might depend on each other.

You can see how these forces might influence each other. For example, the degree of rivalry might correlate with the forces of entry barriers simply since being in the field itself is due to high entry-barrier, causing the low degree of rivalry. Seen in extreme form in the aviation industry, high capital costs can prevent new entrants from increasing rivals in that field. Relating to our example of the taxi industry, developing a well-functioning application that is as user friendly as the established players can be hard. The capital necessary is hard to come by, especially given that it might be hard for you to differentiate yourself from the others easily (threats of substitutes).

So next time you start thinking why it can be so hard to position yourself properly in this business world: this is why. An overwhelming amount of external factors that you might not even be able to grasp a correlation between can play with another and lead to an outcome that you did not desire. Or vice versa.

So give yourself a break.

Baking a new kind of cake is hard.

References

Dobbs, ME 2014, ‘Guidelines for applying Porter's five forces framework: a set of industry analysis templates’, Competitiveness Review, vol. 24, no. 1, pp. 32–45.