Uber and Lyft Strategic Plan Report

Description

a. Recommend two (2) potential strategies for each firm that would increase their

performance.

b. Commit to one of the recommended strategies for each firm. Your chosen

strategy should address the key strategic issues you determined above; and it

should reflect your external analysis (threats and opportunities you concluded

in that section) AND internal analysis (major strengths and weaknesses for the

firm you identified in that section).

c. Provide enough rationale regarding why this chosen strategy will bring

sustainable competitive advantage to the firm.

d. Outline a strategic implementation plan for your chosen strategy. Be specific in

writing short term and long term goals, and specific actions that should be taken

by the firm to attain these goals.

Explanation & Answer length: 8 Pages

The Ride Sharing Industry: A Strategy Analysis On Uber & Lyft 1. Executive Summary () (max ¾ page) Objective Background Methodology Major Results Conclusion Recommendations !!! Write this part after you finish writing the rest of the report. !!! This should be placed on a separate page, right after your title page. Briefly state the companies you analyzed, and the industry they compete in (1 sentence). List the most salient strategic issues you identified for each company. Then state the most critical recommendations you gave for each. Be precise, to-the-point, and provide eye-catching findings from your report. This summary should talk about the most important take-away of your report. 2 Please write in full sentences and don’t use bullet points. Introduction The ride-sharing industry is currently worth hundreds of billions of dollars and it is expected to grow in the coming years because of the kind of appeal that it has had on young adult consumers. Public transport is often limited in terms of mobility because the number of stops as well as the streets on which the vehicles run is specific but ride-sharing companies have allowed customers to be picked up from their location in a convenient as well as time-saving manner.

Cars are often expensive to own and they are not just one-time investments because the operating costs and taxes can be quite heavy on young adults and these are some of the reasons why the younger generation has contributed significantly to the growth of the ridesharing market. With ride-sharing, traffic congestion can be decreased since the maximum utilization of a vehicle is attained. Currently, researchers are engaged in exploring the prospects of the ride-sharing industry in the short as well as the long run. In this paper, I will analyze two companies Uber and Lyft that have developed a solid reputation in the ride-sharing industry. 3 4 3. External Analysis (~4 pages) (Muying) Demographic: A study conducted by Pew has suggested that the attitude of sharing among the younger generation is what has motivated the increase in ride sharing tendencies; services such as Lyft and Uber have been found more entertained by young adults in comparison to the elder generation (Lomas, 2016).

The percentage of riders, male to female has been found to be in the ratio 52 to 48 and above half of the riders, a staggering fifty seven percent has been found to be younger adults of age between sixteen and thirty-five years (Sikder, 2019, p.5). This tendency among the younger generation has encouraged co-sharing activities not just in terms of vehicles but in terms of services such as Airbnb’s and this has had a positive influence on the environment through optimum utilization of different resources. Socio-cultural: Negative experiences of Uber users have negatively influenced the choice of the general public to use such services (Farren, 2016). With the development of different methods of transport, the central idea remains- “public safety is the core rationale for transportation regulation” (Farren, 2016). Concerns regarding the safety of ride sharing activities have increased radically since uber drivers have been involved in violence with their customers and since customers have developed a mob mentality against uber drivers in general (Farren, 2016). Concerns regarding whether or not ride-sharing services are safe for customers as well as riders are on the rise.

It has been noted that ride-sharing services have developed a better reputation than the taxi industry in terms of safety but it appears as though there is a long way to go to make ride-sharing services a safe resort for the general public (Farren, 2016). Negative experiences 5 and incidences of sexual assault have proved to be particularly discouraging in the promotion of ride-sharing services (Farren, 2016). Global: Global concerns regarding the carbon footprint with the increase in private vehicles has served as a motivating factor to increase the consumption of ride sharing services. A research conducted by experts in Bernstein company has predicted that in the coming two decades, the number of private vehicles will increase by twice and it might go beyond two billion (Tasker, et al., 2020). With the increase in the number of private vehicles, the damage done to the environment will be more lethal than ever. The increase in concerns regarding the increase in carbon footprint has led to the increase in the consumption of ride-sharing services.

