Institute of Management Nirma University

Assignment No. 3

Beck Taxi
A report submitted to

Prof. Abrar Ali

In partial fulfillment of the requirements of the course

Written Analysis and Communication-I

On 23/08/2010 By Nimesh Barot (Roll No. :- 102128) MBA Part Time 2010-13

Beck Taxi Toronto - Canada

Date : 30th May, 2009 To Ms. Gail Beck Souter, CEO, Beck Taxi

From Nimesh Barot Consultant Subject: Report on the business strategy for Beck Taxi Dear Ms. Souter, Thank you very much for opportunity given to me to study and prepare the business strategy for Beck Taxi. I am submitting the report on plan of action for Beck Taxi to meet the price challenges in summer. The options to increase or decrease the radio charge have been analysed after taking into consideration various factors and effect on different stake holders. While doing so, economic considerations have been prioritized above all others. I sincerely hope that the analysis satisfies your concerns. I shall be glad to provide any further clarifications that you seek. Yours Sincerely, Nimesh Barot Consultant

Executive Summary
The Beck Taxi was founded in May 1967 in Toronto with intention that customer should get the cab within 5 min. and currently, it is Torontos leading taxi brokerage with 30.4 % market share.

As summer is approaching, due to lean season and downward business trend, management is worried for the revenue dip and facing business challenge to decide whether to increase radio fee of continue with same fees. It would be a critical decision because it will affect many stakeholders and impact on Torontos cab industry.

The Beck Taxi has option to increase the fix radio fees, decrease the fix radio fee and charge for each radio dispatch or reduce the radio fee only during summer season.

Each option has been evaluated in terms of the economic gain to Beck Taxi, keeping in view of other stake holders since its highly commoditized market and vulnerable.

On basis of this evaluation, it is recommended that Beck Taxi should reduce the fix radio fee during summer season and it could be restored once it over.

Word Count: 167

Table Of Contents
Sr. No. Content Page No.

1. 2. 3. 4. 5. 6. 7. 8.

Situational Analysis ............4 Problem Statement ...........4 Criteria for Evaluation ......5 Options..............................5 Evaluation of Options................5 Recommendation.. 7 Action Plan... 7 Exhibits .8

1. Situational Analysis
Beck Taxi is Torontos leading and renowned brokerage cab company with 30 % (1476 Cab) market share which has been highest in Toronto cab industry. Since inception, Beck is working with the target to give service in 5 min. as its highly commoditized market.

Since its over supplied market in the city, it is very crucial to maintain cab in good condition, drivers attracted to our company and customers also use repetitive service with best service delivery and human touch by company.

Municipal Licensing & Standards (ML&S) is municipal government and regulatory body which works with 5 major responsibilities and control the fares. (Exhibit-1) Next competitor, Diamond is with only 9 % (475) market share so it clearly shows that every 3rd cab in Toronto is Beck Taxi and has an edge over other brokers to attract drivers and plate owners. So looking at it, there is a chance of Current, Revenue and Expense statement of Beck Taxi given in Exhibit 2 where as revenue and expense statement of Drivers with current radio fee have been given in Exhibit - 3.

Due to summer season which would last for three months and its lean season in taxi trade in Toronto, Beck Taxi is foreseeing a downward trend in revenue and exploring options to sustain the revenue without affecting drivers earning and other stake holders as its highly competitive market.

Company has not increased radio fees since last 20 years and till last year, working with status quo even in summer also. Management is always looking for better option to sustain revenue and growth option. Hence, this study and report has been carried out.

2. Problem Statement

Decision regarding whether to continue status quo, increase the fix radio fee, reduce fix radio fee and charge based on radio dispatch or reduce fix radio fee during summer only.

3. Criteria for Evaluation

1. Effect on Revenue of Beck Taxi: This is the primary criterion as the current decision is to be made as a part of profitability and revenue improvement initiative. 2. Effect on Drivers earnings and loyalty: This consideration is crucial in assessing the fulfilment of the objective of the Beck Taxi. 3. Effect on other stake holders.

4. Options
There are 4 options available but following are the alternatives to be considered which are most suitable in current situation compared to 4th one: 1. Increase Fix Radio Fee 2. Reduce Fix Radio Fee and charge for each dispatch 3. Reduce the Fixed fee only for the summer

5. Evaluation of Options
1. Increase Fix Radio Fee Suppose, if we increase the Fix Fee for radio dispatch from $400 to $425. a. Effect on Revenue of Beck Taxi : By increasing the fix radio dispatch fee from $400 to $425, there will be increase of $1230 in daily revenue which is not very high but at the same time, it would be also possible that drivers would move away to other brokerage which is critical factor. Revenue increment has been show in Exhibit - 4 b. Effect on Earning of Drivers and loyalty: Drivers earning would be reduced by $25 in a month and that would be around $1 per day which would not be very

high but since rate was not increased since last 20 years, they would not appreciate the rate increment and may oppose it or move away to other brokerage which would be major loss to Beck Taxi. c. Effect on other stake holders: There are multiple stake holders are attached to Beck Taxi like Vehicle owners, ML&S, Consumer, Plate owners etc. There would not be any significant impact on Consumer because fare has been fixed by ML&S and it will not affect the fare. But competitor would attract Beck Taxi shift driver and lease driver to move away from Beck Taxi and it could affect the business of Beck Taxi. Hence, this option could be thought carefully before implementing it and it would be having high impact on business.

