Uber and the Taxi Industry A Five Force Analysis by Porter (2023)

Porter Five (5) Forces-Modell

The Porter Five (5) Forces Model was proposed by Michael E. Porter in 1979. The purpose was to assess and assess the competitive position and strengths of business organizations. The model has three horizontal competitive forces (threat of substitute products or services, threat of new entrants and rivalry between existing firms) and two vertical forces (bargaining power of buyers and bargaining power of suppliers).

These forces shape competition in every industry. The competitiveness of the entire industry decreases when these forces reduce profitability. Porter felt that the SWOT analysis lacked rigor. Many new businesses use the Porter Five (5) Forces Model to decide whether it is profitable to enter a particular industry.

Here is the pictorial representation of the Porter Five (5) Forces Model:

Uber and the Taxi Industry An Analysis of Porter's Five (5) Forces

Application of this model can help Uber and Taxi Industry A to determine industry attractiveness and understand its competitive position in the market. The analysis can also be used to make some strategically smart decisions that could improve Uber's and Taxi Industry A's performance and ensure long-term survival.

Threats from new entrants

The threat of new entrants reflects how new entrants impose threats on existing market entrants. If the industry is profitable and the barriers to entry into the industry are low, it will attract more players and thus the threat of new entrants. will be high.

Here are some factors that reduce the threat of new entrants to Uber and Taxi Industry A:

• Entering the industry requires significant capital and resource investments. This power also loses power when product differentiation is high and customers value the unique experience.
• Uber and Taxi Industry A will face the low threat of new entrants if the existing regulatory framework imposes certain challenges on the new companies interested in entering the market. When this happens, new players have to meet strict, time-consuming regulatory requirements, which can discourage some players from entering the market.
• The threat will be low when psychological switching costs for consumers are high and existing brands have built a loyal customer base.
• New entrants are put off when access to distribution channels is restricted.

Uber and the taxi industry A will face a high threat from new entrants if

• Existing regulations support the entry of new players.
• Consumers can easily switch brands due to weak/no brand loyalty.
• The initial investment is high.
• Building a distribution network is easy for new players.
• Retaliation from existing market participants is not a discouraging factor.

How can Uber and the taxi industry A counter the threat of new entrants?

• Uber and the taxi industry A can develop brand loyalty by working on customer relationship management. It will increase the psychological cost of switching.
• It can establish long-term contractual relationships with distributors to expand access to the target market.
• Uber and Taxi Industry A can also invest in R&D activities, obtain valuable customer data and introduce innovative products/services to create a strong base of differentiation.

Threat of Substitute Products or Services

The availability of substitute products or services makes the competitive landscape challenging for Uber and the Taxi Industry A and other existing players. High threat of substitution shows that customers can use alternative products/services from other industries to meet their needs. Various factors determine the intensity of this threat to Uber and the taxi industry A

The threat of substitute products or services increases when;

• A cheaper replacement product/service from another industry is available
• The psychological costs of switching from industry to substitute products are low.
• The replacement product offers the same or even better quality and performance as offered by Uber and the Taxi Industry A product.

However, this threat to Uber and the taxi industry A is essentially low if;

• The switching cost of using the replacement product is high (due to high psychological costs or higher economic costs).
• Customers may not get the same benefit (in terms of quality and performance) from the replacement product as they did from the Uber and Taxi Industry A product.

How can Uber and Taxi Industry A address the threat of substitute products or services?

• Uber and Taxi Industry A can reduce the threat of substitute products or services by clearly emphasizing that their offered product/service is better than the available substitutes.
• It should provide customers with compelling reasons by offering a better experience and great value for money.
• It can increase switching costs by working on loyalty.
• Finally, it can improve quality, maximize value for money, and create a strong base of differentiation to discourage customers from using the substitute product.

rivalry between existing firms

The rivalry between existing companies shows the number of competitors that give Uber and the taxi industry A a tough competition. A high level of rivalry shows that Uber and the taxi industry A may face strong pressure from competing companies, which may limit each other's growth potential. Profitability in such industries is low as companies use aggressive targeting and pricing strategies against each other.

Rivalry between existing firms will be low for Uber and the taxi industry if;

• There are only a limited number of players in the market
• The industry is growing rapidly
• There is a clear leader
• The products are highly differentiated and each market participant addresses different sub-segments
• The economic/psychological switching costs for consumers are high.
• Exit barriers are low, meaning companies can easily exit the industry without incurring major losses.

Similarly, there are some factors that are increasing the rivalry between existing Uber companies and the taxi industry. A For example, the firm will face intense rivalry between existing firms if market participants are strategically different and target the same market. The rivalry will also be intense when customers are not loyal to existing brands and lower switching costs make it easier to attract customers from others. Competitors with the same size and undifferentiated products with slow industry growth tend to pursue aggressive strategies against each other. All of these factors make rivalry between existing companies a major strategic concern for Uber and Taxi Industry A

How can Uber and the taxi industry A manage the rivalry between existing companies?

