Taxi-M (TM)
Taxi-M (TM) operates 2,500 taxis in a developing country. All drivers are full-time employees and have a
professional taxi license. Although it’s not compulsory, TM regularly conducts safety inspections of the
taxis. Though they are safe, most of TM’s taxis are old and TM charges high prices. Many customers
complain.
In addition, TM is facing competition from a new service. A multinational company, RE, with offices
around the world, has designed an advanced mobile application (app) called Best-Taxi (BT), which helps
reduce their operational costs. Using their mobile phones, passengers can use BT to book and pay for a
car journey. Any car owner can offer journeys through BT. For security reasons, the BT app registers
passengers’ and drivers’ personal details.
TM’s sales are falling and profits are down. A number of TM’s drivers are becoming demotivated. Facing
lower incomes, poor management and rumors of redundancies*, many loyal drivers have left to offer
taxi services using their own cars and the BT app. Some of these drivers are earning considerably higher
wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road
accidents for BT drivers than licensed taxi drivers. Several of BT’s drivers have assaulted and robbed
customers. Primary market research conducted by TM using focus groups revealed that some of their
customers thought BT and TM were the same company.
In response, TM’s management decided to downsize and differentiate itself from BT by positioning its
service as a high-price, high-quality traditional taxi service. TM will:
•
•
Sell its older cars and lease new luxury cars;
Develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers will be able to book TM taxis by telephone and by stopping them in the street. TM’s target
market will be businesspeople, higher income families and passengers concerned about safety.
*Redundancy occurs when the job someone is doing is no longer required, and the company eliminates
the position. The position is then made redundant; typically, the person formerly doing the job is made
unemployed.
(a) Define the term target market. [2]
A target market is a specific group of people who have been recognized as the most likely potential
buyers for a product or service due to shared qualities such as age, location, income, and lifestyle.
Identifying the appropriate target market is critical in developing and following a successful marketing
plan for any new product. As that will also be used for creating marketing campaigns and product
development strategies. The target market allows the company to focus its resources on reaching and
appealing to a specific group of consumers, rather than trying to appeal to everyone.
(b) Explain one positive and one negative impact of the multinational company RE on the developing
country. [4]
One positive impact of the multination company RE on the developing country is that its creating
more job opportunities for local residents, helping reduce unemployment and stimulate economic
growth. Anyone who has a car can be a driver for them, which is a very easy way to make money, even
when you don’t have an education, which can be the case in developing countries.
One negative impact of the multinational company RE on the developing country is that it creates
more competition for the local business and doesn’t allow them to expand as much and make profit. This
can be seen with a multinational company RE, creating competition for a local company TM, as their sales
and profits are falling. Many drivers for TM have left to use their own cars and the BT app.
(c) Explain one benefit and one limitation for TM of using focus groups. [4]
One benefit for TM of using focus groups is that it can provide a business with valuable insights into
customer needs and preferences and can help identify potential issues with a product or service. For TM,
a business operating taxis, in a developing country, a focus group can be particularly useful in
understanding how to best serve local customers, and in identifying ways to differentiate the business
from competitors like BT. Additionally, a focus group can help the business identify any cultural or
socioeconomic factors that may impact customer behaviour and can provide feedback on marketing
efforts. To solve problems like having old cars and high prices which customers were complaining about.
One limitation of TM of using focus groups is they can be expensive and time-consuming to set up and
conduct, which may not be feasible for small businesses or those operating in resource-constrained
environments. As well as, in developing countries, the lack of infrastructure and proper facilities to
conduct a focus group can be a limitation, as well as the lack of trained researchers. As TM is a small and
local company which might not have enough resources, especially with the competition of BT coming
along.
(d) Applying Porter’s generic strategies, discuss TM’s new strategy to differentiate itself from BT. [10]
The organisation TM which operates 2,500 taxis in a developed country has recently changed its whole
business strategy by deciding to downsize and position its service as a high-price, high quality traditional
taxi service, instead of having old taxis and charge high prices. They have decided to do that due to new
competition coming in causing them to lose customers and drivers fast. Applying Porter’s generic
strategies TM has focused on differentiation and focus, to differentiate itself from BT. Which comes with
positives and negatives for the company.
Differentiation of TM from BT can provide a number of benefits to the company for its growth and
economical situation. One of the main positives is increased competitiveness, which is what the problem
was before, by differentiating their service, TM can stand out from competitors, like BT, by using the
unique selling point and be more likely to attract and retain customers. As they are also choosing to put
higher prices and better-quality cars, which will allow them to charger higher prices for their service, as
customers are willing to pay more for a unique or superior service, which will improve customer
satisfaction and loyalty. This will possibly lead to increased business and positive opinions about the
company. Differentiation can be a powerful tool for a taxi company to increase competitiveness,
customer satisfaction, and profitability.
While differentiation can provide many benefits for TM, there are also some potential negatives to
consider, particularly in a developing country. One of them being, high cots, implementing a
differentiation strategy will be expensive, as it requires buying new luxury cars as well as hiring specialized
staff. Another problem might be limited market size, as in developing country, the market for taxis with
luxury cars might not be in a such high demand which can limit the potential for growth and profitability.
This might even result in failure, as it might not resonate with customers, which can result in waste of
resources and loss of market share. Overall, while differentiation can provide many benefits for TM, it's
important to consider the potential negatives, risks and costs before implementing a differentiation
strategy.
In addition, another Porter’s strategy is focus, which can provide several benefits for TM that operates
luxury taxis in a developing country. Due to increased focus on one specific market, the organisation can
put more attention and effort on this audience which can lead to high profit potential. As luxury
transportation market can be highly profitable, particularly in a developing country where there may be
less competition and a growing demand. This will also put TM into a stronger competitive position, as by
focusing on a specific niche market, such as luxury transportation, TM can they be less affected by
competition from other taxi companies. Having a strategy focus may also lead to higher brand recognition
and attract more customers as well as increase their loyalty. A focus strategy can be an effective way for
TM to establish a strong competitive position, increase efficiency and profitability, and create a
reputation for quality and luxury.
On the other hand, while a focus strategy can provide many benefits for TM, there are also some
potential negatives. One of them is limited diversification, focusing on a single market, the organization
may be less diversified and more vulnerable to market fluctuations or changes in customer preferences.
This also builds more dependence on specific customers and a small group of people, which can be risky
if those customers leave or reduce their spending. This is due to socio-economic barriers, in developing
countries, luxury transportation may be a service that only a small percentage of people can afford, which
may limit the potential market size. Overall, while a focus strategy can be an effective way for an
organization operating luxury taxi in a developing country to establish a strong competitive position,
increase efficiency and profitability, and create a reputation for quality and luxury, it's important to
consider the potential negatives and to carefully evaluate the potential risks and costs before
implementing this strategy.
In conclusion, TM, a taxi company operating in a developing country can use a combination of
differentiation and focus strategies to switch to luxury taxis. Differentiation can help the company to
stand out from competitors and attract customers by offering a unique or superior service. A focus
strategy, on the other hand, can help the company to establish a strong competitive position in the luxury
transportation market by providing specialized knowledge and expertise. By carefully evaluating the
potential risks and costs, and by conducting thorough market research, a taxi company operating in a
developing country can successfully switch to luxury taxis using a combination of differentiation and
focus strategies.