Uber’s conquest of Kenya

Executive summary

Multinational companies often look into emerging markets for growth. However, when they do, they usually try to follow the same product strategy and try to target the similar customer segment. More often, the similar customer segment may not be big enough to generate sufficient returns. The focus should instead be on the majority segment, and the product strategy should be redesigned to meet their needs[1].

Uber went into Kenya with high hopes – Tourism, rapid urbanization, improved infrastructure, tech-savvy population and high internet penetration. However, Uber’s traditional market entry strategy – overwhelm drivers and riders with low fares and discounts, and using them against anyone who opposes them – did not work to Uber’s favor in Kenya. Uber failed to understand the socio-economic dynamics of the location and adapt their business model to the region-specific customer needs.

The key takeaway from this case that there is no one size fits all solution. A strategy that was successful at one point in time or place may not be successful at another point in time or place. The understanding how the value of a service or a product is perceived at each stage in the value chain is vital to design a successful business model. Also, understanding the local market conditions through a local player is very important. Thus, continuous redesigning business models and testing of assumptions is critical to adapt to a new socio-economic landscape.

Background

Here are some of Kenya’s statistics better understand the socio-economic landscape:

  • Kenya is the fifth highest amongst the sub-Saharan economies in doing business in 2017[2]. Tourism, IT, Pharmaceuticals and Construction have seen significant growth in the last decade[3].
  • The country demographics have also witnessed rapid growth with an urban increase of 1% year on year. By 2030, it is projected that 50% of the country is expected to live in urban areas[4].
  • Due to this, car rental has grown by 7% to reach KES6.5 billion (Kenyan Schilling) in 2017. The increased number of leisure and business visitors continues to fuel growth in the category. Car rental is set to grow at a CAGR of 1% at constant 2017 prices over the forecast period to reach KES6.7 billion in 2022[5]

With a decreasing unemployment rate, increasing urbanization and an exploding growth in car rentals, urban population’s demand for local transportation is expected to skyrocket.

However, political uncertainty and security issues continue to pose a risk for the businesses. Government is continuing to invest in infrastructure to help develop the economy. In spite of this being time-consuming, companies like Uber have already begun operations. The challenge would be to counter the security issues and establish a mutual trust between the Urban Kenyans and the Ride service provider.

Achieving this can help reduce unemployment. With an increasing standard of living in Kenya, compared to the countries in the surrounding region, Kenya’s labor wage rate has risen which has resulted in lower employee absorption rate to reduce costs, leading to a high unemployment rate of 11%[6]. Indeed, there is a lot of scope for reducing unemployment in the country, despite the risks of political uncertainty and security.

The rising penetration of affordable internet, with improving internet infrastructures such as 3G and 4G services, expansion of online payment platforms, and an increasing number of tech-savvy consumers have helped in achieving growth for the online platforms. Besides, the proliferation of affordable smartphones and an increased usage of internet devices such as tablets and PCs continued to boost online travel sales during the review period[7].

Internet penetration

All these factors have set a platform for ride-hailing and sharing platforms like Uber to enter the Kenyan market.

Uber’s Entry into Kenya

The San Francisco ride-hailing platform, Uber, made its debut in Kenya in January 2015. It currently operates in 3 cities – Nairobi, Mombasa and Thika. With 393,000 users, Kenya is now Uber’s second largest market in Africa[8]. With such impressive growth in 3 years, Uber looks to take pole position in Kenya and Africa. But, can it?

Source: https://tctechcrunch2011.files.wordpress.com/2016/06/

Uber’s Market Entry Strategy

Uber’s Generic Market Entry Strategy in Western countries due to its 4-fold strategy has led to successful adoption[9] :

  • Breaking the monopoly held by traditional Taxi drivers by opening it for more drivers and thereby creating employment
  •  and enticing the customers to download and use Uber app and quickly connect with drivers have helped Uber immensely.
  • Use the overwhelming popularity and marketing campaigns in support of Uber to force regulators and taxi lobbyists to acquiesce. In some cases, Uber paid off the fines from the regulators on behalf of drivers[10]
  • Maximize the market share strength and price war to push out any competitors.

Let us look how at each step, and how Uber’s generic market entry strategy created hurdles in its Kenyan market.

Signs of trouble

Breaking the monopoly held by traditional Taxi drivers

The idea of ridesharing in the West is rooted in the fact that the owner of the car improves utilization of his or her vehicle by sharing it with others who need a ride. This idea implies that in most cases, the owner and the driver are the same people. On the contrary, in developing countries and Kenya in particular, the cost of ownership of vehicles is high. This high price makes vehicle ownership limited to taxi fleet owners who then hire drivers for a monthly salary and pay commission to the owner. Added to this, the driver has to pay  35% of the revenue generated to Uber. All these additional payments result in drivers being left with a paltry income as low as $5[11]. Fixed monthly salary results in drivers were not showing interest in customer satisfaction reviews. Uber’s reputation, therefore, took a hit.