Uber and Taxi Industry A should focus on the implicit needs and expectations of their customers to strengthen the differentiation base. It should increase switching costs by building long-term customer relationships. The organization should also invest in research and development activities to identify new customer segments. In some cases, working with competitors can be mutually beneficial. The organization can also look for this option.

bargaining power of suppliers

The bargaining power of suppliers in Porter 5's Force model reflects the pressure that suppliers exert on business organizations using various tactics such as: B. reducing product availability, reducing quality or increasing prices. When suppliers have strong bargaining power, it costs buyers (business organizations). In addition, high bargaining power of suppliers can increase competition in the industry and reduce profit and growth potential for Uber and the taxi industry. A Likewise, weak supplier power can make the industry more attractive due to high profitability and growth potential.

Supplier bargaining power will be high for Uber and Taxi Industry A if:

• Vendors have concentrated on a specific region and their concentration is higher than that of their buyers.
• This force is particularly strong when the cost to buyers of switching from one supplier to another is high (e.g. due to contractual relationships).
• When providers are few and demand for the product they offer is high, this strengthens the position of providers vis-à-vis Uber and the taxi industry A
• The forward integration of suppliers weakens the position of Uber and Taxi Industry A as they become competitors in this area as well.
• If Uber and the taxi industry A are not well educated, have insufficient market knowledge and lack price sensitivity, this automatically strengthens the position of the providers vis-à-vis the organization.
• Other factors that increase the bargaining power of the providers are a high product differentiation of the providers, Uber and the taxi industry A, which only have a small share of the total turnover of the providers, and the unavailability of the substitute products.

In contrast, the bargaining power of suppliers for Uber and Taxi Industry A will be low if:

• Suppliers are not concentrated
• Switching costs are low
• The product lacks differentiation
• Replacement products are available
• Uber and the taxi industry A is very price sensitive and has sufficient knowledge of the market
• Forward integration by suppliers is not to be feared.

How can Uber and Taxi Industry A tackle supplier bargaining power?

Uber and Taxi Industry A can strengthen their position vis-à-vis suppliers by reducing their dependency on one or a few suppliers. It will increase its price sensitivity. Developing long-term contractual relationships with suppliers from different regions not only reduces their bargaining power, but also allows Uber and Taxi Industry A to improve their supply chain efficiency. Finally, Uber and the taxi industry A can find alternative ways to manufacture the product if the product demand is high enough and the company has the necessary skills and expertise. However, a detailed cost-benefit analysis is required to determine feasibility. Product redesign and product line diversification can also help the organization reduce the power of suppliers in the marketplace.

bargaining power of buyers

The bargaining power of buyers demonstrates the pressure that customers put on business organizations to obtain quality products at affordable prices with excellent customer service. This force directly affects the ability of Uber and Taxi Industry A to achieve business goals. Strong bargaining power lowers profitability and makes the industry more competitive. Weak buyer power, on the other hand, makes the industry less competitive, increasing profitability and growth opportunities for Uber and Taxi Industry A

There are a few factors that increase buyers' bargaining power:

• A more concentrated customer base increases their bargaining power with Uber and the taxi industry A
• Buyer power is also high when there are few but a number of sellers (business organizations) are too many.
• Low switching costs (economic and psychological) also increase the bargaining power of buyers.
• In the case of corporate customers, their ability to integrate backwards strengthens their position in the market. Backwards integration shows the buyers' ability to manufacture the products themselves, rather than buying them from Uber and Taxi Industry A
• Consumers' price sensitivity, high level of market knowledge and buying standardized products in large quantities also increase buyers' bargaining power.

Some factors that reduce buyers' bargaining power are lower customer concentration (i.e. customer base is geographically dispersed), customers' inability to integrate backwards, low price sensitivity, lower market knowledge, high switching costs, and buying customized products in small quantities .

How can Uber and the taxi industry address buyer bargaining power?

Uber and Taxi Industry A can manage the bargaining power of buyers by expanding and diversifying their customer base. This can be done by introducing new products, targeting new market segments and adopting product diversification strategies. Marketing and advertising strategies can also be helpful in this regard. Building loyalty by embedding innovation and offering a great customer experience can increase switching costs, ultimately reducing their bargaining power. Uber and Taxi Industry A can use these strategies to strengthen their competitive position in the market.

Effects of Porter's force model 5

Applying Porter's Five (5) Forces model to a real-world context enables organizations to make smart strategic decisions. The influence and importance of each of the five forces is contextual. Using Five Force Analysis, Uber and Taxi Industry A can determine industry attractiveness, make effective entry/exit decisions, and assess the impact of these forces on their own business and competitors. In addition, the dynamic analysis of this model can provide important information. For example, Uber and Taxi Industry A can combine Porter 5's force model with the PESTEL framework to determine the potential future attractiveness of the industry. In some cases, companies do not have the information needed to analyze the five forces. In such a scenario, the analysis can be performed using assumptions. Most often consultants consider this model as a starting point and other frameworks (such as PESTEL and Value Chain) are used in conjunction with a better understanding of the external environment.