Meru Cabs was one of the four main radio taxi services operating in India, where the service industry has a very competitive environment. This case study looks at the culture and strategies of the company. It seeks to answer the question of how can Meru Cabs maintain and continue its growth story.
Sridhar Seshadri, Arohini Narain, Meena Saxena
Harvard Business Review (ISB021-PDF-ENG)
November 25, 2013
Case questions answered:
How can Meru Cabs maintain and continue its growth?
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Case answers for Meru Cabs - A Spectacular Growth Story
Problem Statement – Meru Cabs – A Spectacular Growth Story Case Study
How can Meru Cabs maintain and continue its growth story?
The market size of the radio taxi industry in 2011-12 is $ 14.4 billion. The market was in the growth phase and was expected to grow by 30.9 % in the next five years. The fleet size, in the four Indian metros, was 15,000 in 2011-12, along with a CAGR of 25%. Mainly, four radio taxi services were run by Meru Cabs, Easy cabs, Mega Cabs, and TABcab.
Normally, two types of business models were followed – Company-owned and franchise-based, and they relied on two streams of revenue generation – fares and advertisements. On the other hand, there were a few constraints in the cab supply because of a shortage of suitable and educated drivers, high cab maintenance costs, and varying government regulations in every state.
The rise of Tier-II cities, with a population of 5,000-10,000 each were on the cards. Competition will come from the Economy Radio cabs who were absent in the metros.
Meru Cabs was started in 2007 in Mumbai. After that, it has experienced huge growth. Its fleet size increased to 5500 in 2011, and Meru has bought all of that. Meru has to pay an EMI of $ 13000-15000 per cab.
Meru had a subscription-based business model. In that, the drivers were not employees of the company who had to pay a fixed deposit and a monthly rental fee of Rs. 900 – 1000. The cabs were insured, and loss not covered under insurance was shared on a 50-50 basis. Meru’s success was based on making the drivers – entrepreneurs. Meru put a lot of evidence on the training of people as people were the evidence on which the customers tend to evaluate the company. The maintenance was scheduled after a specific interval. However, it led to an occasional decrease in drivers’ earnings. However, Meru helped the drivers to get life insurance and low-cost house loan.
Meru’s Front End systems showcased cabs with location tracking GPS using clean green fuel, two way GPRS system, Mobile Data Terminal. Passengers were given a printed receipt. Meru invested around Rs. 60 000 for each MDT to give smooth and flawless service.
Meru had implemented an Oracle ERP system that took care of payables, cash management, and treasury along with driver management and cab maintenance. Meru also had implemented a Siebel CRM system that managed the lifecycle of the drivers, beginning with their recruitment. Moreover, the Complaint Management system worked through the Siebel CRM system, and all the complaints were recorded in the system. Also, good feedbacks were noted and was subsequently recognized with Certificates of Excellence.
Meru’s operations can be divided into four processes.
(1) Customer Acquisition – For this, Meru used an Interactive Voice Response (IVR) system or Meru’s website. This mode resulted in 20% of cab bookings.
(2) Booking Management – With the help of an algorithm, Meru used to distribute the customer bookings among its customers based on the driver’s proximity, waiting time for cabs, drivers’ waiting time, etc.
(3) Cab Delivery – The driver intimated the Call center after reaching the destination, and subsequently, the customer received an SMS for the same.
(4) Service Delivery – After the ride, the customer received a receipt. This integrated booking, bidding, and dispatching systems help Meru judge the drivers’ performance.
Meru didn’t expect drivers to take longer routes and gave extensive pieces of training to drivers to avoid moving in circuitous routes. Meru also kept an eye for any red flag in their system and looked for discrepancies in case the driver avoided duty. However, they had no system for preventing system failures. Meru also had a problem in reducing the Customer Rejection rate because of high demand and limited fleet supply.
Meru tried to increase Brand Awareness and heavily invested in technology rather than on advertising. It tried to create a Value proposition which talked about a reliable and hassle-free ride. The driver assignment process was automated, and only…