Abstract:
There have been
innovations and improvements in the ways and means of travel from one place to
another.  As a society progresses there
is a need to develop the way people travel. Perhaps these needs to innovate the
way we travel lead us to the creation of the taxi aggregator services. In India
there has always been a huge opportunity to develop the transportation systems.
This was ably leveraged by ANI Technologies Pvt. Ltd operating under the trade
name OLA by launching the first taxi aggregator services in India.  This case study looks at the business model
of OLA and pricing systems that it has followed to garner success in a
competitive market of taxi services along with giving it some suggestions for
future growth.

Key Words:- Market Aggregators, Pricing Model,
Revenue Model Demand

Introduction

Ola was founded as an online cab aggregator in Mumbai, but is now
based in Bangalore. Ola Cabs is a taxi service that was started in 2010 in
Mumbai to solve the city’s transport woes. It was founded on 3rd December 2010 by Bhavish
Aggarwal (currently CEO) and Ankit Bhati. of more than 150,000 bookings
per day and commands 60 percent of the market share in India. November
2014 Ola also started on-demand auto rickshaw service on its mobile app in
Bangalore, Pune and few other.  As
of 2017, the company has expanded to a network of more than 600,000 vehicles
across 110 cities. In November 2014, Ola diversified to incorporate autos on a
trial basis in Bangalore. After the trial phase, Ola Auto expanded to other
cities like Delhi, Pune, Chennai, Hyderabad and Kolkata starting in December 2014. In December
2015, Ola expanded its auto services in Mysore, Chandigarh, Indore, Ahmedabad, Jaipur, Guwahati and Visakhapatnam. Awareness is
the ability to directly know and perceive, to feel, or to be cognizant of
events. More broadly, it is the state or quality of
being conscious of something. Awareness is a relative concept.
Awareness may be focused on an internal state, such as a visceral feeling, or
on external events by way of sensory perception.

Over time citizens have either grown apathetic to the sight of customer
being over charged or have merely taken it for granted that tourist taxis are
overpriced, leaving people to wonder if there is at all any point in making
efforts to resolve the issue. Not many in the state and outside are aware that
there are designated rates the state government has notified for self-employed
tourist taxi operators attached to beach resorts and star hotels. In Goa, the
government notified rates for most of the 30-odd vehicles continues to be a
mystery for most travelers. Taking undue advantage of this, cab drivers often
quote arbitrary rates, leaving desperate travelers with no choice but to
comply. All this takes place due to lack of awareness on the part of the
customer, this is where app based cab services like OLA comes into play and
gives customer the services deserved by them.

 

BUSINESS MODEL of OLA

ANI Technologies
Pvt Ltd. is the name of the company under which Ola App operates.
 It’s headquartered in Bengaluru, India. Ola is basically an “On-Demand”
Taxi Hailing Service using which people with smartphones can book a chauffeur
driven cab in a driven by owners or helps of the owners of the cars.  As
of Last Fund Raise the company was valued at over 5 Billion USD.

One interesting
thing to note is that Ola Cabs used to operate as a Fleet Cab Service Provider
during its earlier days, it used to work like this : You call upon their call
center, tell them the date and time of the trip and get a car at your door
step, you had to pay in cash to the driver when the trip ended, then it pivoted
to app based aggregation model seeing the meteoric rise of Android and Apple
Devices.

Well as stated
earlier, Ola has been through its own set of ups and downs, pivots and U-Turns
with respect to (w.r.t) its Business and Revenue Model.  When they started
out – They started out as a Taxi Rental Fleet Business (They owned the Fleet).
 They had a call center which used to do bookings for customers who wanted
cabs.  Pretty similar to Meru Cabs and others (Basically Radio Taxi but
unbranded and available on an 8hr 80 km kind of billing).  But later on
they pivoted into an app based cab aggregation service (similar to Uber). Their
revenue model is pretty similar to Uber’s with couple of additions to it. 

