Read the case (Two Parts) and follow the SPSR steps. Given the Uber’s situation

Question

Read the case (Two Parts) and follow the SPSR steps. Given the Uber’s situation (case 1) and based on the Kuaidi’s Jean Jiu’s interview about her vision and strategy in China, (1) summarize the situation (situation summary), (2) identify the key issues and causes to resolve (problem definition), (3) generate multiple options given the current competitive market situation (alternatives to solution), and (4) recommend one or a combination of non-competing options (recommendation). Your recommended option(s) must be selected from the step (3), the preceding step. Demonstrate your analytic thinking (in the problem definition stage) and critical thinking skill (for the solution step). There are no right or wrong options (based on universal truth) but only “logical” option(s) based on analytic and critical thinking skill.

In Wake Of Kuaidi-Didi Merger, Uber Faces An Even Tougher Battle In China

China's two biggest taxi-hailing apps merged last month, freeing them from expensive competition with each other. Will Uber be able to keep growing in the shadow of an even bigger competitor? (AFP/Getty)

During the Lunar New Year in China, taxi-hailing app Kuaidi showered its riders with red envelopes. Not traditional ones stuffed with cash, but rather electronic red envelopes that appeared on their phones with free credits designed to lure riders back to the app.

“If they continued using our rides, they got more red packets,” said Kuaidi cofounder Joe C. Lee. Kuaidi already collects no money on each cab ride it arranges. And with this subsidy, like the many others the company has doled out in the last two years, it was actually paying customers to continue to use a free product.

Why? Until recently, Kuaidi was gripped in an aggressive and very expensive battle for market share in China against slightly bigger rival Didi. The two startups, bankrolled by Alibaba and Tencent, respectively, burned 2.4 billion yuan — roughly $400 million — in the first half of 2014 alone as they fought to steal and hold on to customers. More than 150 million Chinese people use taxi-hailing apps, and that number will only balloon as more people buy smartphones. The market seemed big enough and hot enough to attract plenty of other small competitors, including U.S. ride-hailing service Uber, which launched in Shanghai in mid-2013 and has since expanded to seven more cities.

But in a surprise announcement last month, Kuaidi and Didi said they would merge, creating a powerhouse whose dominance of the market could put Uber’s future in China at risk. Perhaps as a consequence, Uber may be looking to merge with a Chinese ally that could help it hold on.

When Uber launched in China, it was late to the game and already the underdog. Kuaidi and Didi, which both launched in 2012, like to claim that they book up to 6 million rides a day. Uber only hit 1 million global daily rides late last year. Together, Didi and Kuaidi control more than 99% of the market — Didi at around 55% and Kuaidi around 45%, according to a November report from Analysys International.

But Uber quickly became popular with expatriate and business customers and those who wanted to pay for a nicer ride. With Kuaidi and Didi rushing to outspend each other, Uber might have had a chance to pull ahead a little when neither was looking. And the San Francisco ride-hailing service got another boost in December when it announced a strategic investment partnership with Chinese search company Baidu Baidu.

Then, suddenly, the Kuaidi-Didi war was over. The merger, which was announced last month but is still being finalized, will turn Kuaidi and Didi into a quasi-monopoly — and more importantly, free them from the expensive, messy and tiring fight between them.

The merger apparently scared Uber into exploring new strategies. Uber is reportedly in talks to merge with Yidao Yongche, a Chinese company that offers a similar premium car service to Uber, according to the South China Morning Post. Baidu has invested in both companies and is reportedly helping arrange a deal.

“Uber has failed to gain significant market share on mainland China since it debuted there last year, so a merger with a strong local partner would help it gain a foothold in the market,” the Post said. Yidao also filed an anti-monopoly complaint to regulators after the Kuaidi-Didi merger, though the merger seems likely to stand, mostly because neither company makes enough money.

In China, Uber first focused on higher-end premium car service while Kuaidi and Didi aimed for everyday taxi hails, but both are beginning to work their way toward the middle with different tiers of service. (Getty)

Originally, Uber occupied a separate space from Kuaidi or Didi, offering a premium car service while Kuaidi and Didi focused on free taxi hails. But they’re rapidly encroaching on each other’s turf: Kuaidi and Didi both launched limo services last year, and Uber is pushing into lower-cost non-cab rides similar to its UberX offering in the U.S.

Uber has said it’s big enough in major Chinese cities like Shanghai to arrive in an average of six minutes. But it’s hard to compete with a new Goliath that says it has more than 1 million drivers in around 360 cities. (Uber said in December it has 160,000 U.S. drivers.)

