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Posts Tagged ‘Competition’

‘Disruption’ has become a highly accepted concept in business and management, an event one can only expect to happen at some point in time, whether in production, marketing, distribution and retail, or in other functions of business. Disruptive innovation, mostly technological and digital, can be helpful in fixing market weaknesses due to lack of progress in methods and processes applied by ‘legacy’ companies; operational inefficiencies; and insufficient competition in a market. A disruptive innovator may also succeed by capturing consumer needs hidden or left ignored by existing complacent competitors. But disruptive innovation is not a magical cure; actually, it tends to be quite a radical form of cure. Innovations of this kind have the potential to destabilise a market, create disorder and confusion, and cause dysfunction if the transformation is spiralling out of control, a matter of real concern to all parties involved.

Disruptive innovations have been introduced in various industries or categories of products and services. It often occurs when a technological company imports a method or a tool developed in the hi-tech community into a specific product or service category, whose agents (e.g., providers, customers) are mostly unaccustomed and unready for. Yet the innovation can hit roots if it meets a large enough group of innovative or tech-orientated consumers who welcome the new solution (e.g., a way of acquiring or using a service). Thereafter, incumbent competitors find themselves obligated to adopt, if capable, similar or comparable methods or tools in their own operations. High-profile examples include: (a) Uber that expanded the concept of taxi-rides and ridesharing; (b) Airbnb that disrupted the field of hospitality and short-term lodging (‘home-sharing’ vs. hotels and guest houses); (c) Netflix that altered the habits of television viewing. Also, companies in a new sector of financial technology (‘fintech’) offer digital tools (mobile app-based) for consumers to manage their banking accounts, budgets and investments, challenging ‘legacy’ banks and financial service providers.

Certain technological innovations turn out, however, to be disruptive across-the-board. For instance, online social media networks and digital marketing methods (reliant on Big Data and analytic techniques) have been influencing dramatically how companies approach customers and interact with them in many product and service categories (beyond technological goods or information and communication technology services). Furthermore, developments in artificial intelligence (AI) and robotics promise to introduce even more significant changes, from manufacturing to marketing and retail, and in the functioning of various products (e.g., smart home appliances and devices, the ‘upcoming’ driverless car).

Much damage may be caused if the innovative alternative solution is incomplete or the planning of its implementation is flawed. Overall, everyone should be prepared for a turbulent period of resistance, adjustment and adaptation that may extend until the ‘new-way-of-doing-things’ is assimilated in the market, or rejected. The story of an episode regarding taxi transportation at the international airport near Tel-Aviv exposes how wrongful introduction of a disruptive innovation in this service domain can lead to blunder and service failure. Mistakes made because of flawed planning in a highly sensitive process of market transformation may turn the disruption into a mess-up instead of improvement of the service.

The management of the Israel Airport Authority (IAA) launched earlier this year (2017) a new bid for taxi service operators to ride passengers into and from Tel-Aviv (Ben-Gurion) International Airport. In the end of May the 10-year permit of the primary taxi company licensed to provide service in terminals at the airport expired; the IAA wanted to open the service to competition in expectation that it will lead to fare reduction and perhaps other improvements (e.g., availability, time keeping of taxi journeys).

  • The competition is concentrated in fact on picking-up passengers from the airport; if prohibited, taxi cars will have to return empty after dropping off their former passengers at the flight departure terminal. A primary taxi company was given the advantage.
  • Note: Shuttle or minibus service providers are allowed in addition to take passengers  to more distant cities like Jerusalem and Haifa.

Only two companies responded and participated in the bid: the incumbent service provider (“Hadar-Lod”) and the mobile app company Gett that mediates taxi service. The veteran taxi company has been riding passengers to and from the airport for 40 years. It has definitely developed proficiency in riding air travellers over the years but there were also misgivings about its practices, linked to its status as mostly an exclusive taxi service for individual passengers (alone, family and friends). A few years ago the Ministry of Transport intervened by publishing and issuing a calculator of recommended fares to help passengers ensure they pay fair prices.