2. Reduce Fix Radio Fee and Charge for each dispatch : Suppose if we reduce monthly fix radio fee from $400 to $350 and charge for each dispatch to $1each time the driver use the dispatch service.

a. Effect on Revenue of Beck Taxi : Each driver receives around 13 fares during day time. Lets assume that out of 13, suppose he receives 50% directly from the stand or road but for remaining 50 % which he get through radio, Beck taxi will earn $7 in each shift from each driver. Profit earning has been given in Exhibit 4 and earning of $12760 more can be achieved than option 1. Backend Jobs : So far Beck Taxi is charging fixed fee but now changing the new proposal, need to equip agents with new software or system to maintain the nos. of dispatch sent to each driver and need to collect the amount in every week or fortnightly which would be a major change management. As per the study, Call centre agents are getting around 22000 calls in a day but due to summer, if we assume the reduction of 25 % calls so we can also reduce the agents for not getting or reduction of almost 5500 calls from customer.

b. Effect on Earning of Drivers and loyalty : By implementing this option, drivers will have following advantage and disadvantage : i. Drivers fix revenue will increase by $50 and if they will get fewer enquiries then their variable cost would be also low. ii. Incentive Scheme: We can run the incentive scheme for the drivers and Top 10 dispatch driver will get special bonus. iii. Reduction in daily revenue : Though, Beck Taxis revenue will increase, Drivers revenue will decrease at great extent and it would be a high impact to Beck Taxi if they move away from us due to this proposition which would not be appreciable. Drivers earning details with new plan has been given in Exhibit-5

c. Effect on other stake holder: There would not be any direct financial effect on consumer because fare rates are fixed by Govt. But it would be having high effect on Driver, Vehicle owner, and brokerage firm and their income would reduce and they may move away from Beck Taxi.

3. Reduce the Fixed Fee only for the Summer : Suppose if we reduce monthly fix radio fee from $400 to $375 during only summer and again increase once summer season would over.

a. Effect on Revenue of Beck Taxi : There will be reduction of $1230 daily for 3 months but there would be other initiatives can be taken which would help to recover the revenue dip. As the rates have not been increased in last 20 years and competition radio dispatch rate has not been given, we assume that they must be charging higher than Beck Taxi so with this scheme, we can attract more drivers & brokers to us and help to increase over all revenue. As per the study, Call centre agents are getting around 22000 calls in a day but due to summer, if we assume the reduction of 25 % calls so we can also reduce the agents for not getting or reduction of almost 5500 calls from customer. 7

b. Effect on Earning of Drivers and loyalty: By implementing this option, drivers will have following advantage. i. Driver fix revenue will increase by $25. ii. Incentive Scheme: We can run the incentive scheme for the drivers and Top 10 dispatch driver will get special bonus. iii. Advertisement: We can allocate some fund for advertising and brand building which would help to acquire more cab from competition and increase the dispatch and as we know; customers also look at the personal touch, good service delivery and brand value which would be high in case of Beck Taxi. iv. Due to above plan, existing drivers would be more loyal to Beck Taxi which would help to get more revenue in other season also. Drivers earning details with new plan has been given in Exhibit-6

c. Effect on other stake holder: There would not be any effect on ML&S. There would not be any direct financial effect on consumer because fare rates are fixed by Govt. But it would be having high effect on Driver, Vehicle owner, and brokerage firm.

6. Recommendation
Keeping in the view of above three options, Beck Taxi should reduce the fix radio fee only for summer. Overall and in long-term, it looks better business proposition to Beck Taxi without affecting drivers income.

7. Action Plan
1. Beck Taxi can do following before implementing the plan. a. With help of TV commercial create the brand value and attract drivers from other brokers as there is a huge gap with Beck Taxi market share and next competitor. b. Due to low radio fees, drivers will be attracted and join Beck Taxi which in turn would help to increase revenue of Beck Taxi and meet the Radio cost reduction.

c. During summer, Beck Taxi can do the tie-up with Travel agency to acquire more customers and recover the revenue downfall. d. We can reduce the nos. of call centre agents if reduction in nos. of calls which would help to reduce cost of operation.

