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September 17, 2014
Nikita
Garia, MINT
Bangalore,
17 September 2014
Cab
booking service TaxForSure, which recently raised $35 million
in funding, has cut rates sharply, joining a fare battle with
rivals Olacabs and Uber to grab a bigger share of a rapidly growing
market.
Although TaxiForSure had earlier said it would resist price cuts,
the company, controlled by Serendipity Infolabs Pvt. Ltd, announced
a 25% price cut for booking through its app; a week earlier, it
cut prices by half for rides booked between 10am and 4pm via its
app.
TaxiForSure was under pressure to cut prices, as rivals OlaCabs
and Uber have seen a significant jump in demand after they slashed
prices over the past two months.
“We are running the discount to promote booking through
the app while our usual prices remain the same. We don’t
plan to change our price model,” said Aprameya Radhakrishna,
co-founder of TaxiForSure. The company plans to run these discounts
“for at least more than a month.”
Radhakrishna said the company was giving discounts to encourage
users to book rides through its app and that the price cuts were
not influenced by competitors.
“If the booking comes through our call centre, on an average
we have to incur a cost of Rs.30 per transaction, considering
into account the rental costs and salaries of the staff. So giving
the customer discount for using the app or our website in the
short term will eventually be good for us as we would be spending
less on our call centre later,” said Radhakrishna, adding
that at present it receives 50% of bookings through call centres,
35% through the app and the rest from its website.
“The move will help us get more transactions done by employing
the same number of people in the call centre.”
This week Uber, which raised a mammoth $1.2 billion in June from
the likes of Google Inc., Goldman Sachs and others, slashed the
price of its higher-end service UberBLACK by 25% in New Delhi.
In August the company cut prices on all its rides by 25% in Bangalore.
The San Francisco-based mobile app is also offering discounts
of 50% on airport rides in Bangalore. Olacabs, which received
Rs.250 crore from investors in July, reduced fares by 25% last
month.
Olacabs and Uber say they have seen a spike in demand since they
announced price cuts over the past two months. “There has
been a significant rise in demand after the price cuts,”
said Anand Subramanian, director of corporate communications at
Olacabs, adding that the “earnings of drivers has gone up
by upto 40% as the drivers are now doing more trips.”
Uber, too, has seen a jump in demand after it cut prices by 25%
on all its rides in Bangalore, the largest market for cab companies.
Both Olacabs and Uber say that they have reduced prices because
they are squeezing out more rides from each driver and also adding
hundreds of new cars.
While Olacabs has announced permanent fare changes, Uber like
TaxiForSure is running promotional offers.
“There is no time line on how long we will continue with
the reduced price offers. We are continuously analysing data on
driver earnings and customer demand, both of which have gone up
after the price cuts. So we may either hold on to these prices
or may further reduce them,” said Bhavik Rathod, general
manager at Uber in Bangalore.
Raghunandan G., co-founder at TaxiForSure, had told Mint in an
earlier interview that discounts put pressure on the earnings
of companies. “When we ran a discount last time, we had to
pay the extra money to the drivers from our pocket. The other
players are losing money on each ride because of these price cuts.
If they continue with these low prices, how will they earn money?”
he had said.
Analysts cautioned that cutting prices and losing money at the
cost of gaining share wouldn’t work over the long term.
“These businesses have raised money in the recent past,
but they need to balance out their operating costs. A loss making,
market share gaining strategy can be managed for a short while
but it won’t work in the long term.” said Devangshu
Dutta, chief executive at Third Eyesight, a consultancy.
(Published in MINT.)