Gett (originally GetTaxi, founded in 2010) is managing a network connecting subscribed taxi drivers with passengers through its mobile app. The company is now operating in over 100 cities in four countries (Israel, United States, United Kingdom, Russia). The location-based app facilitates matching between a passenger and a driver, from service ordering, through journey planning and pricing, and concluding with payment via Gett. Unlike Uber, Gett is working only with professional licensed taxi drivers and is not involved in supporting informal ridesharing journeys by unauthorised drivers (e.g., UberPop). The app of Gett is focused on benefits of convenience of ordering (no street hailing, no phone call), efficiency of matching through the network, and of course promising a lower journey cost.

Still, the company hires its subscribed taxi drivers but is not their employer — they divide the fare income between them to the will of Gett. The company is commending itself on its website for higher pay to drivers, in-app tips and 24/7 live support, motivated by the idea that if Gett treats drivers better, they will reciprocate by treating their riders better. However, the arrangement has repeatedly emerged as a source of friction. Gett has changed its name, removing ‘Taxi’ from the title, to allow for extending its brand into a variety of delivery services (e.g., food, parcels) to domestic and business clients.

  • Taxi cars of member drivers in Gett’s network are marked by a label with its logo on the car’s side. Taxi drivers that belong also to a traditional local taxi company (‘station’) may carry its small flag on top of the taxi. However, in recent months taxi cars can been seen more frequently in Tel-Aviv area carrying only a flag of Gett.

The absence of more traditional taxi companies from the bid could be the first sign of a problem. Those companies may have found it not worthwhile for them to commit to provide regular service at the airport. But as a replacement, Gett is not truly a ‘physical’ taxi company and has unique characteristics. It leaves the operation of taxi service by Gett open to much ambiguity. Drivers subscribed with Gett can ‘double’ by riding passengers either via Gett’s app or with a standard taxi meter installed in the car. Are traditional taxi companies ‘hiding’ behind drivers also associated with Gett? But if Gett had the permit, would it allow drivers in its network to take passengers also without its app? (i.e., leave money on the table from such journeys.) Yet, Gett’s drivers have to choose in advance in what periods they act as standard taxi drivers or as taxi drivers riding passengers on call from Gett’s app. This situation could lead to confusion: under what ‘hat’ are the drivers allowed to get in and out of the airport and at what time are they allowed to choose what type of passenger-customer to ride.

Furthermore, the service could be binding and unfairly restrictive for passengers who are not subscribed customers of Gett, especially when arriving from abroad. There could be several reasons for passengers to find themselves in an inferior position: Passengers may not have a mobile phone that supports software applications; they may not feel comfortable and skilled in using mobile apps; or passengers may not be confident in paying through a mobile app (e.g., prefer to pay taxis in cash). It may be hard to believe but such people do exist in our societies in different walks of life. It is also known that smartphone users are selective in the number and sources of apps they are willing to upload to their devices. It could be futile to try to force consumers to upload a particular app, but it would be especially unfair to require users to upload an app of Gett so they can be driven away from the airport. The IAA should have not allowed from start an outcome in which a company of the type of Gett becomes a single provider of taxi service at the airport, primarily for riding returning residents or visiting tourists (the latter may not even be aware of Gett beforehand). The ‘disruption’ would have actually become a distortion of service, leaving customers either with no substitute or with confusion and frustration.

But something else, awkward enough, happened. The two companies reached an agreement to bid a joint offer in which they committed to lower fares by 31% on average from the current price level. It is unclear who initiated the move, yet it is reasonable that Gett was about to offer a much lower price for taxi rides affordable by its model and platform, and probably the management of the Hadar-Lod taxi company was alerted and in order to secure its stay in business felt compelled to match such an offer or simply join hands with Gett. The drivers belonging to Hadar-Lod thought otherwise and started at the end of May a spontaneous strike. The two bidders tried to reach a new agreement but eventually the veteran company had to retreat. One cannot be certain that drivers with Gett would have co-operated — the new price level may have been affordable for Gett but not necessarily worth the ride for the drivers. Apparently, the recommended official price was already or about to go down 7%, and with the further reduction committed in the bid offer, the taxi fare would drop on average by 38%. One would have to work many more hours to fill the gap. The cut was too deep — it may have worked well for the companies and their management but could never work for the drivers. (Note: An explanation from a taxi driver with Gett helped to describe the situation above.)

