Institute of Management – Nirma University

Assignment No. 3

Beck Taxi

A reportsubmitted 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 TaxiToronto - Canada

Date : 30th May, 2009

To Ms. Gail Beck Souter,CEO, Beck Taxi

From Nimesh BarotConsultant

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 BarotConsultant

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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 Toronto’s 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 Toronto’s 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

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Table Of Contents

Sr. No. Content Page No .

1. Situational Analysis ……………….………………………...........4

2. Problem Statement …...…………….………………………….......4

3. Criteria for Evaluation ……….….…..……………………………..5

4. Options……...…………………….………………..........................5

5. Evaluation of Options……....…….….……………….……….........5

6. Recommendation…………….……….…………………………… 7

7. Action Plan……………………..…….…………………………… 7

8. Exhibits ……………………………….……………………………8

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1. Situational Analysis

Beck Taxi is Toronto’s 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 it’s 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 3 rd

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

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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 Driver’s 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: Driver’s earning would be reduced by

$25 in a month and that would be around $1 per day which would not be very

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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. Let’s 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.

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b. Effect on Earning of Drivers and loyalty : By implementing this option, drivers

will have following advantage and disadvantage :

i. Driver’s 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 Taxi’s revenue will increase,

Driver’s 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.

Driver’s 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.

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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.

Driver’s 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 driver’s 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.

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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

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8. Exhibits

Exhibit 1: Function, Revenue and Fares details fixed by ML & S:

Sr. No. ML &S Responsibilities.1 Issuing "Taxi Licenses"(Plates) to vehicles2 Issuing Taxi Licenses to DRIVERS

3Determining & capping the number of taxi licenses

4 Fixing Fare charges5 Conducting Taxi Training

Total Revenue in Year 8000000License Renewal Rate (Drivers) 836 Per YearTotal Renewals per year 9898 Nos. of DriversPlates Issuing Fee 5681 (One Time)

FaresKM Fare in $

0 to 0.155 40 to 5 120 to 10 200 to 15 280 to 20 36

   Average Fare / Km 1.6

   Waiting Time Fares

TIME Fare in $31 Second 0.25Per Minute 0.5Per Hr 29

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

  Revenue : (Daily)  1 Charges from Shift Driver for Cab Rent ($65 per shift) 374402 Charges from Long term lease for Rent of plate (900 plate) 345003 Charges from all 1476 for Radio fees ($450 / month) 22140       Total Revenue 94080    Expenses : (Daily)  1 Independent owners (576) and rent for their plate 220802 900 Nos. large fleet from single agency 345003 Repair and maintenance cost ($5 per Cab for 576 Cab) 28804 Salary for Staff (150 Nos. avg. $ 2500 / Month) 12500

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5 Other administrative expenses N.A.  Total Expense 71960    Total Profit (Daily) 22120

Exhibit 3: Details of Driver’s (Shift and Long term lease) earning with current Radio Fee:

  Revenue :        

    Shift Driver   Long Term Lease

 

1 Earning in Shift 175   175 14 fare and 12.5 $ avg. fare2 Tip 17.5   17.5 10 % avg.

    0   50 Assumed that he is giving taxi during night shift and earning.

  Total Revenue 192.5 242.5             

  Expenses : Shift   Long Lease

 

1   65 per shift 38.3 1150 per month so divided by 30 days.

2   10   10 Gas Charge3   5   5 Traffic Ticket4   0   5 Repair and maintenance

5   1.15   1.15 Driver License charge $ 836 Annually.

6   15   15 $ 450 Per Month for Radio Fees

  Total Expenses 96.15 74.45  

 Total Earning in Shift (Revenue - Exp.)

96.35 168.05  

Exhibit 4: Details of Profit to Beck Taxi (if Radio Fees increased from $400 to $450):

  Revenue : (Daily)  1 Charges from Shift Driver for Cab Rent ($65 per shift) 374402 Charges from Long term lease for Rent of plate (900 plate) 345003 Charges from all 1476 for Radio fees ($470 / month) 23370       Total Revenue 95310

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    Expenses : (Daily)  1 Independent owners (576) and rent for their plate 220802 900 Nos. large fleet from single agency 345003 Repair and maintenance cost ($5 per Cab for 576 Cab) 28804 Salary for Staff (150 Nos. avg. $ 2500 / Month) 125005 Other administrative expenses N.A.

  Total Expense 71960    Total Profit 23350  Additional Profit compare to $450 Radio Fee 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)  1 Charges from Shift Driver for Cab Rent ($65 per shift) 374402 Charges from Long term lease for Rent of plate (900 plate) 345003 Charges from all 1476 for Radio fees ($400 / month) 233704 Charges from per dispatch (1476 *10 in a day ) 14760  Total Revenue 110070    Expenses : (Daily)  1 Independent owners (576) and rent for their plate 220802 900 Nos. large fleet from single agency 345003 Repair and maintenance cost ($5 per Cab for 576 Cab) 28804 Salary for Staff (150 Nos. avg. $ 2500 / Month) 125005 Other administrative expenses N.A.6 Cost of incentive scheme 2000

  Total Expense 73960    Total Profit 36110  Additional Profit compare to $450 Radio Fee 12760

Exhibit 6: Driver earning by reduction in fix cost and implementation of

Variable scheme:

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  Revenue :        

    Shift Driver   Long Term Lease

 

1 Earning in Shift 175   175 14 fare and 12.5 $ avg. fare2 Tip 17.5   17.5 10 % avg.

3   0   50 Assumed that he is giving taxi during night shift and earning.

  Total Revenue 192.5 242.5               Expenses :        

1 Cab rent paid to broker

65 per shift 38.3 1150 per month so divided by 30 days.

2 Gas Charge 10   10 Gas Charge3 traffic ticket 5   5 Traffic Ticket

4 Repair and maint.

0   5 Repair and maintenance

5 driver license charge

1.15   1.15 Driver License charge $ 836 Annually.

6 Radio fees 13.33   13.33 $ 400 Per Month for Radio Fees

7 Paid for Radio Dispatch

7   7  

  Total Expenses 101.48 79.78  

 Total Earning in Shift (Revenue - Exp.)

91.02 162.72  

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