“The network effect in Kuaidi-Didi is very obvious,” said Jixun Foo, a partner at GGV Capital and a board member of GrabTaxi, a taxi-hailing app popular in Southeast Asia. “With such a high percentage of users and drivers, it’s far more likely to get a car. And users often times don’t care about having a black car. They just need a car. They’re in a rush.”

Kuaidi and Didi’s users may not care for a premium service, but the companies need those services to succeed if they ever want to make money. Both companies aimed first for a huge customer base and have put off monetizing.

Lee envisions the two companies, now unshackled from what he called a “zero-sum game,” dedicating their billion dollars in funding to growing new paid features like cross-city buses, carpooling and other transit options. He’s even exploring a way to use their drivers when they don’t have a car: an on-demand designated driver service.

“If you drove your car to a bar and you need a driver to pick you and your car up, we can do that with our driver base,” Lee said. “Due to intense competition we haven’t quite made it happen yet.” (For those wondering, the drivers would apparently bring along a small scooter to get home after drop-off.)

China’s not the only region where Uber faces growing pressure from major local services. India’s OlaCabs, which has long said it has about 70% market share, snapped up smaller taxi-hailing app TaxiForSure this month, growing its car base by 15%.

Can Uber be a global brand? Local players like to think it can’t. They point to the nuances of a new market, especially in developing countries or places where car ownership is low so the driver pool is different from the U.S. Often, local companies are willing to start with mass-market, cheap options like cabs and tuktuks while Uber focuses on cars. In China, taxi-hailing services have a closer and more cooperative relationship with the goverment, which they say has helped them succeed. And in regions where smartphone use is exploding but few people have credit cards, payment has to be flexible. Kuaidi and Didi let users pay by Alipay or WePay apps, and OlaCabs allows payments in cash.

Uber started out in China with a credit card system but added Alipay when its customers asked for it. The company also switched from Google GOOGL +2.76% to Baidu maps. It was the first time the company used local offerings for payments and maps, Uber’s head of Asia operations Allen Penn said in September.

“It’s something that’s been a growth accelerant for us,” he said. “We want to make Uber as easy and native for people as possible. That’s increasingly challenging as we spend more time in markets farther flung across the world.”

China’s market is so vast that Uber may be able to build a strong business simply by focusing on upper-tier car service, which a potential partnership with Yidao would bolster. But if it wants to conquer the masses, Uber “has a long way to go,” Lee said. “We have a very strong critical mass in the market. And from this merger, our critical mass will be more critical.”

Jean Liu Reveals How Didi Kuaidi Is Beating Uber

In China, the homegrown company is the No. 1 ride-sharing and taxi-hailing service

Updated Aug. 4, 2015 5:43 p.m. ET

In the U.S. and Europe, people hear a lot about Uber. But in China, a different company is out front in the race to provide Web-based ride-hailing services.

Jonathan Krim, global technology editor for The Wall Street Journal, sat down with Jean Liu, president of Didi Kuaidi, the biggest car-sharing and taxi-hailing service in China, followed closely by UberChina, to discuss where the company is headed.

Here is news coverage from the discussion. Edited excerpts follow

Market potential

MR. KRIM: Reportedly your company is raising funds at a valuation of about $15 billion. Tell us about the Chinese market and why investors are feeling like that’s a good move.

MS. LIU: A lot of people are putting money into us. They have huge confidence in us and also in China’s transportation market.

In the past few years people have a better [experience] to shop, to go have fun, to watch a movie. But there’s one thing that people suffer every day, which is to commute.

There are 800 million urban people in China. And people couldn’t find a taxi because of the shortage. If you drive, driving’s no fun at all. You’ll be locked in front of your wheel because of the traffic. And if you really want to try a bus or a subway, you need to be a really strong man or aggressive woman to get on and to squeeze in.

A lot of times after the ride you will feel you have just finished a boxing workout. And if you ride a bicycle last year in Beijing there were 175 heavy smog days. So you probably need to wear a medical-grade face mask to go ride a bicycle. So people are not happy about it.

Transportation needs to be transformed with technology.

Transportation needs to be transformed with technology.

MR. KRIM: How many taxi rides every day are there in China? And how many should there be available in China?

MS. LIU: Let’s think about 800 million people, right? Currently only 30 million people ride a taxi on a daily basis. And if you’re counting the private-car service, maximum total I think is 50 million. Buses account for more than 200 million. And private car, self-drive, counts for 260 million rides. So that’s a trillion-dollar market.

MR. KRIM: How many rides do you think there is potential for with your services?

MS. LIU: We think one day people will all commute by hailing taxi or cars online just like now you shop online.

MR. KRIM: Hundreds of millions potentially every day?

MS. LIU: Totally, and actually since we launched the service, over the past three years we brought 200 million people to hail a taxi or car online.