The Industry Environment (Porter’s 5 forces analysis) An analysis of the Porter’s Five Forces can allow a company to understand its strengths and weaknesses, allowing them to adjust their business strategies so as to put its resources into maximum utilization and make significant earnings by providing good user experiences to the customers (Scott, 2020). The tool makes it possible for an organization to understand the environment within which it thrives and the timely adjustments that are necessary to move forward within the industry. 1. Competition in the industry Ride sharing industry is one that is growing extensively inside as well as outside America. With more and more people realizing the need to cut down the use of multiple forms of private transportation, the demand for ride-sharing services have gone up and many startup companies are exploring the possibilities of them being established in this department.

Although Lyft and Uber are still the most highlighted ride-sharing applications, others like Wings, Gett and Curb have sprouted out. The main competition here is to provide the most inexpensive and 6 smooth ride and to create positive experiences for the consumers and a value for their money. The reason why Lyft and Uber are still able to retain their competitive advantage in the market is that they have a pre established brand image and their services are more affordable in comparison to other companies that have recently established (“Competition…Industry,” n.d.). However, given the competitive nature of the ridesharing industry, it is important for the two companies to ensure that they provide better deals and better user experiences and to keep the competitive rivalry at its minimum. 2. Possibility of new competition in the field As Scott writes in his paper, the ability of a company to hold power over a certain field of services altered considerably by the entry of new companies in the same market.

If these companies come out to be effective competitors in the field, the first-established companies and their influence over the consumer base can be weakened. To retain their consumer base, both Lyft and Uber must provide tailored services that their competitors cannot duplicate- and with ride-sharing services, the whole thing is about creating an experience for the customers while making their services affordable (Scott, 2020). The potential of new entrants in the industry is quite high within and outside the U.S. because ride sharing has proved to be particularly promising for people of different ages because of the affordability as well as the convenience and more and more startups are trying to find a way into the market industry. For example, Wings, Gett and Curb are similar ridesharing services that were established after Uber and Lyft and the possibility of similar services starting in the future is quite high.

And if the newly-established services can allow customers to switch their preferences without the switching cost by giving more subsidies, the previously established ride-sharing companies can have it difficult in developing a sustainable business model (Dess, et al., 2021). Hence, for both Lyft and Uber, the 7 need of the hour is a sustainable business model so that they can retain their power over competitors, already existing as well as future competitors (Dess, et al., 2021). 3. Power of suppliers For both Uber and Lyft, there are two main suppliers- the drivers and the technology suppliers. The drivers are the suppliers who have greater power to decide the strength of the two companies model. The companies provide their services through the medium of the drivers- the companies provide the drivers with the ability to make money for themselves in exchange for them being associated with the company.

In both Lyft and Uber, the suppliers hold significant power over the company because the reputation of the companies is determined to a huge extent by the experiences that the drivers create for the customers. Positive experiences of the customers have helped build a solid reputation for the company over an extended time period while a single negative incident can take the reputation of the company down the drain. The suppliers in this case, can drive the expense of inputs but the scenario in which they can do so is much more complicated than the scenario in other companies. The lower the number of suppliers, the power that they hold over the company can increase. If the number of suppliers is more, the company can have an edge over them and they can employ those that allow the company to keep the cost inputs at the minimum.

Other than that, if the cost of switching between suppliers is low, the company can retain its competitive advantage. 4. Power of customers As of now, the consumer base of Uber and Lyft is quite high in comparison to that of other recent companies and as much as the companies are making profit off of their rides, they are also providing employment opportunities to the general public. The number of consumers relying on ride-sharing services is also quite high and currently, the two companies have demonstrated the ability to keep their prices stable while providing consumer satisfaction. The 8 large consumer base has provided the company with leverage over its consumers. The cost for the company in finding new customers with the same kind of loyalty is not very difficult and the company has found more power in not giving customers the room for negotiations of lower prices. In comparison to Uber and Lyft, relatively new ride-sharing companies are faced with a situation in which independent customers have rooms for demanding better prices and services. 5. Threat of substitute products Of the five forces, the last one focuses on the possibility of other products and services replacing the original ones often at a better cost for the customers.