  • Having taxis from both companies in service would have provided some remedy with a transportation solution for every type of customer-passenger. But a certain mechanism and a person to supervise would be needed to keep order on the taxi platform. For instance, travellers subscribed with Gett may schedule their ride while in the luggage hall, and there would be Gett taxis waiting ready to pick them up. One would have to make sure there are enough taxi cars available for the other passengers.

That bid is now cancelled. The IAA declared that it would soon publish a new bid, and until its results are known, any licensed taxi driver can arrive and leave the airport with passengers as long as they register with the IAA. Are the official recommended prices still in place? Who will regulate the operation and watch that taxi drivers respect consumer rights of their passengers? Who will supervise in particular the allocation of passengers to authorised taxis at the arrival terminal (i.e., dispatching)? Answers will have to be found on ground. It is no surprise that the new situation has been received with apprehension by consumers-travellers and taxi drivers alike.

Consumers will have to learn from experience or relatives and friends what are acceptable price ranges for rides into and from the airport, and form anew their references for a fair price and the highest (reservation) price they are willing to pay. They may also set a low price level under which the reduced price may be suspected as “too good to be true”. A discounted price by a single driver to attract passengers, which deviates too much from a ‘normal’ price, should alarm the customer-passenger that something could be wrong with the service, or else there is a logical reason for the reduction. For example, the taxi driver may suggest ridesharing a few arriving passengers to a common destination area in Tel-Aviv — some passengers may be happy to accept, but the terms must be stated in advance. It is unclear how long the interim period will last, but the notions about pricing described above may remain valid even afterwards in a new service regime.

Making changes like adding competition, and especially by involving a disruptive innovation in the service domain, can improve matters. However, the process must be handled with care and watched over to avoid the system from derailing during the transformation. In this case, the IAA could and should have planned and managed the bid and implementation of its plausible outcomes more wisely. At this time, there must be at least one traditional taxi service operator allowed in addition to an innovative service mediated by a company like Gett at the airport, and rules have to be set and respected. Rushing into any drastic and innovative transformation of service will not do good for its chances of success, just invoke confusion and resentment — sufficient time and support must be given for the customers-passengers and taxi drivers to accommodate and adapt to the new service settings at the international airport.

Ron Ventura, Ph.D. (Marketing)

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This is a story about a daily newspaper that dared to challenge the veteran and established national newspapers by introducing itself to readers free-of-pay. Furthermore, the newcomer broke the line from the incumbents in its way of reporting and commentating on current political issues and events. Taking the two developments together, it seems to have driven the greatly upset publishers out of their minds.

It is a conflict complicated by entangling business with politics: rather than having a discussion on pricing and distribution as factors of competition, one is drawn into argument about political differences. Any debate on the quality of news information has become subject to differences in political position. Thus, the competitive struggle is too often diverted from business considerations to political concerns. Consequently, the news-media industry has become ever more politicized and tensions between the competitors reach new heights.

The free newspaper “Israel HaYom” (“Israel Today”) was founded by the American-Jewish billionaire Sheldon Adelson in mid-2007. From its inception, the newsmedia, mostly leaning from centre to the left, attacked the newspaper for its backing of then opposition leader Benjamin Netanyahu head of the Likud party, giving him a stage to voice his opinions and creating good publicity for him in the run-up to the next election (February 2009). Israel HaYom as well as advocates for Netanyahu denied that Adelson was acting on behalf of the Likud’s leader, yet they claimed that a different approach was needed to counter the unfair treatment and continuous bashing of Netanyahu in news reports. But beyond that, Israel HaYom pertains to provide news readers a different perspective on current affairs in Israel and worldwide, and “to be fair and balanced” as proclaimed in one of their five guiding principles.

