Reference no: EM131392914

'New structure a good first step but 'won't have much impact' 

New rules to regulate how cab companies structure their fares are a good first step but need to go further to make it easier for commuters.  Industry players say that the move announced yesterday will merely prevent fares from becoming more complex, but will not have much impact on the current situation. 

Mr AngHinKee, who is executive adviser of the National Taxi Association (NTA) which represents more than 13,000 cabbies, said: "We should take the next step down the road to see how we can redesign the taxi business model." In the second half of this year, cab firms will have to follow certain rules in setting their fares.  

The components of metered rates, surcharges and booking fees will be standardised to varying degrees. Mr Ang, who is also MP for Ang Mo Kio GRC, noted that even with the changes, cabs will still be able to charge different flag-down rates. However, he acknowledged that this is not easy to unravel because of the different car models being bought by the companies at different times, with variables such as the prevailing certificate of entitlement prices and the exchange rate at that time. 

The current business model, in which the flag-down rates are closely tied to the taxi rentals and costs, may have to be relooked for this to change, which could lead to a simplification of fares, he noted. 

 Cabbies like Mr ThamYuetKok, 66, said fares should be standardised across the board so that commuters will be less confused. "Different fares also lead to conflicts between cab drivers. There was once I was in a cab queue, and the passenger chose to take my taxi instead of the two in front, because mine was the cheapest. When I drove off, the driver in front gave an obscene gesture," he said. 

Full-time national serviceman Shen Hao, 23, said: "It would be best if all companies charge the same... but at least with some standardisation now, I know how much I will pay when I get into a particular company's cab." Cab companies ComfortDelGro and SMRT, however, welcomed the changes and said they would do the necessary steps to implement the new regulations. 

SMRT, which has two sets of metered rates for its premium cabs, will have to standardise this down to just one rate, to comply with the new rules.  But Mr Ang also raised concerns about the new fare structure being anti-competitive and said NTA was "watching this closely".  

The taxi market in Singapore is an oligopoly and prices are regulated by Land Transport Authority (LTA). The big players in the industry enjoy pricing power within a set of guidelines. The recent entry of Uber and GrabCar into the market with its revolutionary business model has changed the competitive landscape of the taxi industry.

With the above article as a backdrop and your own literature research, answer the following questions. 

Question 1:  (a) Select two (2) major taxi operators. Describe their existing pricing structure.

(b) Discuss the issues of taxi pricing. Explain them from the perspective of pricing concepts.

Question 2: Lately, private car booking apps such as Uber and GrabCar have been making the news as competition to the regulated taxi industry gets heated up.  Consequently, a new law has been passed by Parliament in September 2015.  Under the Third-Party Taxi Booking Service Providers Act, Apps companies such as Uber, GrabTaxi and Easy Taxi, which have more than 20 participating taxis, now need to register with the Land Transport Authority (LTA) to operate in Singapore.

(a) Describe the pricing structure and strategies of Uber in Singapore and explain using pricing concepts such as demand heterogeneity and willingness to pay.

(b) Construct the price to perceived benefit map of two (2) established taxi operators versus two (2) new Apps companies. Explain your choice of position for each.

Question 3:  You are the recently appointed Pricing Manager of Comfort.  Your first task will be to review the current taxi pricing and recommend pricing strategies that will improve profitability of the organisation in view of the strong competition from private car Apps.

Describe your new pricing structure and strategy proposal that will enhance the profitability of Comfort.