Source : http://www.thecitizen.co.tz/image/view/-/3327084/medRes/1398059/-/ktgi27/-/

Thus, Uber’s traditional incentive and profit sharing mechanisms failed to succeed in Kenya. Besides, the entry of Uber with its mobile technology ride-sharing service has resulted in disruptive competition with substantial benefits to consumers through reduced fare charges, but it does threaten to displace traditional service providers. As a result, there has been a string of attacks on Uber drivers, and sometimes vehicles have even been set on fire.

Enticing Riders to use Uber’s platform

The main features that riders look for in a ride-sharing service are safety, reliability, and ease of use and transaction. Uber failed at this step too, by not being able to understand the regional socio-economic dynamics.

Safety and Reliability

Instances of attacks on customers by drivers and vice versa have made both parties skeptical of working together. In one case, a customer stole an Uber by holding the driver at gunpoint. In other, a female customer, after passing out from too much alcohol consumption, was raped by the driver. Horror stories such as these create trust deficit between the Uber community and the customers.

 Ease of Payment

The issue of payments has also been a big problem. In western countries, cash and credit cards are the preferred mode of payments. In Kenya, Mpesa is an online/mobile wallet is the preferred mode of pay for 96% of the population[12].  This permeability implied that the majority of the people stopped carrying cash. Thus, convenience was at the center stage for Uber users.

Source : cdn.cnn.com/cnnnext/dam/assets/

Appeasing Regulators and Traditional Taxi Drivers

Uber partially won, when Kenyan government condemned the attacks on Uber drivers and defended free market[13]. On the other hand, traditional taxi drivers continued to remain hostile to Uber.

Maximize Market Share

To begin with, Uber had the first mover advantage and an internationally recognized brand name. High penetration of internet and high utilization of digital payment systems were signs that Kenya had an experienced IT talent, mature enough to develop a ride-sharing service akin to Uber. In Nairobi itself, there were more than 11 ride-sharing services that popped up[14], inspired by Uber. These services took advantage of Uber’s failures at various stages and used them to limit Uber’s expansion.

Implications

Thus, although Kenya, with its flourishing tourism industry and regional hub for trade and international events, high penetration of mobile phone and internet and a burgeoning middle class. Has a favorable environment for Uber and ride sharing, specific factors stand out compared to other markets that Uber has entered before.

  1. Difference in Ownership Structure: In western countries, 50% of Uber drivers don’t drive Uber to make a living[15]. They have other sources of income. On the other hand, in developing countries like Kenya, Taxi cab owner’s nexus run cabs under Uber and this is the primary source of income for the drivers. Hence, the incentive model followed in the west may not be efficient in Kenya.
  2. Safety and Reliability: Safety is an issue in every country. However, it is even more relevant in Kenya for both the driver as well as the rider, also in the light of terrorist influence in the country. The nation has different ethnicities and communities that have resorted to violence to settle disputes. These conflicts can impact businesses such as Uber.
  3. Ease of Transaction: Uber failed to see the penetration of M-Pesa mobile wallet in Kenya and stuck with traditional inconvenient payment mechanisms. Uber in the US was cashless in that it allowed users to store their card details on its app which made the whole process of hailing very simple. But in Kenya and other developing countries, not all banks have card services. This lack of flexibility requires that Uber adapts to these differences.

The challenges imply significant changes to Uber’s raison d’etre in the market.

  • More than a ride “sharing” platform, the market used Uber and others as a platform to connect taxi nexus with a user.
  • Moreover, in a country where community identities could fuel conflict and terrorism threatens safety, how can a rider and a driver develop trust ( a cornerstone of Uber’s business model) and engage in an economic transaction?
  • The method of transaction plays a critical role in the adoption of any service. Should a company do its due diligence before choosing its mode of payment?
  • How important are the price wars between cab companies and Uber in reducing high unemployment? The drivers have earned as little as $5 daily as a result of price wars.

All these points to the question: Has Uber done enough homework to become the leader in the ride-sharing platform in Kenya? The competitors have benefited from Uber’s mistakes and are closing out the gaps in the ride-sharing experience.

Learning from Competitors

As discussed earlier, competitors took advantage of Uber’s shortcoming to capture market share. Each of them used a particular strategy for the region.

Ride-timeline
Source: http://techcabal.com/2016/11/16/the-state-of-ridesharing-in-africa/

Safaricom is the company that developed “M-Pesa,” the popular mobile wallet in Africa, that saw high adoption rate. They then entered the ride-sharing market after capturing the online payment platform market. Their riding share app “Little Cab” was easily integrated with “M-Pesa” network users.  It quickly rose in popularity and soon was recognized as direct competition to Uber in Kenya.  “M-Pesa” users continued to be Little Cab’s most definite competitive advantage. Also, with the internet services becoming more portable and widespread, ‘Littlecab’ has added Wi-Fi services to the cab thereby making it a unique service in the current market.