Booking a cab
through OLA is very easy, it is a simple process that anyone with a smartphone
can carry out. Customers to Open Ola App > Ola auto detects your Location
via Phone’s GPS > Shows Cabs of Various Categories (Mini, Prime, Sedan,
State Transport Taxis & Ola Share etc) Nearby > Customer to Tap on a
Category of Choice > Click Ride Now > Request is routed via Ola’s Servers
and is prompted to the Ola Cab Driver’s Cell Phone (if he is logged into the
Ola Driver App) > If the driver accepts the ride, you get confirmation
message on screen with Driver Details > Driver details sent to you on
message and email > Click to call the Driver and Co-ordinate > Complete
the Ride > Payment Debited from your Ola Money Wallet.

There are 2 Apps
being used simultaneously while the trips are coordinated at Ola – One is used
by the Cab Booking Consumer (i.e. You) and the other is used by the Request
Completing Driver called User App and Driver App respectively.

The most
significant contributor to Ola Cabs Revenue Model will be “X%
Commission from the total Fare of the Trip” e.g. Ranges from 15% to 20%
depending on the city and type of vehicle.  Here is the list of various
(current and discontinued) Revenue Lines the company has.

Fleet
Management via Tele Sales  
Percentage
Commission from Trips being served through its platform (Trip Based
Commissions)
Ola Money
Wallet
Ola Cafe
(Food Delivery) (Discontinued)
Ola Store
(Hyper Local Grocery Delivery) (Discontinued)
Corporate
Tie Ups / Event Tie Ups
Vehicle
On-Boarding Fee
In-Cab
Advertisements
Fleet
Leasing (To Drivers)
Car Type
Peak Time
Charges

 

Customers use
Ola User App to book chauffeur driven cabs because either they don’t own a car
or they do not want to use their own car for any reason. Whenever consumers
click on ride now the screen lights up with Trip Request at the nearest
possible driver logged into the Driver App via Ola Algorithm and if the driver
rejects the request, it is instantaneously passed on to the next driver in the
queue.  This so ever driver accepts the request is presented with the
location and details of the customer to be picked up.  Once the driver
reaches the destination (after dropping off the customer) he has to mandatorily
click on “End Trip” flashing on his device’s screen.  Once this is done,
the customers payment is done via Ola Money Wallet (Pre-paid) or via Cash
to the Driver.

The Trip fare is
a combination of:

Travel Time
(In Minutes): Ola charges per Minute of Travel Time after an initial
free X minutes
Distance
Cost: Ola charges Per KM of Travel after an initial fixed fare Distance
(varies as per the type of cab)
Waiting
Time: In case you made the driver wait, additional waiting time charges
are levied to you
Service Tax
on the total trip fare

The Trip fare
once charged to your ola money wallet is credited into the driver’s account
under the head of the trip number given to you in your bill copy if paid via
cash then equivalent amount of cash is deducted while making payment to driver
for the conducted trips.

OLA deducts the
Service Tax charged to consumer first, then its commission percentage, then
applicable income tax on the balance amount and remits the rest of the amount
to the driver’s bank account at regular intervals (3-7 Days).

An example of
business model:

Assuming
Travel Cost Per Minute: 5 INR (Travel time 40 mins)
Assuming
Travel Cost Per KM: 15 INR
Assuming
Service Tax: 15%
Assuming
Total Travel: 30 KM, (First 5 KM @ 100 INR)
Total Fare:
100+ 40*5 (Assumption 1) + 25*15 (Assumption 5 & 2) = 100+200+375 + =
675 + 15% of 675 (ST) = 675 + 101 = 776 INR
Ola’s
Commission: 675 * 20% = 135 INR + 101 (ST – Payable to Govt)
Driver’s
Payout: 776 – 135 – 101 = 540 INR
Less 10%
TDS (As per Income Tax Act) = 486 INR

 

