For those of you following the news on the startup and IT scene, you may have heard that the Belgian government has forbidden Uber (link in French) to do business in Belgium and that the police even seized two cars (link to the article in French). Last week they went even further and asked Djump, a « ridesharing » platform, to stop immediately its activities. In today’s post we’ll think about what triggers such reactions from the Belgian authorities and whether they could have been anticipated.
Why a ban on such innovative business models ?
Well, such a reaction from the Belgian governments shows first of all that lobbying activities were carried out behind the scene by taxi drivers’ representatives. The same happened in France leading to demonstrations last month in Paris. The key point to analyze is therefore what motivate taxi drivers to engage is such intense activities against a small startup.
Official taxi drivers will of course explain that they have a certain cost structure, that they made investments and borrowed money to have the taxi license. This is true and a license costs a lot of money by the way (more than 200,000€ in Paris which makes it your most valuable asset). If you want to know more I recommend this excellent article on the taxi’s market.
Yet, there is one thing that taxi drivers don’t tell and which I think they are very much afraid off : switching.
Taxi drivers in Paris have had a bad reputation for years. Just read the online forums where tourists recall their experience in France main city and you’ll read testimonies like this
« Howling Radio, unpleasant driver, not knowing the streets of Paris, eyes glued to the GPS, unpleasant smells“
“a pleasant driver’s behavior can be expected from 100 Euros onwards“
Such reactions stress the high unsatisfaction of customers with the service. The lack of service-orientation showed by taxi drivers is the main cause for it and when someone comes to the market with an appealing proposal to “just” ensure some decent level of service and make sure clients are satisfied, then reactions like the one below may be expected :
“[Parisian] taxis, nobody will cry for them”
All in all, what taxi drivers realize (be in Paris or in Brussels where these “professionals” are equally infamous for their service-oriented attitude) is that they are about to lose their monopoly and their “right” to treat customers like they do. The paradox is that even if Uber-like services are more expensive, people are willing to switch because the pain caused by the dissatisfaction and the lack of service is just too big.
Was it possible to anticipate such a reaction?
The answer is yes. Although the magnitude of the reaction is difficult to measure, the probability of a retaliation was indeed possible to anticipate.
The Porter 5-forces framework would have helped here. If you want more information about the 5-forces porter framework just read Wikipedia to have a first idea of what it is. If you read French, feel free to also look at our slideshare presentation below.
L’objectif du modèle est d’anticiper la difficulté de faire des affaires dans un marché en examinant systématiquement les différences «forces» qui s’y appliquent.
Dans le cas présent l’analyse aurait ressemblé à ceci .
The aim of the tool is too anticipate the difficulty of doing business in a market by systematically looking at the differences “forces” that apply.
In the current case, the analysis would have looked like this.
Bargaining power of sellers
The sellers (taxis) had until now an immense bargaining power since there was no alternative and regulated prices (outrageously expensive in Belgium by the way : 2€/km, recently increased 20%). This gave them a unusually high level of confidence that made them lose the sense of reality. Despite a lack of training on service-orientation, taxis were the only way to reach their destination if public transport was not an option.
Bargaining power of buyers
As mentioned above customers, despite their dissatisfaction, had no option but to cope with unpleasant drivers and terrible service
Intensity of rivalry
We are all surprised by the intensity of the reaction. Yet, the market is not growing at a fast place (it’s not recovering from what it was before the crisis and before 9/11 where some 50% of the business suddenly disappeared) which intensifies the reactions further. The high level of fixed costs is also a factor that amplifies the reaction and we know that there are extremely high (in France at least). Finally the lack of differentiation is the last factor that explains the reaction. All taxi drivers are alike; the service they propose is a commodity and a better value proposition becomes a threat for them that will trigger an strong reaction.
Threat of new entrants
All the above should be understood in a context where the obstacles to entry (high fixed costs) made it relatively unlikely that someone would venture on that market. Low expectations and lack of preparation on the part of taxi drivers gave the Uber business model an even bigger magnitude.
Advice for your marketing strategy
What we should first keep as lessons learned is that retaliation is always possible and that official authorities can distort competition if they want. It is therefore crucial to play with the same rules. To make sure you don’t forget any external variable that could kill your venture, make sure you do a PESTE(L) analysis which will help identify the legal requirements.
This being said one can be shocked by the reaction of the Belgian government against Djump. This company leverages good practices (car sharing) with clear environmental goals and is now attacked in Belgium while it was being revered in France. This gives a certain idea of how powerful lobbies can be. What will be the next step ? Forbid Airbnb to do business because they compete with hotels ?
Publié dans Entrepreneurship, Marketing.
