Strategic Management: Uber's Current Strategy and Alternative Strategies

This document discusses the current strategy of Uber and alternative strategies to overcome challenges. It explores market penetration, product development, market development, and diversification. It also analyzes Uber's current situation and performance. Additionally, it introduces Porter's generic strategies for Uber.

STRATEGIC
MANAGEMENT

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
Uber’s Current strategy................................................................................................................3
Uber’s Current situation and performance..................................................................................5
Alternative strategies for Uber.....................................................................................................8
Effectiveness and benefits recommended by alternative strategies...........................................10
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................14

INTRODUCTION
Strategic management refers to the ongoing process of planning, evaluation, monitoring
and assessment of all areas and functions in an organization for meeting its corporate and
business goals and objectives (Trigeorgis and Reuer, 2017). Uber Technologies, commonly
known as Uber, is a food delivery service, vehicles for hire, freight transportation, Packaged
delivery couriers company based in San Francisco in USA and operates in more than 900
metropolitan areas around the globe. It is one pioneer in the formation of self-driving cars and a
company which is entirely based on gig workers, that is, independent contractors, workers of
online platforms, temporary workers and contact firm workers who work on demand with Uber
for providing their services. The organisation is currently facing challenges in market in relation
to closing down of operations and shutting down of operation, laying off a quarter of its
workforce. This project will determine the current strategy used by Uber, the in-depth analysis of
the current situation, alternative strategies that can be used to deal with the challenges and
effectiveness and recommendations of alternative strategy.
MAIN BODY
Uber’s Current strategy
In present times, Uber uses aggressive marketing and pricing techniques to grow in the
global market. Ansoff Matrix model can be used to explain the growth strategies that Uber is
implementing. The matrix dictates the strategies for growth in combination of markets and
product-based strategy that Uber has implemented for expansion over the years (Loredana,
2017).
Market penetration
It is one of the growth strategies suggested by the Ansoff Matrix, this strategy has
inspired Uber to increase the sale of its present products and services in the markets that Uber
holds currently. This growth strategy was used by Uber in the initial stages of its operations in
USA. It helped the company to increase its market share in the industry and eventually led to a
disruption of the Taxi industry. In order to go forward with the implementation, Uber used
aggressive marketing strategies for penetrating the market deeply and gain a large customer base.
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Product development
This strategy of the Ansoff matrix is also known as the product expansion strategy and
refers to introduction of new products in the current market. It is user for expansion of the
services and product portfolio of the organisation. It means the company can either produce and
launch a completely different product of can create an innovative or different version of its
existing products. Uber has a global foothold in various markets and uses tis strategy on different
levels and in continuous manner.
Market Development
According to Ansoff Matrix, in order to grow, a company can use market development
strategies for expansion into new and untapped markets for attracting new customer base for the
existing products. This strategy is based on the idea of market expansion. Uber has implemented
this strategy for accessing the foothold into new areas of operation, that is, new cities or new
countries as it aims at global expansion.
Diversification
The diversification strategy suggested in the Ansoff’s Matrix is considered on of the
riskiest strategies as organisation have to enter into new markets with new products or services.
It involves a whole lot of research of markets and product development along with high R&D
costs an innovation approaches which are in sync with the consumer demand. Uber has
successfully adopted this strategy. It was a taxi riding and transportation service company but it
took the huge risk of diversifying in the food industry when it started its operations in the area of
delivering food (Thelen, 2018).
Among all strategies Uber has focussed most upon Market penetration and Market
development. When it comes to Market penetration, Uber started merging their innovation with
market penetration by becoming highly competitive and reducing their pricing to gain a foothold
in the market. Various sales promotion technique was used which included TV advertisement,
Database marketing, Social media marketing, referrals and customer loyalty points. Uber started
providing promotional codes to all its loyal customers which enabled them to markdown their
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next rides in the premium section of the car selection, Uber VIP. This helped the company to
retaining a lot of customers as the company. The most promising marketing technique used was
friend referrals where people could access to free rides when they invite their friends to join in
the Uber application. For market development, Uber has continuously used this strategy to
expand itself globally and geographically. It already serves in more than 900 areas and is looking
forward for further expansion in other countries and establish itself as a transportation
technology firm.
