App-based Ride hailing, Car Ownership Slug Fest. And what it means for the industry

Changing mobility landscape with emergence of app-based ride hailing companies -By Abhishek Jha, Client Director, Ipsos India

The author(s)

  • Michael Clemence Ipsos UK
Get in touch

Public Transport forms the backbone for mobility in India’s cities, small towns and the hinterland. There is a huge dependence on it. In parallel, we see ownership of personal vehicles, which provides a completely independent mobility and less dependence on public service. It’s the debate around the under-utilization of personal vehicles – cost of ownership, maintenance and running cost that forms the genesis of Ride Hailing Services. This spanking new option, which has been riding on comfort and convenience proposition has stirred up the whole space of personal mobility.

Shared Economy

Digitalization has seen the introduction of new mobility services. App based ride hailing service, car-pooling and car rental. Of these, app based ride hailing service has found innumerable takers, largely due to the convenience and utility it provides. Globally, as well as in India, we see these app based riding services gaining in popularity and growing rapidly offering an alternate Mobility Platform over traditional modes of mobility.

From 2015 to 2016, Uber and Ola ridership in India grew four-fold, serving around 70 million trips annually. Projection for 2018 suggests that it will account for 66 billion vehicle kilometers travelled

Pros and Cons of App Based Ride Hailing

App based ride hailing services are more economical. And since it’s a rating based service, there is a certain level of attentiveness provided towards cleanliness, ride quality, experience and driver conduct. It pinches the pocket less as pricing is dependent on distance and the category of vehicle, from small car to premium cars. Apart from convenience, it provides hassle free transit, as one can relax during peak traffic time and utilize that time for catch-up.

The mobility platform on its part though faces a few glaring challenges

First and foremost, there is the security and reliability issue. There have been instances of driver misconduct; while companies are tightening their hiring Standard Operating Procedures (SOPs), it is still not foolproof.

Second, availability of cabs during odd hours, peak times is a challenge. Which puts a bit of a doubt on the reliability of this platform, unless demonstrated consistently.

Third, price ambiguity creates a lot of uncertainty. While a big drive towards these platforms comes from price attractiveness, the same gets contradicted during peak hours. And makes it unviable for long-term usage.

Fourth, is to do with infrastructure. Several Indian cities lack mass transit infrastructure and services which limit the adoption of these models. Policy uncertainties governing the regulation of these new platforms needs to be addressed.

The players on their part have been struggling with operational efficiencies. Which leads us to the pertinent question of long-term viability of these platforms. Ola and Uber are also facing challenges as their pricing is not as competitive as it used to be.

Early days!

In 2013, Uber and Ola turned aggressive in the face of competition and went all out to lure the drivers. The drivers came in droves, quitting their regular jobs. The initial run was good. But for long-term sustainability, Ola and Uber had to shift gears and focus on profitability and that had a direct ramification on drivers’ income; the drivers who have bought their vehicles on loans are seeing a contraction in incentives, inevitably struggling to pay their EMIs. Dissatisfaction among drivers is palpable.

In the recent past, in Feb 2017, a strike by Ola-Uber drivers had lasted good 13 days and it had impacted New Delhi, Chennai, Kochi, Mumbai, Hyderabad and Guwahati causing major disruption to commuters.

It’s still early days. Without the business model settling down for all stakeholders, it is difficult to say whether these platforms are stabilized. Disruption can upset commuting for hapless commuters, who are increasingly depending on these ride-hailing services, for a hassle-free commute.

Car Ownership Vs Ride Hailing

An Ipsos study shows that the daily usage of the average private car is as little as 63 minutes per day. Furthermore, there are 67 days in a year when car is not used at all. All this cumulates to the fact that 96% of the time the car is just parked at a standstill.

Private vehicle usage is also seen to have significant requirements for parking. In Delhi for instance, parking accounts for 8-10% of the available land pool; further, increasing the number of vehicles is only adding to the traffic pressure.

Challenging the economic efficiency of a car ownership, coupled with traffic/ congestion is at the heart of all new mobility service offers.

Meanwhile, there is a lot of debate around how app based car sharing will displace car ownership platforms and pose a serious threat to traditional OEMs, as the argument is that there will be less number of vehicles on the road, if the churn is in favor of app based cab sharing.

Car penetration in India stands at a measly 3%. So, we still have this huge untapped potential.
Personal ownership of cars has intangible benefits! It’s a status symbol. And as the 2nd most expensive asset after property, is perceived as an aspirational purchase for most. A sign of achievement and affluence.

Owning a car is also psychologically reassuring. Lack of personal ownership would mean detaching from the emotional and intangible motivations.

Also for many, car is an extension of their personality. It is about who they are and what defines them as a person; it’s their personal space. For enjoying the riding comfort and accoutrements. Commoditizing this space will be a tough bargain.

Without a doubt, the market for passenger cars is yet to achieve the critical mass and is a long way off from being saturated. Aspirations managed well will create more demand.

Albeit, OEMs have seen some bit of a disruption with lower offtake, but the market itself per se provides a huge potential which needs to be capitalized upon. Further, app based sharing companies have themselves contributed to fleet sales of these OEMs. And higher running times
leading to shorter lifecycles would only mean quicker replacements.

Ipsos conducted a snap poll, among 1000 car owners across top 6 metros to understand consumer behavior for app based cab services.

The statistics throw up some interesting insights. 80% of those polled either do not use Ola or Uber or use it occasionally while 20% are regular users. Among those who occasionally use ride-hailing service, 50 per cent feel that owning a car will be as important in the future, as it is today. 25 per cent on the other hand, foresee vehicle ownership becoming more expensive in the future and are contemplating shifting to shared mobility service instead. This suggests a large chunk of existing owners would desire to own a car even if they use app based services and there will be huge shift towards occasion based usage for both platforms. Ergo, one might choose to use an owned car for purposes such as weekend getaways, leisure travel etc. while for routine commuting, they are likely to prefer app based cab services. It also seems that churn towards solus users of app based platform will come more from first time car buyers.

For passenger vehicle OEMs, the task would be to target the untapped potential – emerging geographies, emerging consumer segments, as well as managing aspirations with differentiated propositions and not just selling a car.

For app based cab sharing companies, the task lies in continuous improvisation by bridging gaps and enhancing the overall experience, which will increase customer confidence and acceptance towards them. Attractive tariffs and pricing will continue to impact consumer stickiness apart from experience.

Conclusion

Both platforms have their own space and should co-exist, even complement each other. In the changing landscape, it will become critical to understand the consumer mobility needs and preferences which requires an in-depth understanding with a different lens altogether, so that one can cater to the consumer with right products and services.

The author(s)

  • Michael Clemence Ipsos UK

More insights about Automotive