Assignment no: 3 Beck Taxi

A report

Prof.M.M.Monippally (Instructor) Ms.Pooja (Academic Associate)

In partial fulfillment of the requirements of the course

Written Analysis and Communication-I

On July 31, 2010 By

Mohamed NizarNaushad Neeraj.V.Chandrasekhar

Section C

LETTER OF TRANSMITTAL
To: Ms Gail Beck Souter Chief Executive Officer Beck Taxi Toronto

From: PQR, Student, WIMWI

Date: 25thth May 2009

Subject: Analysis of the variouspricing structure options available to Beck Taxi

With reference to your request regarding the analysis of the current situation in the Toronto taxi industryI am attaching a report that evaluates various options available to beck taxi. This report provides suggestionsfor the immediate course of action with respect to its pricing structure, presents our inferences, recommendation plan and an action plan. It is recommended that Beck Taxi reduces its fixed fee and introduces a variable fee per each dispatch.

EXECUT B t ll i t t ti it B t i l tt ti i ( t t l t t

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: 131)

SITUATION ANALYSIS: The Toronto t i industry is si ni i ntly crowded as one can find one cab for every 500 Torontonians as opposed to the ratio prevalent in most other metropolitan cities, which is around one for every 1000. The year 2009 has brought upon an economic slowdown which has taken a toll on the taxi industry. In addition, summer is generally a dull period for the taxi trade. Thus the next three months will be testing for the entire taxi industry. Beck Taxi currently enjoys the position of being the market leader (1474 out of 4851 cabs) and therefore any new strategy it chooses to implement will have significant implications on the whole cab industry. The airing of commercials on TV channels is likely to further increase Becks market share and brand value. Taxi drivers of Toronto are of three basic types. The ones who own the plates and drive themselves are called the Ambassadors, the drivers who lease out taxis from plate holders for long periods of time are called lease drivers and finally the shift drivers are the ones who rent out taxis for short durations like a week or two. An average driver should earn around $1500 a month taking into account all his expenses (Refer exhibit 1). This is reasonably low considering the long hours of work. Toronto has 9898 taxi drivers out of which Beck alone provides radio dispatch services (R ) to between 2500 and 3000 drivers. Though downtown drivers derive up to 70% of

their income by cruising for fares, Toronto as a whole is a phone-order market. Most drivers therefore depend mainly on the R to get customers. Beck processes over 0.66 million calls

every month out of which, it makes more than 0.5 million dispatches. The difference between the number of calls and the dispatches could be because of partial operationalinefficiency, lack of taxi drivers in an area at a given point of time or calls made purely for enquiry purposes.Currently Beck has 150 full-time employees with over 1450 taxis

and either of these figures might not be sufficient. However, during the summer season, given the reduced number of calls, it should be possible to reduce the difference between the calls and dispatches, thereby increasing efficiency. Beck currently charges $421 as mandatory fees out of which $400 goes towards the R addition it also charges an optional $19 for a pager and $10 for a point-of-sale terminal. Given the lean summer period and difficult economic conditions, it is reasonable to assume that drivers will be willing to move to the brokerage that charges the least. Beck being the market leader, can afford to experiment with its pricing structure. Introducing a variable component by charging per dispatch along with a reduction in the fixed component, could be one of the approaches. A change in pricing can be feasible only if it can positively benefit the taxi drivers. Given the difficult economic condition, the drivers might not be willing to pay more than what they already are. . In

PROBLEM STATEMENT: Should Beck Taxi revise its R S pricing mechanism?

OPTIONS: 1. No revision in pricing (maintain status quo). 2. Reduce fixed fee and charge for each dispatch. 3. Reduce fixed fee only for the summer.

CRITERIA: 1. Increased revenues and market share for Beck Taxi. 2. Feasibility of implementation. 3. Welfare of the drivers. EVALUATION: No revi ion in pri ing: Criterion 1: Maintaining status quo will neither increase Becks revenues nor its market share significantly. A minor increase in both can however be expected as a result of the airing of TV commercials.But on the other hand, drivers could also contemplate leaving the dispatch service and choose to cruise for fares. Criterion 2: This requires no new implementations except perhaps an increase in the workforce to ensure complete conversion of calls to dispatches. Criterion 3: The cab drivers, who seem to be overworked and underpaid, might find it very hard paying for the R S taking into account the reduced number of calls during the summer season.

Reduce fi ed fee and charge for each di patch: Criterion 1: Exhibit 2 shows a combination of fixed and variable fees which seems to be the most feasible.Even though Beck might make less money from each cab driver through this pricing mechanism, it can expect to attract more taxi drivers and thereby increase its revenue on the whole. Its market share could also increase as a result of this. The interesting point to note would be that with an increase in the number of taxis which want to avail these services

our logistical costs will not increaseproportionately, rather minor additions to the working staff will be required. This is due to the fact that fixed costs form a major component of R S( Radio broadcasting over an area will cost the same, irrespective of the number of receivers). Criterion 2: Tracking dispatches may seem to pose severe logistical problems but it might not actually require much of an increase in the current manpower. Computer applications can be used to track dispatches and the crediting of cab drivers accounts. The variable fees for the total dispatches by a driver could be collected along with the advance fixed R S fee for the following month. Also any increase in the manpower/machine requirements can be expected to be more than compensated by the income derived from the increased taxi drivers. Criterion 3: This option provides great flexibility to the drivers especially in the summer months. Since the number of dispatches is bound to go down, it is only fair that the taxi drivers pay less for the dispatch service during the summer months because the value of the R S to the taxi drivers is relatively less compared to the other months.

Reduce fi ed fee onl for the summer: Criterion 1: This is bound to attract new cab drivers in the short run, i.e. the summer season. But when the price is hiked at the end of the summer season again, the taxi drivers may not be willing to continue with Beck. Also, a reduction of $50 in the fixed fees will require at least 450 new cabs sign up with Beck taxi (exhibit 3). This figure represents around 10% of the total cabs in Toronto and is not an easy target to achieve in a short span of 3 months. Until the target of 450 is achieved, Beck Taxi will continue to have reduced incomes despite increasing market share.

Criterion 2: An increase in the number of taxis might require a minor increase in the workforce, but otherwise, this option does not pose too many logistical problems. Criterion 3: This option will certainly benefit the taxi drivers during the summer season. However, once the summer season is over, the drivers will continue to pay $400 which gives them limited flexibility. A downtown driver who derives 70% of his income cruising for fares might not want to pay the same $400 other cab drivers pay and therefore act as deterrent to attracting taxi drivers from the downtown area.

RECOMMENDATION: It is recommended that Beck Taxi reduces its fixed fee and introduces a variable fee per each dispatch.

ACTION PLAN
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Change pricing structure for the R S to introduce a variable component. Market the change in the pricing structure to attract more taxi drivers. Target large fleets to move to beck with this additional incentive along with the existing 10th taxi free service.

Make necessary gradual logistical changes as and when the demand and the number of taxis increase.