Standard Fare

Category

Base Fare

Distance Fare

Wait Time Fare

Ride Time Fare

Cancellation Fare

Lux

Rs300

Rs25 per km till 20km
Rs30 per km after 20km

N/A

Rs3 per min

Rs100

Prime Play

Rs50

Rs10 per km till 20km
Rs14 per km after 20km

N/A

Rs1 per min

Rs75

Prime Sedan

Rs50

Rs10 per km till 20km
Rs14 per km after 20km

N/A

Rs1 per min

Rs75

Mini

Rs50

Rs8 per km till 20km
Rs13 per km after 20km

N/A

Rs1 per min

Rs50

Bike

Rs20 for first
3km

Rs5 per km

N/A

Rs1 per min (post 10 min)

N/A

Micro

Rs40

Rs6 per km till 20 km
Rs12 per km after 20 km

N/A

Rs1 per min

Rs50

Prime SUV

Rs150 for first 4km

Rs17 per km

N/A

Rs2 per min (post 15 min)

Rs100

Erick

Rs25 for first
1km

Rs8 per km

N/A

N/A

N/A

Auto

Govt. determined meter fare

Govt. determined meter fare.

Govt. determined meter fare.

N/A

N/A

Share

N/A

N/A

N/A

N/A

Rs25

Outstation

N/A

N/A

N/A

N/A

Rs150

Table
1: Different Prices for Different model of cabs offered by OLA

 

 

Special Fare

Category

Base Fare

Distance Fare

Wait Time Fare

Ride Time Fare

Cancellation Fare

Micro Airport Terminal 1 Pickup

Rs100 for first 5km

Rs8 per km

N/A

Rs1 per min

Rs50

Table
2: Fare for special Airport Pickup OLA Cab

ANALYSIS
OF PRICING STRATEGY

From the perspective of
the company under study the pricing strategy being followed is in keeping with
the uniqueness of the product sold and the current market conditions. On
looking at the 5 Cs of pricing that have impacted the pricing decisions we can
see the following characteristics:

The single largest factor
that impacts the pricing of this company is the uniqueness of the product it is
offering.  The customized product has
made premium pricing necessary. The first C of pricing ‘Company’ is the most significant factor in the pricing policy of
the company. Here the goal of the company also has a major role to play as it
wants to position itself as a premium quality product seller. Looking at the
other Cs of pricing in this case the ‘Customers’
also are important determinants of the pricing strategy. The company
follows a graduated approach to benefit those who buy more. In terms of ‘Competitors’ the company has few and
far between in the area in and near the country. This has perhaps allowed the
company to somewhat have a liberty in deciding the price to be charged. The
role of another C that of ‘Collaborators’
is not very strong in case of this company as the company does not have a
distribution channel  so  their role is not present in price
determination. Lastly, the ‘climate’
element   does have a minimal impact on
the pricing as the company as transportation is evergreen product not having
any seasonal impact.

 In the present business condition and the way
the business is growing, the company has been able to set up a niche market for
itself in a short period of time. For now the company is doing well and the
customers are delighted about the products it is delivering.  This is because the market for the product is
new and the competition has not yet seeped in. The scenario is bound to change
when there will be more competitors coming into the market. For this it is
suggested that the company uses valuable resource for
itself as defined by Collins and Montgomery (1995):

1.    
Inimitability – To make the
product innovative and  hard  for competitors to copy the same.  Energy Mad can stall imitation if the product
is (1) physically unique, (2) a
result of path dependent development
activities, (3) causally ambiguous
(such that the competitors don’t know what to imitate), or (4) make a costly
asset investment for a niche market, resulting in economic deterrence.

2.    
Durability – make the
product durable

3.    
Appropriability – Create a
value for the — company, customers, distributors, suppliers, or employees in
short the overall stakeholders.

4.    
Substitutability – Make the
product unique and un- substitutable,

5.     Competitive Superiority – Finally,
making it superior and different from the competitors.

Thus, potentially any
more competition would lead to change in pricing strategy for the company.

