To gain a competitive advantage over Uber, Lyft decided to change the ‘rules of the game’.
They believe they have 2 customers – driver and rider – and they should focus on equal passion on both customers.
To implement this strategy they decided to identify the pain points of drivers and resolved to reduce if not eliminate them. This lead Lyft to identify 2 key pain points:
- Drivers were willing to join Lyft, but almost 20% did not possess a vehicle
2. Many drivers with vehicles were not motivated to be on call, because:
• Fuel was expensive and it would eat into their margin
• The commission earned by them was transferred almost a week later
Result. When customers wanted to use Lyft it was not available.
Lyft took the following strategic steps to ‘attack’ these pain points/issues to gain competitive advantage:
1. Since 20% of drivers who qualified for Lyft did not possess a vehicle, hence it tied up with Hertz, the car rental company, to ‘rent’ cars, on a daily basis, to approved Lyft drivers at competitive rental rates.
2. Analysis done by Lyft indicated that the single biggest cost for Lyft drivers was fuel cost. It dented their earning significantly. It went in for a strategic tie-up with Shell - the gas company.
How did it benefit the Lyft drivers? The more they drove, the more mileage they clocked. And based on the mileage clocked they got discounts on purchase of gas from Shell gas station.
It was now in the driver’s interest to ‘clock’ in more mileage, which would drive down cost & improve their profit.
3. Analysis done by Lyft indicated that the norm of cab hailing company is to transfer the commissions due to drivers within a week. This was a pain point among the driver community. To overcome this pain point Lyft launched ‘Express Pay’ which transferred the commission either the same day or the next day. Lyft drivers had to opt for this facility & had to pay a small fee.
Bottom line:
1. Identify pain point/issues of your customers. Work relentlessly towards either reducing them or eliminating them.
2. Every business has 2 types of customers – internal customers – its employees and external customers – bill paying customers through whom a company generates revenue. Counter-intuitively, a company should treat its employees equal to if not better than it treats its bill paying customers. Why? In a Service economy, it is the employees who deliver the service to customers. Happy employees will keep the customers happy who will then come back & give more business to the company.
3. Be customer focused, not competitor focused. The objective is to keep your 'customers' not kill competition.
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About the Author:
In this series, Rajesh Srivastava, Business Strategist and Visiting Faculty at IIM Indore gives you a regular dose of strategy case studies to help you think and keep you one step ahead as a professional as compared to your peers. Rajesh is an alumnus of IIM Bangalore and IIT Kanpur and has over 2 decades of experience in the FMCG industry. All previous Strategy with RS posts can be found here.
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