Why Uber lost the China market?

Uber  Tech is known as a transportation network company around the world. It founded  and developed in the US ,and The headquarter of Uber located in San Francisco, Uber provides a pattern for other ride-hiring companies,which is using the websites and apps to book services online. The success of Uber in the US and many other countries is obvious, which makes Uber to be a multinational company. However, the performance of Uber China is not satisfactory, the loss in China market is more than $1 billion in2015, finally, Uber sells China operations to DiDi ChuXing,the latter is a local ride-hiring company of mainland China. What makes Uber  lost in the China  market,  I will discuss it in terms of marketing evaluation.

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Investment or expense?

The capital war between Uber and Didi has last for more than one year, what is the payback for the losses of more than $1 billion in 2015?

1. $7 billion valuation of Uber China. obviously, when we using the Financial metrics to evaluate the the lose, the profit contribution and profit margin are unacceptable. Purely analysis from the two perspectives , the Uber suffered a huge lost in the investment. However, the brand valuation of Uber reached $7 billion, it is really hard to tell the return on investment.

2. 30% market share in China. China  is now Uber’s largest market,and its the toughest one, Uber need to fight for the market share against powerful local competitors,like Didi ,Kuaidi and Shenzhou.  The large amount of  investment can also gain customer life time vale (CLV).

CLV is used to evaluate the future profitability of  customers over the lifetime. However, with the merge with Didi ChuXing, the new company’s market share climbed to 91%, which will weaken the impact of CLV on financial metrics.

 

Behavioural metric

“New users were attracted to the platform by large discounts on their first trip, often equivalent to the full cost of the ride.”(Willians,  2016) Uber using the low prices strategies to  gain market share and doing market penetration. This pattern of promotion lead to some consequences.

1, high sales and purchase frequency.  This is the positive aspect of the strategies.  In the behavioural metric, the increasing of the two figures can be seen as a sign of success.

2. low customer loyalty and high defection rate. As discussed above, the high in sale volume is based on the large discounts for customer and high subsidy for drivers. Uber China is facing a situation of loss. When the prices rise, the customers will seek for lower-price services and switch to other ride-hiring companies.

Physical availability metric

Just like what happened in Paris and other cities in American, Uber China facing the same situation of resist.  The  enforcement departments directly impose high penalty on Uber drivers and passengers in some cities like Chengdu and Shenzhen, finally, Uber has to leave the market and give the market share to local taxi companies.

The restriction from the policy makes Uber unaccessable and unreachable for customers. As a result, the investment in these cities get no pay.

conclusion

Many companies using “capital war” strategies to gain market share like Uber as well as in  other industries. This pattern is more common in China market ,however what is the profit point after investing so much money? Can the customers be more loyal? The  marketing evaluation can be introduced to quantify and interpret performance. Moreover, different marketing  metrics are the important tools to evaluate the performance.

 

username:ethanxie

Kaiyong Xie(Ethan)

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reference:

ALYSSA,A,& Rick,C, 2016,’Uber sells China operations to Didi Chuxing’, Wall Street Jornal,1 Aug,.retrieved 25 September 2016

Milichovsky, F, & Simberova, I 2015, ‘Marketing Effectiveness: Metrics for Effective Strategic Marketing’, Engineering Economics, 26, 2, pp. 211-219, Business Source Complete, EBSCOhost, viewed 25 September 2016.

William C. Kirby , 2016, ‘the real reason Uber is giving up in China’, Harvard Business Review,02August .retrieved 25 September 2016<https://hbr.org/2016/08/the-real-reason-uber-is-giving-up-in-china&gt;

Leslie,H,2016,’Uber’s battle for China’,FT Weekend Magazine, June 2016,retrieved 25 September 2016 <https://ig.ft.com/sites/uber-in-china/&gt;

Pillips,W 2016,’Uber’s China rides comes to an end’,Sydney Morning Herald,1 Aug,retrieved 25 September 2016<http://www.smh.com.au/business/world-business/ubers-china-ride-comes-to-an-end-20160801-gqie0j.html&gt;

 

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