Little Cab Source: biasharaleo.co.ke/wp-content/uploads/2017/06/

To resolve trust issues, Little Cab created a “Lady Bug” service, so that women could choose cabs with women cab drivers.  It also offered a life-fare feature that enabled riders to monitor the fare. The change could be saved for future use. Their service could be used on non-smartphone phones as well.

Apps like Maramoja, Mondo Ride, and Sendy used local connections and knowledge to deliver trusted cab drivers. Maramoja connects locally rated drivers and riders, while Mondo and Sendy used Motorcycle taxis to provide faster service.

Uber often use price wars to drive competitors out of business. Ride-sharing services, then, started consolidating to build on each other’s strength and even buying out competitors. The competitors have addressed the shortcomings in Uber’s services. The competitors are addressing issues such as security, mode of transaction/payment and connectivity that Uber did not send initially.

Uber distributing Smog Kits in Lahore. Source: https://pbs.twimg.com/media/

In such a fragmented market, the best strategy for Uber was to follow and develop similar features as competitors and use its brand name and deep pockets to increase its adoption rate. For Kenya, it can clone the strategy that it implemented successfully in other markets. E.g., in Egypt, Uber allowed the use of cash instead of the traditional credit card as payment method. In Lahore, Uber distributed smog kits through their platform to gain solidarity and support from the local population.

https://platform.twitter.com/widgets.js“>Uber distributes Smog Kits in Lahore

Key takeaways

Uber’s struggles in Kenya highlight significant lapses in strategy. Making the dangerous assumption that what works in one region would automatically be the formula for success elsewhere can result in losing out to competition. In Uber’s case, the company did not adopt its offerings to the local conditions. Some takeaways from this case are:

  1. Every company looking to branch out internationally needs to map out its entire value chain network and look at how the new target market (Kenya in Uber’s case) is different at every step in the value chain. Tailoring every level according to the consumer behavior can significantly help in overcoming a lot of hurdles that Uber faced related to employee morale and payment platforms.
  2. Adapting to local conditions with a local player to understand the consumer behavior better is the key to a successful adoption. The local player can also help its foreign partner in designing services around the socio-economic conditions. In this case, Kenya’s civil society has different sensitivities regarding payments and transportation needs. Understanding these differences is very crucial to continued success.

Companies looking to expand into international, need to have the humility to treat global business markets as an entity that requires separate attention with an adequately customized strategy is paramount to a company’s overseas success.

Written by Vineeth Palani and Aditya Dabbiru.

Title Image courtesy and source : www.seattleite.com/wp-content/uploads/2014/07/

References

[1] Nair, M. E. (2015, May 15). New Business Models in Emerging Markets. Retrieved December 04, 2017, from https://hbr.org/2011/01/new-business-models-in-emerging-markets

[2] Business Dynamics: Kenya 2017. (n.d.). Retrieved December 04, 2017, from http://www.euromonitor.com/business-dynamics-kenya/report

[3] Economy, Finance, and Trade: Kenya 2017. (n.d.). Retrieved December 04, 2017, from http://www.euromonitor.com

[4] Kenya: Country Profile. (n.d.). Retrieved December 04, 2017, from http://www.euromonitor.com

[5] Car Rental in Kenya 2017. (n.d.). Retrieved December 04, 2017, from http://www.euromonitor.com/car-rental-in-kenya/report

[6] Kenya Unemployment Rate 1991-2017 | Data | Chart | Calendar | Forecast. (n.d.). Retrieved December 08, 2017, from https://tradingeconomics.com/kenya/unemployment-rate

[7] Travel in Kenya 2017. (n.d.). Retrieved December 04, 2017, from http://www.euromonitor.com/travel-in-kenya/report

[8] http://www.businessdailyafrica.com/corporate/Uber-introduces-UberSELECT-in-Kenyan-market/539550-4125544-4tecgvz/index.html

[9] https://theconversation.com/how-uber-opens-cities-only-to-close-them-59067

[10]https://www.brisbanetimes.com.au/national/queensland/uber-fined-17-million-by-queensland-20150624-ghwugz.html

[11] Freytas-tamura, K. D. (2017, May 22). Kenya’s Struggling Uber Drivers Fear a New Competitor: Uber. Retrieved December 08, 2017, from https://www.nytimes.com/2017/05/22/world/africa/uber-Kenya-driver-protest.html

[12] https://www.cnbcafrica.com/news/east-africa/2017/01/04/mpesa-economic-impact-on-kenya/

[13] https://qz.com/612949/kenyas-government-is-defending-uber-against-nairobis-taxi-drivers/

[14] http://techcabal.com/2016/11/16/the-state-of-ridesharing-in-africa/

[15] https://www.statisticbrain.com/uber-company-statistics/

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