When such substitutes exist, a direct threat is posed to the company. Lyft and Uber are currently facing the threat of substitute services because ride-sharing applications are providing similar services with little key difference in terms of their services as well as business plans. The case here is that the service has been substituted by multiple companies but brand image and affordability have come in the way of the companies being posed with greater threats. Because there are close substitutes to the services provided by Lyft and Uber, the companies are faced with the difficulty of keeping their prices affordability- they have the pressure when it comes to increasing prices even when things start getting unfavorable for them. In that sense, the availability of close substitutes makes it possible for customers to explore their options, weakening the power of companies like Lyft and Uber that enjoyed monopoly in the ridesharing industry for a significant time.

Conclusion The ridesharing industry is quite attractive in the current scenario when more and more young adults are looking for convenient transportation services that will allow them to have minimal impact on the environment. Both Lyft and Uber are doing quite promisingly in terms of providing people with alternative transportation facilities. To sum it up, Lyft has focused primarily on services related to transportation service while Uber is focused on building a more 9 dynamic marketplace through integration of various services as well as technologies. Both the companies have focused on the integration of technology and artificial intelligence to improve their services as well as product experience. Both the companies are on their heels because they are having to keep up with the competition that has been growing in the ridesharing industry. Ridesharing is expected to be convenient, cheap and safe at the same time and the two companies are continuously in the process of making progress.

With more and more companies sprouting to provide ride-sharing services at more affordable prices, both Uber and Lyft are on the edge and must up their competition to retain their place in the national as well as international market. a. General Assessment of Environment (1 – 1½ page) Assess the general environment, focusing on ONLY the most relevant three of the following segments for your chosen industry: demographic, sociocultural, political/legal, technological, economic, and global. Explain in detail how certain change or trends in the segments you analyze had (or may have) impact on your industry. b. Analyze the industry environment (Porter’s 5 forces analysis) (~3 pages)

Analyze the industry dynamics and provide a detailed description of the competitive forces inside the industry. Use Porter’s Five Forces model to examine the competitive environment. Identify the strategic groups in the industry based on relevant criteria you will choose. Your aim should be to answer the following two questions in detail: “How attractive is this industry at the current time; that is, is it possible for incumbent organizations to sustain competitive advantage in this industry? Given the observed trends, what is your assessment of industry attractiveness over the longer term (5 to 10 years from now)?” You should research and read external reports, analysis, news, and other related material and cite them properly for all the sections of this report. Please refer to next page for the stylistic guideline. c. Conclusion (½ page) Write a conclusion based on the external analysis you conducted, addressing the main implications regarding the profitability of the industry. Overall, what are the major opportunities for this industry? What are the major threats?

Name 2 for each. Prof comments 03/29: 10 -adding more detail for each subtopics -adding a conclusion -something to consider: if relevant adding groups/mapping specific groups (might not have in up and coming industry) Internal Analysis Companies Uber and Lyft are the most popular and well-known ridesharing companies in most cities. Both companies offer car services such as carpooling and car sharing. Uber was found in March 2009 and operated worldwide while Lyft was found in June 2012 and concentrated in the market of North America. Therefore, competition cannot be avoidable within Uber and Lyft and their strategic plans lead them to have different performance outcomes.