Uber’s Current situation and performance
In brief, Uber currently faces many challenges in its strategic management and
operational management along with facing pressures and challenges due to various factors like
economic disruption, legalities, political instability and corona pandemic. This has resulted in
Uber recently closing down and consolidating 45 of its offices globally and laying off 25% of its
workforce. Uber is also moving its offices from various regions to the only places where it has a
strong foothold. The company has also pulled off from many investments and reducing its costs
heavily. Uber also faces cash burn and profitability issues. An in-depth analysis of the
company’s performance and situation can be done using the PESTLE model:
Political factors: The political stability of various areas of operations of Uber directly
impacts its decision-making and other management operations as every country implements its
own tax reforms, financial and investment policies, tariffs and level of economic independence
and investment. In many countries, political debates regarding minimum wage laws of the taxi
industry affect Uber’s operations and adherence of Uber by these laws has been under
inspection. The government required Uber to provide the documentations regarding commercial
licenses. Uber also faced scrutiny around the world, for example in France, charges were filed
for advertisements, in Netherlands Uber was rules against for its drivers not having licenses, in
Portland Uber faced cease and desist orders and ban considerations happening in few Asian
countries. To counter these challenges, Uber has started to expand its products and become
dynamic in its operations. It has started intensive marketing campaigns and started to adhere to
all rules and regulations (Dubal, 2017).
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Economic factors: Uber operated in a sharing economy, which basically means that
economy is based on intellectual resources. The disruption of economic stability has impacted
Uber in a very negative way in recent times. The workers hired by the company are gig workers
and growing unemployment rate, higher inflation rate, low income in people, high labour costs
tend to adversely affect Uber. The slowdown of the economy due to lockdown and coronavirus
pandemic has led a sharp drop in the use of transportation services by people around the world.
This has also resulted in Uber closing down its offices and laying off its workforce. In order to
deal with the negative impacts, Uber has increased its operations in the developing countries
where recovery has been easy while it has put its drivers on hold, further strategies could only be
implemented after the pandemic ends (Xinchun and Heqing, 2018).
Social factors: When it comes to social factors like tastes, preferences, beliefs and values
shown by customers in utilisation of the taxi services, Uber faired certainly well. This was due to
its easy scheduling and appointing facility and minimal pick-up time. Post the pandemic, there is
a sharp probability of rise of individual car rentals and cab services as people would prefer
avoiding public transports. This can be a major opportunity for Uber in the near future, although
currently the use of transportation is not in demand, as there is a severe concern for health among
people. Although it is estimated that the demand will rise again as soon as the pandemic ends or
even when there are relaxations in lockdown.
Technological factors: Uber has faired well by the integration of technology in its core
business functions, that is use of smartphone for scheduling a cab with just a few presses of
buttons. This is a major strength for the company as there is an ever-growing rise in the use of
digital devices and internet, which has led to an increased consumer base in the developed and
emerging economies. The payments are also made possible through the use of e-wallets which
saves time for consumers and increases increased transparency, usability and convenience.
Legal factors: Uber faces many legal challenges and controversies starting from heavy
criticism, attempted banning in multiple countries, non-adherence issues, data privacy and
technical usage laws, employee safety and labour laws, copyright laws etc (Ayata, 2020). Uber
has deal with the legal challenges through out of the court settlements and strongly built its
policies as per the legal structure of the countries of operations.
Environmental factors: The impact of Uber on environment is adverse as it is believed
that high number of private taxis on road lead to increased traffic congestion and higher fuel
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usage when compared to public transport. Uber has launched sustainability programs of
reduction of carbon footprint and also diversifying into electronic cars and CNG cars into
operations.
SWOT of Uber
Strengths:
 Uber has the largest ride sharing technology in the world with over 4o million active
users in more than 900 cities globally.
 Uber has created a strong brand recognition in more than 50 countries through intensive
market development strategies.
 The company has low fixed investments and operational costs and has conveniently
positioned itself as easily accessible in most cities and because of no fixed infrastructure,
the growth rate is fast.
 It also proposes a dynamic pricing strategy, that higher the demand, higher the price
which has increased the profitability of the company and income of its drivers.
 Uber offers low price strategy n comparison to other taxis and commuting services which
has proved to retain most of Ubers’ customers.
 Rating facilities are provided Uber which increases customer satisfaction and feedback
systems (Jordan, 2017).
Weaknesses:
 Uber has been caught up in multiple controversies and scandals and a #DeleteUber
campaign in 2017 lead to a loss of 500k users who deleted their accounts.
 Over the years, there has been an increase in the substantial losses being faced by Uber
as, for beating the competitors and maintaining market penetration strategies, Uber has
been offering a lot of discounts to its customers and high bonusses to the drivers. Such
investment outcome in major losses.
 Uber’s dependency on workforce and internet has not always been beneficial. The
unpredictable behaviour if drivers have damaged the reputation of the company with
many drivers being accused of abuse and sexual harassment.
Opportunities:
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 Performance and accountability are what consumers demand these days and no longer
want unorganised transportation services. Through tracking driver performance and
improving its accountability standards, Uber can grow in the current market situation.
 Uber can utilise digitalisation in both developed and emerging economies effectively and
aim to diversify its products and services (Khorasanizadeh, 2019).
