How Uber Can Succeed in the German Market

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IBBAAA BRAND MARKETING PLAN FOR THE TARGET MARKET MUNICH - GERMANY Analysis | Strategies | Tactics EVELYN SINDERMANN |MIM 2015 Professor Protano: Strategic Brand Management

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EXECUTIVE SUMMARY Ø  The brands opportunity is to increase the revenue to €8.2M by targeting the corporate market and creating a premium offer by the end of 2015. Ø  The rise in disposable net income (€2,504 in average) and the growing number of corporations in Munich offer new business opportunities for UBER. Raising brand awareness by capturing & communicating a superior value proposition strengthens UBERs brand equity. Ø  The strategic alternatives are: A: “Keep Driving” (gain market share by penetrating existing target audience) B: “Go Corporate” (attract new target audience with existing service) C: “Go Crazy” (innovate & create new product for new audience – be provocative) Ø  Recommendation: “Go Corporate” is the best option in terms of market potential (growing demand) and an ROI of 17.7%

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Porters 5 forces | The market attractiveness is low due to a highly competitive environment, risks of substitutes and medium threats of new market entrants Threat of new entrants | MEDIUM ¤  Patents on various technologies build a boundary for competitors from a technological aspect Power of Suppliers | HIGH ¤  Drivers & Rental Car Companies have a high bargaining power. Power of Competitors | HIGH ¤  There are no proprietary elements that prevent new market entrants. ¤  Taxi & Limousine services are higher in price but offer a broader network ¤  Compliance with German transportation laws is required to enter the market ¤  ¤  Low seed capital is needed to enter the market Similar services to Uber (Lyft & Wundercar) are currently banned by law but have the potential to enter the competition with new business models similar to Uber. Power of Buyers | HIGH Threat of Substitutes | MEDIUM ¤  Public transportation, car sharing services and bicycles are easy accessible alternatives and less in price ¤  Customers have multiple choices according to their needs ¤  Scheduled rides: Taxi ¤  Luxury rides: Limousine Services ¤  Self - driving: Car sharing e.g. DriveNow, Car2Go,

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MDI: Opportunity to tap 86% passenger transportation market by increasing the number of rides by 2020 Market Development Index MDI 100 Market Demand of Passenger transportation in Munich*1: 12,2M 20 15 Potential Market Demand*2: 90,4M 10 MDI: 12,2M/90,4M ≈ 14% 5 0 1980 1990 2000 2010 Market Penetration 2020 *1: Passenger transportation based on Taxi business excluding car sharing & public transportation. *2: Estimated data

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UBER has a growth potential – differentiation & innovation is required Market Development Index MDI 100 MDI ≈ 14% SDI ≈ 54% Uber has the opportunity to increase their market share from 7,78% to 14,41% by 2020. 50 Growth with Market Development 0 0 50 Share Development Index 100

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Our competitive advantage: Price Leadership Product Leadership UBER MVG (Munich public transportaton system: Ubahn, Sbahn, Bus, Tram) Operational Excellence Munich Drivers (Private Limousine Service) Taxi München eG/ IsarFunk (2 main taxi operators in MUC) Customer Intimacy

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Strong Average Weak Competitive Position Uber operates in an attractive market with potential to strengthen their competitive position towards leadership Disinvest Phased Withdrawal Proceed with Care Proceed with Care Cash generator Growth Leader Unattractive Average Market Attractiveness Double or Quit Try Harder Leader Attractive

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Building on low operational costs allows price leadership position. Relative Strengths ¤  Competitive Advantage Ø  No proprietary inventory (cars) & direct employees (drivers & dispatchers) allow minimal operational cost and fares that are 20% lower compared to the competition Ø  A scalable business model facilitates a possible German-wide expansion with minimum investments Ø  ¤  ¤  Legal vulnerability Ø  Successful US business model is restricted in Germany and leads to additional costs. Ø  Commercial drivers license: €240,- per driver/ every 5 years Ø  Privately owned cars are restricted to commercial use. Rental car companies need to provide cars and insurance Superior Value Ø  ¤  High quality standards of cars & services ensure brand recognition and strengthen Relative Weaknesses Cash-less payments and pricing transparency builds trust & safety among customers and drivers Superior technology & innovation strengthen Ubers operational excellence and help growing brand recognition in a competitive environment. ¤  Lower profit margins due to additional costs and shared revenue with rental car companies are compensated with higher volume.