Philosophical differences

MR. KRIM: You have a different business model than Uber in the sense that you’ve provided both a ride-hailing app and a software platform for taxi drivers to be able to more efficiently get and take rides, right?

MS. LIU: Right.

MR. KRIM: Uber’s philosophy has been, “We’re going to disrupt and replace the taxi industry.” But Didi Kuaidi, by including apps for hailing regular taxis, is working with that industry as well as making additional ride-sharing cars available on the roads. Why do you have a different point of view on that?

Jean Liu, president of Didi Kuaidi Photo: Kenneth Lim/Dow Jones

MS. LIU: We have a unique business model. We provide a comprehensive range of products. We are trying to serve every Chinese in every situation. We launched taxi service three years ago, and later we figured [taxis are] in such a big shortage that there is a lot of unmet demand on that platform. Then we provided a private-car service to fulfill those demands.

Later we figure still a lot of people prefer to drive to work and home because they have a car already. We asked, “Why [don’t] we match a passenger for you?” So we have a Hitch product. We found there are a lot of people who share the same starting point and same destination, so we group them and generated our bus-line service.

Then we figured there are a lot of drivers who want to earn extra money. They can provide a driving service. That’s why we launched the chauffeur business.

So our philosophy here is you don’t really need seven individual apps to fulfill your commute need. You just need one. That one app will make sure you will get a ride anywhere in three minutes.

MR. KRIM: Is China a big enough market for you and Uber?

MS. LIU: We’re providing a different model. We are providing everything on this big platform. I’m sure on each niche product there will always be competitive.

MR. KRIM: For the global sort of service, you’ll be the one?

MS. LIU: Yes, because this is a unique business model. Our philosophy is we don’t really believe in disruptive termination. When it concerns millions of people’s jobs, and when it concerns tens of millions of people’s life, what we believe in is collaborative reform from within. We try to work with everyone.

Explanation / Answer

Situation Of The Case

The case is all about taxi hailing in china and how competetion among the different taxi hailing services.

We can see from the case currently taxi hailing services are Kaudi, Didi and Uber The china's biggest apps Kaudi and Didi got merged and given toughest competition to uber.

At times Kaudi faced biggest competition from Didi to keep up the Kaudi fame it was offered free rides to the customers and provided some red envelopes credited on customers account which make customers to come again to the Kaudi to use envelelopes.

so with the basic competition among Kaudi and Didi cold war running among the two companies to attract more customers.

But on a sudden the two comanies announced to merge and became one which this decision lead to put uber services at risk.

So uber by the way falled to down in china's market and tried to merge with another company but there is no effiecient output because of strong competition from local market.

Finally uber started to work hard and showed differentiation in cars comfortability and introduced the scheme of arrival before 6minutes at large cities like shangay

Particular in china uber shifted to baidu maps from google and come up with credit card system to make easier payment and to allow some applications like alibaba pay etc.

however uber trying to become stronger in china market . Being as largest maket area uber may comeout with best results.

Key Issues And Causes To Resolve The Problem

The main issue we can see from the case is merging of Kaudi and Didi which became more powerful and more stronger to compete with it.

The manpower will become large and strategies will be strong because of two heads knowledge put together.

Coming to uber situation the initial days of uber became more tough , need face the merge of Kaudi and Didi apps

Uber has to be more efficient and more challenging to meet the competitors.

Uber trying to put up more effort with the support of another company yidao which is also a small sized company to put huge investment to come up with requirements.

unsufficient money is a big cause of failure because of no money uber cannot dare to introduce different offers to attract the people and cannot provide free rides initially.

Options To Compete The Market

Uber need to think clever to reach the market with minimum amount maximum publicity has to keep up.

To face the toughest competition from Kaudi and Didi uber has to advertise on different areas of the city and need to create lines line to attract people

And uber can make design vary,beautiful look of the car also attracts people to use.

uber can offer gifts with lower cost like flower or pen to the people initially or to any few customers in a day may create positive environment in the market.

changing littlebit attitude in drivers to treat customers with smile and freindly behaviour also gives best results.

To have large investment uber may need to cope up with two or more companies partnership to bare the challenge.

Changing modules in app which people can attract to open that showing customers standing place and easy reach to them makes customer happy.

Looking after the safety of customer also competitive factor, if uber can give safety precautions effectively it can come up to the highest point in a positive manner.

Non Competing Options

Competition is a mark that can see at every point , here the non competing options to be discuss may as fuel cost, the driving behaviours of the manpower, presenting the full information on the app , neatness of the car ,neatness of the driver, nice perfume comes under non competing points to attract people at individual.

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