Threats:
 Employee and customer retention is the major threat that company faces due to its
notable dependence on gig workers, financial incentives to counter competition and
changing tastes and preferences of customers.
 An increased competition has evolved over the years and uber now faces competition
from cheaper and local taxi commuting services in various countries (Gürel and Tat,
2017).
Alternative strategies for Uber
Alternative strategies that can be used for countering the present challenges and
management problems of Uber can be explained via Porter’s three Generic strategies.
Porter’s Generic Strategies
Figure 1:Porter's Generic Strategies
Source: quickmba
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According to the strategies developed by Porter, the primary determinant of Uber’s
profitability is the attractiveness of the Taxi and transportation industry where the company
operates and secondary determinant is the position of Uber within the industry. Even if the
industry is having a profitability of below average level, Uber can position itself optimally in
order to generate higher returns. The company can position by taking into account its major
strengths, which ultimately fall into either differentiation or cost advantage as per Michael
Porter. The strategies are as follows:
Cost Leadership Strategy: Uber has already employed this strategy but it could further
expand this strategy in new areas of operations as it has started diversifying in multiple countries
with different economic conditions. In this strategy, the production or provision of services has
to be low cost for a particular level of quality. The company has to provide services at average
cost as per industry level in order to earn higher revenue and increase the profit margin to
compete with the rivals. Or the company has to reduce its prices in order to gain higher market
share. Whenever there is tough competition and companies tend to engage in price wars, the
company has high probability of maintaining profitability while the competitors might suffer.
This strategy this aimed at targeting a broad market. Certain ways in which Uber can attain cost
advantages are initiating an improvement in the process and operational methods that are
currently practiced and the concentrating on getting unique access to a huge source of low cost
and innovative methods. Other ways are by making vertical integration and optimal outsourcing
decisions and avoiding unnecessary costs altogether. If other commuting companies and can
services be unable to reduce their costs by similar amount, it could help Uber to sustain a
competitive advantage by becoming a cost leader in the industry. Uber has the internal strengths
of a strong brand equity, innovative technologies, low fixed investments. In order to successfully
employ cost leadership strategy, Uber has to utilise the strengths and lower the prices which
would not have a major impact with competition due to the huge presence and brand recognition
of firm along with its usage of technology, thereby it can sustain the implementation of the
strategy (Islami, Mustafa and Latkovikj, 2020).
Differentiation Strategy: A differentiation strategy is aimed at development of products
and services which may provide unique attributes, that are valued by the consumers and they
perceive them to be better or more attractive than the other services provided by rival firms. This
extra value that is added by the company through uniqueness and innovation can allow the
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company to charge a higher price. The company seeks the potential of covering the extra costs
that is incurred in the development of the unique attributes by charging the premium prices. Uber
can use the differentiation strategy to counter its challenges of profitability as the major internal
strengths of the company are its corporate recognition and innovation strengths, highly creative
service provision teams, strong sales, marketing and pricing policies. The major risks that can be
associated with this strategy are imitation by competitors and shift in consumer preferences and
tastes.
Focus Strategy: The focus strategy is aimed towards a narrow segment in the market and
plans on achievement of either a differentiation and cost advantage within that market segment.
The idea is to better serve the needs and demands of a particular group or segment by wholly
concentrating on it. Usually the firms who implement a focus strategy receive a higher degree of
client loyalty, thereby giving the firm a loyalty based competitive advantage. Due to the narrow
focus on the markets, companies who pursue a focus strategy pertain to lower volumes, thereby
having a low bargaining power from suppliers. Inspite of that, a differentiation focussed strategy
might pass on higher costs to customers as any close alternatives or substitutes don’t exist. Uber
success in focus strategy enables the company to make a wide range of service developments
advantages to a comparatively narrow market segment. Certain risks that focus strategy could
have would be imitation by other firms and changes in the behaviour, psychographic or
demographic respects in the target segment (Hales and Mclarney, 2017).
Effectiveness and benefits recommended by alternative strategies
Cost leadership strategy
 Apart from the pre existing tactics that are Uber is employing in its cost leadership
strategy, it has to compete with other firms in multiple countries that are creating issues
in the employment of this strategy successfully.
 Cost leadership approaches in marketing and product development are aimed at creation
of low-cost operations within the industry. For implementing this effectively in other
areas of operation apart from the markets where it is dominant, it has to reduce
production and development costs, it can help Uber in gaining high profitability in the
current situation.
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 This strategy can help in increasing the market share of Uber overtime and increase the
profit margins. In today’s times the economic stability is quite low and for a long period
of time consumers won’t be able to afford premium process for individual cabs, therefore
this strategy is quite effective in increasing and retaining customer base.
 In long -term scenario the sustainability of the business will improve as fewer financial
threats will be observed. Due to low economy and price wars, it will help Uber to sustain
and provide it a greater survival chance.