Word Count: 1487

8. Exhibits
Exhibit 1: Function, Revenue and Fares details fixed by ML & S:
Sr. No. 1 2 3 4 5 Total Revenue in Year License Renewal Rate (Drivers) Total Renewals per year Plates Issuing Fee Fares KM 0 to 0.155 0 to 5 0 to 10 0 to 15 0 to 20 Average Fare / Km Fare in $ 4 12 20 28 36 1.6 Waiting Time Fares Fare in $ 0.25 0.5 29 ML &S Responsibilities. Issuing "Taxi Licenses"(Plates) to vehicles Issuing Taxi Licenses to DRIVERS Determining & capping the number of taxi licenses Fixing Fare charges Conducting Taxi Training 8000000 836 Per Year 9898 Nos. of Drivers 5681 (One Time)

TIME 31 Second Per Minute Per Hr

Exhibit 2: Daily Revenue and Expense statement of Beck Taxi:

1 2 3 Revenue : (Daily) Charges from Shift Driver for Cab Rent ($65 per shift) Charges from Long term lease for Rent of plate (900 plate) Charges from all 1476 for Radio fees ($450 / month) Total Revenue Expenses : (Daily) Independent owners (576) and rent for their plate 900 Nos. large fleet from single agency 37440 34500 22140 94080

1 2

22080 34500

10

3 4 5

Repair and maintenance cost ($5 per Cab for 576 Cab) Salary for Staff (150 Nos. avg. $ 2500 / Month) Other administrative expenses Total Expense Total Profit (Daily)

2880 12500 N.A. 71960 22120

Exhibit 3: Details of Drivers (Shift and Long term lease) earning with current Radio Fee: Revenue : Shift Driver 1 2 Earning in Shift Tip 175 17.5 0 Total Revenue Expenses : 1 2 3 4 5 6 Total Expenses Total Earning in Shift (Revenue Exp.) Shift 65 per shift 10 5 0 1.15 15 96.15 96.35 192.5 Long Term Lease 175 14 fare and 12.5 $ avg. fare 17.5 10 % avg. 50 242.5 Long Lease 38.3 10 5 5 1.15 15 74.45 168.05 1150 per month so divided by 30 days. Gas Charge Traffic Ticket Repair and maintenance Driver License charge $ 836 Annually. $ 450 Per Month for Radio Fees Assumed that he is giving taxi during night shift and earning.

Exhibit 4: Details of Profit to Beck Taxi (if Radio Fees increased from $400 to $450): Revenue : (Daily) Charges from Shift Driver for Cab Rent ($65 per shift) Charges from Long term lease for Rent of plate (900 plate)

1 2

37440 34500

11

Charges from all 1476 for Radio fees ($470 / month) Total Revenue Expenses : (Daily) Independent owners (576) and rent for their plate 900 Nos. large fleet from single agency Repair and maintenance cost ($5 per Cab for 576 Cab) Salary for Staff (150 Nos. avg. $ 2500 / Month) Other administrative expenses Total Expense Total Profit Additional Profit compare to $450 Radio Fee

23370 95310

1 2 3 4 5

22080 34500 2880 12500 N.A. 71960 23350 1230

Exhibit 5: Details of Profit statement of Beck Taxi (if Fix Radio Fees decrease from $400 to $350 and $1 for each radio dispatch): Revenue : (Daily) Charges from Shift Driver for Cab Rent ($65 per shift) Charges from Long term lease for Rent of plate (900 plate) Charges from all 1476 for Radio fees ($400 / month) Charges from per dispatch (1476 *10 in a day ) Total Revenue Expenses : (Daily) Independent owners (576) and rent for their plate 900 Nos. large fleet from single agency Repair and maintenance cost ($5 per Cab for 576 Cab) Salary for Staff (150 Nos. avg. $ 2500 / Month) Other administrative expenses Cost of incentive scheme Total Expense Total Profit Additional Profit compare to $450 Radio Fee

1 2 3 4

37440 34500 23370 14760 110070

1 2 3 4 5 6

22080 34500 2880 12500 N.A. 2000 73960 36110 12760

12

Exhibit 6: Driver earning by reduction in fix cost and implementation of Variable scheme:
Revenue : Shift Driver 1 2 3 Total Revenue Expenses : Cab rent paid to broker Gas Charge traffic ticket Repair and maint. driver license charge Radio fees Paid for Radio Dispatch Total Expenses Total Earning in Shift (Revenue Exp.) Earning in Shift Tip 175 17.5 0 192.5 Long Term Lease 175 14 fare and 12.5 $ avg. fare 17.5 10 % avg. 50 242.5 Assumed that he is giving taxi during night shift and earning.

1 2 3 4 5 6 7

65 per shift 10 5 0 1.15 13.33 7 101.48 91.02

38.3

1150 per month so divided by 30 days. 10 Gas Charge 5 Traffic Ticket 5 Repair and maintenance

1.15 13.33 7 79.78 162.72

Driver License charge $ 836 Annually. $ 400 Per Month for Radio Fees

13