SUGGESTED
PRICING STRATEGY

Pricing levels
for the company are relatively high because it is considered to be the best in
town in terms of quality and uniqueness of the product. While developing their
marketing strategies companies can use any of the following approaches:-

 

Game-theoretic
models are one of the few approaches use in pricing strategies based on the
assumption that firms are regarded as (hyper) rational value maximizes. Here,
rationality means that they work to
become the most preferred keeping in mind that the competitors also behave in
the same manner (Zagare 1984). Although, there may be some amount of
risk with respect to the strategies of its competitors. A firm that is rational
firm is anticipated to overcome any kind of risk by creating competitive
conjectures.

Competitive
Signals are the other types of pricing strategies.  These are reactive strategies which are done
with the reaction to the competitive strategy.

Another strategy
suggested is that of innovation. This is in case of a dynamic business
environment when there is uncertainty in the business conditions Varadarajan,
Rajan P. and Satish Jayachandran. (1999).

The one that is
being used in the case of the company under study is the product quality
strategy. It is with respect to the economic view of the concept of
quality.  The business here follows a
niche pricing strategy wherein it offers a high quality product at a high
price.  Here the target is a small market
that excludes itself from the competition. This ability of the company in order
to charge premium prices for higher quality is contingent on the ease with
which consumers can determine the quality of the product.

Finally, the structure-conduct-performance model
states that a direct positive relationship is seen between the concentration of
the industry and profitability of the same. This strategy also fits into the
case under study.  As the concentration
is not very high there is seen a market skimming pricing strategy here.

As the company
will grow the company is bound to change its marketing strategy.  The marketing strategy is bound to change.  It will change in the following possible
circumstances.

Companies must
plan and replan their marketing strategies for each product many times during a
product’s life cycle. This is done in order to overcome many of the market
conditions like– the changing conditions, assaults launched by competitors,
changing interests and new requirement of buyers. A marketing strategy helps a
company to extend the product’s life and profitability.

Based on the
above look at the overall condition of OLA it is recommended that it should
focus on gaining small grounds at a time instead of trying to take giant leaps
and failing.  It must work at becoming a market-driven,
people-centric company with a structure that reflects the needs of its
customers and delivers what it promises. Collaboration with online consumer
groups through Facebook and twitter to activate the consumer group and collect
the information regarding their views along with mobilizing their creativity
gives opportunities to enhance the speed and efficiency of product development
which is known as co-creation.

Earlier there
was no active involvement of consumers in innovation and it only included
importing knowledge about needs and wants, which in turn prompted new product
development. The internet has changed this to enable a two-way relationship by
promoting direct co-operation and knowledge creation .

Thus, for an
effective pricing that rationale behind the pricing process must be made known
to the customers so that there is no doubt about the amount charges.  The willing payment of the customer in which
he equates the price and the value of the product brings out a sustainable
pricing that is there to remain and need not be changes even when there are
many competitors in the market. A happy blend of quality centric pricing
displaying value for money to the buyers is bound to be the most delightful
method of pricing strategy.  The company
can add an element of loyalty bonus to the present system of pricing that it is
following for effective customer retention is suggested. The
opportunities of the company are profound as it is a pioneer to the customized
product it is offering.

 

 

Reference

1.    
Collis,
David J.; Montgomery, Cynthia A.(1990) 
“Competing on resources: strategy in the 1990s”, Harvard Business Review, v73, n4
(July-August, 1995):118 (11 pages).

2.    
Zagare,
F.C. (1984) Game Theory: Concepts and Applications. Beverly Hills, CA: Sage.

3.    
Varadarajan,
Rajan P. and Satish Jayachandran. (1999) “Marketing strategy: An assessment of
the state of the field and outlook”, Academy of Marketing Science,
(Spring), 120-143

 

 

 

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