 It will reduce the competition in the market as higher competitive advantages will be
attained by Uber due to their superior pricing model and will allow Uber to maintain its
dominating position by countering profitability challenges (Spott, 2018).
Differentiation strategy
 Creation of unique products and services will bring distinction in the market and effective
marketing strategies can be used for creation of impact. The attributes of the service such
as Uber Child safety cars tend attract the customers as competitors lack in them.
 Reduced price competition as the company offered valued added services for slightly
higher prices, which are still preferred by consumers.
 Better profit margins can be received by the provision of high-quality cab services by
Uber and it would offer more opportunities for higher margins of profit. There’s a
possibility of generating higher revenue from fewer sales as the consumers are willing to
pay premium prices for higher quality, unique attributes and value-added products.
 There is an increase in the brand loyalty of consumers as the brand recognition is for high
quality and unique products which might not be available elsewhere with same price
level (Bel, 2018).
 There will be less chances of a perceived substitute as the product will be marked
different from others in the same segment, which would lead to competitive advantage.
Uber can improve its unique and innovation cab services like introduction of higher
accountability and easy tracking, which is not available in other commuting applications.
Focus strategy
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 This strategy is very effective in building strong relationships in the market with every
target segment as it takes care of the specific needs and demands of the consumers and a
specific value proposition is created. Consumers tend to feel that the rand is developed
for addressing their needs and it helps in building customer loyalty overtime.
 It brings expertise in the product and Uber can gain and improves the pricing structure of
the business. It allows the future customers with specificity and limits the competition.
 It typically leads to lower production costs, higher quality product due to focus on narrow
segment and can restore the reputation of the brand (Firoz Suleman, Rashidirad and Firoz
Suleman, 2019).
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CONCLUSION
It can be concluded from the above report that the need for effective strategic
management is highly necessary for Uber technologies in order to counter its recent weak
position and corporate challenges. The present strategy that the company has been using is
market penetration and market development by tapping into wide geographical scale and
established its presence in various global markets along with offering cheap prices for cab
services. The current situation ad performance of the company was analysed via Pestle analysis
and Swot analysis and resulted in Uber facing major economic disruptions which led to
profitability issues, management and operational challenges. The suggested alternative strategies
were based on the porters; generic strategy model and explained the relevance of cost leadership,
focus and differentiation strategy for Uber. The effectiveness and benefits of these strategies
were high with cost leadership and differentiation being the best alternatives that Uber can adopt.
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REFERENCES
Books and Journals
Ayata, Z., 2020. A Conceptual Overview of Legal Challenges Posed by Uber. Global
Perspectives on Legal Challenges Posed by Ridesharing Companies, pp.7-33.
Bel, R., 2018. A property rights theory of competitive advantage. Strategic Management
Journal, 39(6), pp.1678-1703.
Dubal, V.B., 2017. The Drive to Precarity: A Political History of Work, Regulation, & Labor
Advocacy in San Francisco's Taxi & Uber Economics. Berkeley J. Emp. & Lab. L., 38,
p.73.
Firoz Suleman, M., Rashidirad, M. and Firoz Suleman, S., 2019. The applicability of Porter's
generic strategies in pure online firms: A case study approach. Strategic Change, 28(3),
pp.167-176.
Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International Social
Research, 10(51).
Hales, G. and Mclarney, C., 2017. Uber's Competitive Advantage vis-à-vis Porter's Generic
Strategies. IUP Journal of Management Research, 16(4).
Islami, X., Mustafa, N. and Latkovikj, M.T., 2020. Linking Porter’s generic strategies to firm
performance. Future Business Journal, 6(1), p.3.
Jordan, J.M., 2017. Challenges to large-scale digital organization: the case of Uber. Journal of
Organization Design, 6(1), p.11.
Khorasanizadeh, S., 2019. Uber as a Technology Platform: Directions and Challenges.
Loredana, E.M., 2017. The use of Ansoff Matrix in the Field of Business. Annals-Economy
Series, 2, pp.141-149.
Spott, P., 2018. UBER: A Case Study in Strategy, Leadership and Change (Doctoral dissertation,
The College of St. Scholastica).
Thelen, K., 2018. Regulating Uber: The politics of the platform economy in Europe and the
United States. Perspectives on Politics, 16(4), pp.938-953.
Trigeorgis, L. and Reuer, J.J., 2017. Real options theory in strategic management. Strategic
Management Journal, 38(1), pp.42-63.
Xinchun, L. and Heqing, Y., 2018. Research on the Challenges of Sharing Economy to Labor
Relations——Taking the Example of Uber. Labor Economic Review, (2), p.8.
Online
Porter's Generic Strategies, Available through:
<http://www.quickmba.com/strategy/generic.shtml>
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