Following the 2009 election Netanyahu became Prime Minister (PM), and yet the free newspaper of Israel HaYom continued to be published and even thrive — during 2009 and 2010 reader exposure to the newspaper nearly doubled (from a little above 20% to almost 40% on weekdays [*]). It became so popular that in the end of 2009 it also started to publish a weekend issue. The fact that Israel HaYom maintained its course after the election weakened somewhat the arguments of its opponents and gave rise to other explanations, mainly that Adelson aims to establish a different kind of newspaper in the country and thereof change the nature of competition in the newsmedia market. There could be genuine marketing reasons to justify the introduction of a free newspaper at that time: (a) eliminating the monetary cost of the newspaper to consumers was essential to invade the solid national market as quickly as possible while grabbing a notable penetration share of readers to set-in its roots , and (b) when news are abundant free of charge on the Web readers have much less motivation to give a chance to another paid newspaper. Especially to win the younger readers it was necessary to take the Internet playground into consideration. Israel HaYom’s income model relies on advertising, but as this source is suspected not to be sufficient, it also needs funding from the owner. Hereby, the newspaper has an essential resource, particularly for late entrants into a market: the financial backing of Adelson.

  • About 45% of the area in a weekday issue of Israel Hayom is occupied by commercial ads + 10%  dedicated to public announcements and classified ads.

Needless to say that the prevalence of Israel HaYom was much to the dismay of the veteran newspapers that intensified their fight. Generally, they have tried to raise as many doubts as possible about the motives of Adelson and Israel HaYom so as to delegitimize the newspaper:  it serves as a newspaper of the government and of the PM in particular which manipulates news stories; it cannot survive as a serious newspaper only on advertising; and funding a losing newspaper by Adelson proves that he has political rather than business objectives. They claimed as well as that its business practices are unfair. On the opposite side, Israel HaYom can make the valid argument that its competitors are raising political claims because their actions in the marketplace are failing to defeat it, that they need to conceal their lack of a competitive edge. The free newspaper also has a true case that publishers of at least two of its adversaries, Yediot Aharonot and HaAretz, have strong connections and influence in business and political circles alike and are using their media vehicles to advance their interests.

  • The main confrontation is with centre-left leaning Yediot Aharonot (YA) whose position as the leading (most ubiquitous) newspaper for three decades is being threatened by Israel HaYom — according to TGI surveys of media exposure Israel HaYom surpassed YA on weekdays two years ago and in the second half of 2012 was leading by a small margin: 39.9% versus 37.3%, respectively (on weekends YA [41.7%] still has a clear lead over Israel HaYom [32.8%]). YA is the most vigorous opponent of the free newspaper and champion of the campaign against it, particularly the political-oriented one.
  • The newspaper that had most to lose, however, was Ma’ariv because the free newspaper was aiming at its position in the centre-right. Nevertheless, Ma’ariv has had troubles long time before Israel HaYom arrived, and although it tried to put much of the blame for its fall on the newcomer, the latter’s arrival just accelerated the decline of an already weak newspaper. Ma’ariv, at a level of 10% exposure and after a repeated turbulence, is now under new ownership and leaning more to the right.
  • HaAretz is a clear left-wing newspaper, associated with the New-York Times and the Guardian (UK). It is a high-profile newspaper even though its exposure rate is just about 6-7%. HaAretz has been relatively less vocal, supposedly because it provides printing services to Israel HaYom.

But now comes a time to re-assess the efficacy of the free-of-pay model for Israel HaYom. After the recent election in January the newspaper is way past its challenge to gain the acceptance and approval of large stakes of the public — it has already proven that it has a place in the Israel newsmedia arena. It will be more difficult now to defend itself from suspicions and doubts about its income model and funding from Adelson, which may be legal but not reasonable in the public eye for the longer term. Furthermore, the newspaper has to consider the negative effect that an absence of price may have on its  brand image.

Israel HaYom has characteristics that are not typical of free newspapers. While most of the free newspapers worldwide are local-urban, this one is national. Israel HaYom gives extensive coverage of political events and current issues (e.g., security, economics and business, social affairs, crime) as well as international affairs, topics that free newspapers regularly report only briefly. It includes news items, commentaries, and opinion columns from prominent journalists as well as guest experts and ex-politicians. If fact, the newspaper recruited from the veteran newspapers some of their leading senior journalists. This profile makes it resemble more a traditional paid newspaper rather than a free newspaper. Furthermore, free newspapers are normally intended for light and brief reading that can be completed while commuting on public transport within 15-20 minutes —  a description that does not agree well with Israel HaYom.