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Market growth potential compensates possible profit loss due to external threats Opportunities ¤  Increase the number of drivers from 120 to 200 by the end of 2015 Ø  Ø  ¤  Possible minimum wage restrictions for the taxi industry and price increases from rental car companies will decrease profit margins. Ø  Increasing the frequency of rides per driver/day from an average of 11 rides to 15 results in an estimated revenue plus of €2.5M annually Taxi industry sees Uber as a “greymarket service” and tries to file lawsuits that may cause unexpected legal expenditures. Ø  Customers benefit from faster service Capitalize on operational excellence to increase the volume and frequency of rides and gain market share of more than 5% by the end of 2013. High pressure from governmental restrictions & key industry players Ø  Higher frequency lowers the estimated time of arrival. Ø  ¤  ¤  Use economies of scale: 80 additional cars result into a 40% revenue growth Ø  Threats Negative PR about Uber influences the customer behavior and can result in dropping demand and market share. Profitability will drop if Uber cannot compensate possible cost increases by establishing significant brand equity

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The business model in Germany – an explanation 3. Passengers use Uber app: •  Pick-Up request •  Real-time tracking •  Payment 1.Uber recruits drivers •  Pays commercial taxi license (legal requirement) 2.Uber connects drivers with local rental car companies •  Commercially driving with private cars is illegal 4. Drivers receive requests via the Uber app: •  Locate passenger pick-up & drop-off destination •  Receive cash-less payment via Uber

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Consumer – two main target groups Young Professionals (25-35) Students (age 18-25) •  Transportation to/ from University •  Transportation to/ from work or business meeting •  Cheap alternative to taxis & public transportation Pick-up from parties & events Split fares with friends •  •  •  Comfortable driving experience Fast & reliable transport Expense tracking when traveling for work Traveling “in-style” •  •  •  •  •  •  “Cooler” than taxis Most of my friends don’t know about it yet Surge-pricing during peak times too expensive •  A high qualitative service with short waiting times Consumers support the Uber business model. Build on general demand for transportation, enhance brand equity and awareness for future growth.

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Customers – Drivers build the core of the business model Drivers •  •  •  •  Passengers Profit margin Commercial taxi license A vehicle •  •  •  •  Easy-to-use technology Safe money transfer Reliable customers Insurance & benefits •  •  Reliable partner who provides technology & infrastructure Direct connection to the passenger Drivers value Uber technology. Build on drivers feedback for innovation and consumer insights.

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Collaborators – Local rental car companies (a necessary middleman by law) Rental car companies •  •  •  Renters (Uber drivers) Profit margin Long-term contracts about expected rental volume •  •  Responsible drivers Growing customer base •  Partner who delivers constant source of income Enhanced credibility and higher rental volume increases the chances to negotiate lower rates.

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PESTEL: Increasing market demand opens possibilities in the areas of new technologies & sustainability. Risks of increasing costs need to be considered. Political & Legal Industry regulations: •  Government requires commercial licenses •  Political discussion about minimum wage laws for taxi industry Ø  Decreasing profit margin due to higher cost Technological •  •  Ø  Economic •  •  Ø  Ø  Automobile manufacturers work on technologies for more sustainable vehicles Use of mobile applications for daily activities is increasing The market is open for technological enhancements and innovation Germany reached historical high in disposable income. Munich has the highest disposable income (monthly net average: €2,504) Growing corporate sector Price sensitivity decreases Growing profit in corporate sector increases demand for private transportation Social •  Population density in cities is growing •  People follow fast paced life style Ø  Increasing demand for transportation in urban areas Environmental •  Trend goes towards environmental friendly & sustainable transportation •  Growing demand for Electrical & Hybrid cars

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The strategic problem – a lack of brand awareness Situation: UBER penetrates a traditional service industry with an innovative & technology based business model – for a 20% lower price than the average competition... ...but what is the problem? – Supply & Demand Low demand makes the business unattractive for drivers. Uber is new to the German market. People don’t see Uber as their “first choice” yet. The business has a high growth potential but lacks in Brand Awareness

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Strategic Brand Alternatives LOW BRAND AWARENESS ESTABLISH BRAND EQUITY “KEEP DRIVING” “GO CORPORATE” CHANGE BUSINESS MODEL (Invest into own fleet of electric & hybrid cars) “GO CRAZY” LEAVE GERMAN MARKET (Search for other European countries with less governmental restrictions)

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Not an option Ø  High legal restrictions C A: “Keep Driving” (gain market share by penetrating existing target audience) B: “Go Corporate” (attract new target audience with existing service) Existing Product New The Alternatives – A | B | C B A Existing New Target Market C: “Go Crazy” (innovate & create new product for new audience – be provocative)

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A: “Keep Driving” PRO •  No need for investments in R&D or innovation •  Existing customers can be used as advocates •  Increases sales & profits CON •  •  •  BENEFIT Changing customers perception of an existing product/brand is difficult No differentiation Easy to imitate for competitors Investment ROI Marketing campaign € 700,000 6,5% •  Price Leadership status can be retained

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B: “Go Corporate” PRO •  Enter new customer segment •  Create value for a different audience •  Leverage on growing number of corporations and high disposable income within the business sector CON •  BENEFIT High costs in terms of Marketing Investment Marketing Campaign: €200,000 Sponsorship/ Branding € 85,000 ROI 17.7% •  Combines the knowledge of Ubers operational excellence with new market options

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C: “Go Crazy” PRO •  Advantages of the “first mover” •  No competition (at least for a short time) CON •  •  •  Investment •  New Product Development & Marketing Campaign: € 2,000,000 BENEFIT Very risky strategy High costs Difficult to implement •  ROI 8.9% Immediate industry attention (if implemented successfully)

