A discussion of Porter’s Generic and Intensive Strategies used by Uber
Uber is now a well known name in most corners of the world. The fast and sharp rise of the ride sharing services provider is a testimony to the fact that technology is the biggest source of market disruption in the twenty first century. Uber’s ride sharing services cost the other traditional taxi service providers heavily. Uber used an innovative business model based on technology and networking to grab a large market share in a very short period of time. The result has been that its business grew very fast in a very short period of time. Before Uber’s arrival hiring a taxi was a very different process. Uber found several loopholes where it saw an opportunity to improve the quality of service and availability. Its innovative business model and pricing strategy helped the company climb to the top in just no time.
This article presents an analysis of the generic and intensive strategies used by Uber to build competitive advantage and find market growth and expand its brands. Â Michael E Porter has highlighted three key generic strategies that the brands can use to build a source of sustainable competitive advantage. These three strategies are cost leadership, differentiation and focus. The third strategy he has subdivided into two categories which are cost focus and differentiation focus. Apart from these generic strategies there are intensive strategies that brands can use to grow their market share and to expand.
Generic Strategies used by Uber:
The generic strategy used by Uber is a mix of cost leadership and technology based differentiation. Unlike the other traditional taxi services, Uber takes a very small cut ranging usually between 5 to 20%. It does not hire full time rides but uses the networking effect to grow its number of drivers. Anyone who owns a vehicle and can drive can become a driver for Uber and earn money working part time. So, this allows cost cutting on infrastructure and maintenance. In turn, this benefit can be passed to both drivers and rider which allows Uber to charge lower costs and without incurring any financial loss. The drivers are earning extra money and the riders are getting to pay less and have extra convenience. This is how the cost leadership advantage is working in the favor of Uber and has made it popular, particularly in the metropolitan areas. Cost leadership can be a source of sustainable competitive advantage as proved already in the case of Walmart and Costco. It works to retain the popularity of Uber’s services high because everyone wants to save money. Moreover, by adding convenience to the services, the brand has been able to generate higher level of popularity and a better brand image. However, Uber’s main strategy is not cost leadership because it uses a surge pricing model where prices surge based on demand.
Technology based differentiation the primary source of competitive advantage for the brand. Technology is the main enabler of its services and plays a central role in its business model. It is the Uber app that connects the riders with the taxi drivers, allows them to pay for the services and rate their ride and convenience. Before the introduction of Uber, booking a taxi ride was not as easy and people had to pay higher while the waiting time for a taxi could also be longer. Now, a ride can be available within minutes after booking. You click and the nearest available taxi responds. Customer convenience here becomes an important differentiating factor for the brand. Since the level of convenience is higher, it becomes a source of competitive advantage for the business.
This is how the brand has used a mix of cost leadership and differentiation to achieve competitive advantage. Here, innovation is the most critical factor. Technology connects the drivers with riders and the riders have extra convenience when booking a ride. They get a price estimate based on the distance and since they do not have to wait long to book a taxi, riders are satisfied. The number of taxis has also grown as Uber has created an opportunity for everyone who has a vehicle and can drive leading to higher availability of taxis in the areas where it provide its services.
Intensive growth strategies adopted by Uber:
There are four intensive growth strategies that the brands can use to grow their market share and to expand their market presence. These strategies are market penetration, market development, product development and diversification. The intensive strategies that Uber has used to grow its market share are market penetration and market development.
Market penetration:
Uber started as a simple ride sharing app to connect the taxi drivers with the customers. The additional convenience the app offered made its popularity grow and its customer base grew fast. Low costs and extra convenience helped it build customer loyalty and grow its share after its initial launch in the US market. This was the strategy that Uber used during the initial stage of its business growth. However Uber can provide its services only in the cities where there is sufficient demand for its services. So, it has penetrated only the large cities mainly and slowly expanded services to tier two cities offering sufficient demand. In most of the cities where Uber operates, it has achieved deeper market penetration driven by higher brand awareness and growth in popularity.
Market Development:
Market development involves introduction of the product/service into new markets or regions. As Uber’s brand grew it kept improving its services and adding variety to the kind of services on offer. Now, it is present in 71 countries and across more than 10,000 cities including 900 large cities. However, the markets that constitute the largest share of its customer base and revenues are US, China, Brazil India and Mexico.
This was how Uber acquired competitive advantage and grew into a global brand using the above discussed generic and intensive strategies. While the brand has used a mix of cost leadership and technology based differentiation to build competitive advantage, it has grown its market and market share using the intensive strategies of market penetration and market development.
Product Development:
Product development involves the development of new products and services for existing customers. With time, Uber expanded the types of services it offers and added Uber X and Uber Comfort. It also introduced Uber eats, a food delivery app which allows user to order food from their favorite restaurants using the Uber app.
Diversification:
Large technology businesses also employ diversification to achieve business growth and expand market share. However, that can be a complicated process due to various types of risks involved. Uber started Uber eats because it was a related business that required similar resources and capabilities as its existing business. While Uber can also diversify into new areas, it has still not made any such significant attempt. However, it could also diversify into fintech if it wanted.