On the one hand, consumers who are pleased with the approach and style of Israel HaYom will find it hard to refuse a free offer. On the other hand, questions are bound to pop-up in consumers’ minds over time, namely: How is it possible to produce a newspaper like Israel HaYom without revenue from consumers? How is it actually financed (advertising, Adelson)? And how long this operation can go on like that? What consumers would be specifically concerned about is whether they should trust the reliability and accuracy of news stories it reports.

Israel HaYom should be able to answer two questions:

  • First, do news consumers prefer reading Israel HaYom because they approve and like what the newspaper essentially provides — the way it reports news, its analyses, format and style — or is it only because they don’t have to pay for it (i.e., the formal budget constraint is waived)? If it is found that consumers do not have substantial preference for the newspaper, then the publisher better continue the free model, but it will probably not enjoy a long future. If however the preference for the newspaper is real and well-founded, then the free model should be re-considered because it is not appropriate for supporting and establishing its stature in the long run.
  • The second question is henceforth, what price should Israel HaYom charge from consumers? The price should be low enough to keep the offering appealing against the competition but not too low for consumers might dismiss it as of dubious quality (in that sense, no charge is qualitatively better than a too low price). It should be a price that positions the newspaper as popular yet valuable. If consumers are asked directly about their lowest price limit, they would probably set it at zero because they have been taught that lots of news can be accessed free online. But consumers may have a misconception that the cost of a newspaper is mainly the paper and print and ignore the cost of creating the news stories and articles — this issue is already debated in the last two years regarding the Internet.

The free model also has distribution implications. Israel HaYom is handed-0ut in many public places like train and central bus stations, large institutes like hospitals, shopping centres and on main street; it is also available in coffee shops. There is also a limited service of delivery at home at minimum charge. However, as the newspaper becomes more accepted and desirable, especially the weekend edition on Friday mornings, the inability to obtain it even at a price in points-of-sale can be annoying to consumers. A strong popular brand requires as wide availability as possible, not exclusivity or hard-to-reach stance. The distribution method of the free newspaper, particularly on weekends, may curtail its potential of reader exposure (e.g., versus Yediot Aharonot). But a lower performance on weekends may also occur because Israelis expect more in reliability and depth from their weekend newspaper and a free newspaper seems less adequate to that end.

  • Israel HaYom distributes 275,000 copies on weekdays and 325,000-375,000 copies on weekends that have to serve readers at public venues or for taking away.

Israel HaYom may start addressing the future of their model of free newspaper by distinguishing weekends from weekdays. On weekdays it may indeed not justify confronting the price question because the range for manoeuvering is relatively narrow (i.e., zero to 5 shekels = 1 euro) and the current income model may suffice. Discriminating price points in the range is likely to remain ambiguous (e.g., YA distributes promotional weekday issues for 2 shekels on the street). The weekend edition is another matter because it is perceived as a different product, a more comprehensive source of news information to summarise and digest the week’s events, and paid newspapers charge more than twice the weekday price. Moreover, Israel HaYom provides two supplements on the weekend. A price assigns an overt value to the newspaper and endows it with greater legitimacy as an economic product, especially when it relates to information. A price on weekends can also reflect positively on the newspaper’s image on weekdays.

News organizations are re-considering their policy of publishing news free of charge on the Internet. Income from online advertising is declining and print advertising remains after all more lucrative. Consequently, publishing free news online is getting less economic while continuing to diminish the perceived value of news information they provide on the Internet. Leading news publishers like Financial Times, The Times of London, Wall Street Journal and New-York Times have launched in recent months a model of paywall — view a number of articles free (e.g., 5 to 15 a month) but beyond that one has to make a paid subscription to read more content. It is going to be a long process of change but is important to follow: it may increase the attractiveness of the free Israel HaYom but it may also further hurt its credence as a source of news information. Nevertheless, a website with a paywall may serve Israel HaYom well as a future source of income and to establish itself as an invested and sound news source.

Ron Ventura, Ph.D. (Marketing)

(*) Statistics on reader exposure to media are based on Target Group Index (TGI) semiannual surveys.

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