Financial Analysis Financial ratio analysis plays an essential role in determining the profitability, liquidity, effectiveness, solvency, and efficiency of a company. As per the ratios posted on Mergent Online following ratio analysis of Uber and Lyft for the past three years was carried out. Based on the table 1 from Appendix, it is evident that Uber was able to maintain the current ratio to 1.44, which resembles the ability of the company to pay $1 of current liabilities with $1.44 of current assets. The current ratios of both companies decreased in the past three years, which Uber decreased from 2.147 to 1.44 and Lyft was dropped to 1.25 from 1.6. If we evaluate the performance of Uber and Lyft most recently in 2020, Uber has a greater current ratio than Lyft, which means that Uber performed better than Lyft to meet its short-term obligations. On the other hand, the quick asset ratio of Uber was risen by 0.51 in 2019 but in 11 2020 it was decreased up to 1.25, resembling a remarkable reduction of paying off the current liabilities using current assets without inventory. Lyft had lost its quick asset ratio by 0.24 and 0.08 in 2019 and 2020, respectively.

The quick ratios of Uber is higher than Lyft in the past three years represent that Uber’s liquidity and financial health is better. Since both companies are operating in the service industry, which is service providing, the involvement of inventory to the assets is relatively low. The long-term solvency of Uber and Lyft can be represented by using the debt-equity ratio. In 2018, Uber had a debt-equity ratio of 1.3 indicating higher leverage. But the company was able to maintain the value of this ratio less than 1 in the following years, assuring that the equity is higher than the debt component.

On the other hand, Lyft didn’t have any component related to debt in 2018 and 20119, indicating zero in values of ratio. But in 2020, it had 0.41in which is not considered a risky situation. With that being said, Uber’s debt- equity ratio decreased in the past 3 years and was still relatively larger than Lyft, which is a sign that Uber is riskier than Lyft and had been more aggressive in financial growth through debt. Overall, both Uber and Lyft are continuing to have relatively high creditworthiness. Based on Table 2 from Appendix, the receivables turnover of Uber had decreased from 2018 to 2020 indicating the company had a poor collection process, customers were not creditworthy, and inefficiency credit policies.

However, Lyft’s receivable turnover ratio was constantly at zero for all three years as the company did not maintain accounts receivable from drivers. Based on these values, it is obvious that Uber is more efficient in collecting account receivables and has a high quality of customers to pay their debts quickly. The total asset turnover ratio of Uber had been decreasing for the past three years, while in Lyft it fluctuated without indicating a steady increase or decrease. This ratio implies that Uber had reduced generating revenue from every dollar spent on assets throughout the past three years. Lyft was 12 able to record relatively higher asset turnover ratios over the three years compared to Uber, which means that Lyft was more efficient than Uber from using the assets to generating sales. When it comes to profitability ratios, even though Uber recorded a positive value for ROA in 2018, the company was unable to retain it due to the net losses incurred in 2019 and 2020. Each of the values for return on equity ratio, it is clear that neither of the companies reported positive values in the past three years. However, Uber was performing better than Lyft through employing assets or equity to generate earnings. Indeed, if both companies did not have a good reason to have consistently negative net income, then there should be a concern that needs to be addressed.

According to “Uber Technologies, Inc. and Lyft in Yahoo finance historical data, the market share price for the companies varied. By using the book value per share and market price per share, market-to-book ratios were computed at Table 3 from Appendix. In 2019, the market to book ratio of Lyft was $0.96 higher than Uber, and the difference went up to $1.79 in 2020. Since both companies maintain a steady upward trending market to book ratios from 2019 to 2020, it can be presumed that value creation for their investors is successful. Based on above-mentioned liquidity ratios and profitability ratios, Uber is in a better financial position compared to Lyft. Apparently, ROA and ROE for Uber were significantly higher than Lyft in the past three years. However, both companies had lower ROA values compared to relevant average industry financial ratios for the U.S. listed companies in 2019 and 2020, which was 2.4% of the industry average in 2019(“Services: industry financial ratios benchmarking”). A similar pattern of the variations can be observed in the figure 1 line chart from the Appendix. When analyzing the three ROA values for past years of Uber and Lyft, there was a downward trend line for ROA values which im…

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