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Recommendation: “Go Corporate” is the best option in terms of market potential (growing demand) and an ROI of 17.7% By focusing on large businesses Uber can leverage on its high quality, double its market share by 2017 and take over the market leadership in the corporate passenger transportation sector by 2020. PHASE 1 15 200 120 11 2015 PHASE 2 2016 Increase frequency of rides/ driver per day 2015 PHASE 3 € 12 € 8,6 2017 Increase number of drivers 2015 RESULT 14.8% 7.7% 2018 Increase average price/ride 2015 2020 Market share

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Entering new target market by communicating brand value Functional UBER is a partner that cares about you and the people that are important for your success: •  Clients / Business partners •  Employees Emotional UBER stands for fast | reliable | high quality transportation Uber means consistency & high customer friendliness •  No need to hail taxis on the street •  Corporations rely on Uber: whenever & wherever they need transportation Experiential

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Differentiation & Relevance Brand Strength SBIVAR Solution Brand asset valuator: Consumer awareness is the key to brand value. Unused potential /niche Power brands LEADER Mass market New / fading brands Eroding brands Goal: Partner with the 10 largest companies in Munich within the next 5 years. Ø  Differentiate through Quality Ø  Use customer feedback for improvement Ø  Research new innovations for the UBER App Ø  Customize service according to the companies needs Ø  Stimulate positive word-ofmouth among business professionals Esteem & Knowledge Brand Stature Enhance partnership with leading corporations and encourage positive word of mouth (Customers & Drivers)

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SBIVAR Branding / Value Raising brand awareness by creating a premium value proposition for corporations. RELATIVE PRICE High Low Premium Average TRANSPORTATION EXCELLENCE Economy Inferior Superior PERCEIVED CONSUMER PERFORMANCE

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SBIVAR Info / Incentive Brand Awareness and revenue growth through corporate business partnerships with “The big 4” Targeting “The Big 4” for long-term relationships Companies with high transportation demand BMW: 33.000 employees Allianz: 4.200 employees Siemens: 1.600 employees MAN: 1.400 employees Hypothesis: 5% of “The Big 4” employees need a transportation alternative to/from work = Average demand of 1884 rides/day Benefits •  Revenue of €8.2M by specific targeting towards Allianz, Siemens, BMW & MAN •  Possibility of gradually increasing demand until 2020 by offering high quality •  Employees obtain subsidies for their commute to/from work •  Less price sensitive customers •  Brand exposure •  Positive word of mouth among big companies increases chances for future business opportunities

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SBIVAR Info / Incentive Brand Awareness through corporate sponsorship with leading local corporations Sponsored UBER rides for corporate events expose the brand Identify local key events Football | Tennis & Golf VIP Shuttle service for FC Bayern players and business partners #FCBgoesUBER Official limousine service for the BMW Open. Most prestigious Golf & Tennis tournament in Germany #PoweredByUBER Benefits •  Enhance image •  Shape customer attitudes •  Showcase UBER attributes •  Comfort| Reliability | Prestige •  Create positive publicity & visibility Estimated Investment (for Event Sponsorship & Corporate Partnerships) Marketing campaign (online/offline): €200,000 Sponsorship /car branding: 85,000

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THANK YOU EVELYN SINDERMANN |MIM 2015 Professor Protano: Strategic Brand Management

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APENDIX A – Calculation DEMAND/MDI/SDI UBER  rides  per  year   cars   rides  per  day   days         120   11   365   481.800,00   Maket  Demand   rides  per  person/year   2,96   average  price   8,6   rides/year   481.800,00   total    12.264.700,80     Popula@on  Munich  (7+)   1.200.000,00   rides  per  person/year   2,96   Overall  Taxi  rides  per  year  MUC   3.552.000,00           Demand   90.419.712,00   Revenue   Total  Market  revenue    €53.280.000,00     Uber  Market  revenue    €4.143.480,00    

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APENDIX B - Calculation Alternatives Op@on  A   Increase  rides  to  15   Increase  #  cars  to  200       Op@on  B   Marke@ng  Strategy   Increase  prices  to  12  EUR   Increase  number  of  rides  to  15       Op@on  C   Investment                            €  700.000,00  Investment     6,53  ROI    €5.273.520,00  Profit              €200.000,00  Investment     17,70  ROI   €3.740.520,00  Profit           €2.000.000,00  Investment   8,97  ROI   €19.946.520,00  Profit  

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References https://growthhackers.com/companies/uber/ http://www.muenchen.de/sehenswuerdigkeiten/muenchen-in-zahlen.html http://www.adweek.com/prnewser/ceo-of-ubers-branding-agency-talks-visualcommunications/105578 https://clarity.fm/questions/709/how-as-uber-grown-so-fast http://www.spiegel.de/wirtschaft/unternehmen/uber-startet-uberx-in-deutschlanda-1034452.html http://www.taxi-heute.de/Taxi-Thema/verschlagwortung-taxi-heuteallgemeine-stichworte/ Muenchen https://www.statistik.bayern.de/statistik/kreise/ https://www.destatis.de/DE/ZahlenFakten/Wirtschaftsbereiche/TransportVerkehr/ Personenverkehr/Personenverkehr.html

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