IB Business Management HL 4.2.5 Differentiation

[Maximum number: 10]

Taxi-M (TM)

Taxi-M (TM) operates 2500 taxis in a developing country. All drivers are full-time employees and have a professional taxi license. Although not compulsory, TM regularly conducts safety inspections of the taxis. Though safe, most of TM's taxis are old and TM charges high prices. Many customers complain.
However, a multinational company, R E, with offices around the world, has started to offer a mobile application (app) called Best-Taxi (BT). Using their mobile phones, passengers can use B T to book and pay for a car journey. Any car owner can offer journeys through BT. For security reasons, the B T app registers passengers' and drivers' personal details.
TM's sales are falling and profits are down. A number of TM's drivers are becoming demotivated. Facing lower incomes, poor management and rumours of redundancies, many loyal drivers have left to offer taxi services using their own cars and the B T app. Some of these drivers are earning considerably higher wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road accidents by B T drivers than licensed taxi drivers. Several of its drivers have assaulted and robbed customers. In response, TM's management decided to downsize and differentiate itself from B T by positioning its service as a high-price, high-quality traditional taxi service. TM will:
- sell older cars and lease new luxury cars
- develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers can book taxis by telephone and by stopping them in the street. TM's target market will be business people, higher income families and passengers concerned about safety.

Discuss the new strategy to differentiate T M from B T.

Discuss the new strategy to differentiate T M from B T.
The focus of this question is on differentiation in the eyes of the customers.
- TM's new strategy is to downsize and reposition the company as a high price and high quality traditional taxi service. Customers that are willing and able to pay for a more exclusive service will probably find the service attractive. This will put TM in a different target segment and will enable differentiation form B T.
- Current security and safety problems due to customers being assaulted by BT drivers and the higher rate of road accidents could help TM to develop a unique selling point emphasizing the fact that all TM drivers have professional licenses and cars have regular safety inspections.
- Leasing new luxury cars seems to be a good financial and operational alternative for TM as they won't need to cash purchase the new vehicles. New luxury cars emphasize TM's USP regarding comfort and differentiation from B T. Moreover, the taxi can be upgraded and regularly serviced for extra comfort to the newly targeted segment. Furthermore, customers are unlikely to be concerned whether the taxis are leased or not. This issue can be judged as of minimal / no importance. Leasing is cheaper in the short term and might enable T M to stay competitive in terms of quality/ price ratio.
- Technology can be a barrier for many people such as using mobile apps or even smart phones. Many customers, especially the elderly groups will find it simpler to telephone for a taxi instead of using a mobile app.
On the other hand:
- Using a mobile app to book and pay for a taxi service can be difficult for some groups of consumers, the increasing usage of technology and mobile apps shows that B T is very practical for most groups of potential consumers.
- BT as a multinational company is a strong competitor for TM, probably benefitting from managerial and marketing economies of scale. They may also introduce a service offering an exclusive maintenance that will compete with TM's new market positioning. TM cannot patent their new service. The idea/service is very easy to copy especially by a MNC.
- Leasing is usually an expensive option in the long term as payments will have to be made over the duration of the agreement. However, this point does not impact on differentiation unless TM increases its price and becomes uncompetitive. This is unlikely.
- Accidents could be reduced if BT makes professional driving license a compulsory requirement to become a driver. Getting a professional driving license is not an important barrier of entry for BT. TM's USP is easy to imitate and could be quickly eroded.
Overall, T M is in a very delicate situation. B T is a strong competitor and threatens TM's market position. Although the new positioning strategy has several weaknesses it is a viable alternative to try in the short term before B T or other competitors move in. TM may be able to benefit significantly from first mover advantage. Otherwise, survival of the company is at stake.
Marks should be allocated according to the markbands on page 5.
- It is not expected that the candidate incorporate all of the above arguments.
- Accept any other relevant issue.
- Accept any other relevant discussion.
- A conclusion with judgment is expected.
A balanced response is one that covers at least one issue for and at least one argument against each action or the candidates may answer holistically by providing at least two arguments for and two arguments against repositioning
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].

Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7-8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.
Questions 6-8. Please mark the candidate response using the assessment criteria on pages 6-7.

IB Business Management HL 4.2.5 Differentiation Question Bank

Exam points

4.2.5—Differentiation question 1