Based on the case study by Sridhar Seshadri, Arohini Narain and Meena Saxena.
How can a company integrate its strategy, technology and process to break even and yet offer world-class services to its customers? Set in August 2011, Meru Cabs: A Spectacular Growth Story is a case that documents the design and positioning of an Indian services business in the face of skill shortages and built-in inefficiencies. Caught between the need to improve internal processes and the desire to scale up and expand to other cities, how can Meru steer its growth trajectory?
Customer and Company
Meru Cabs was launched with a fleet of just 45 cabs in Mumbai in 2007 by Neeraj Gupta, a first-generation entrepreneur. Funding came from a Mumbai-based private equity firm — India Value Fund Advisors. Meru’s ambition was to build a world-class radio-taxi services company and scale up operations efficiently across four metros — Bengaluru, Delhi, Hyderabad, and Mumbai.
From early on, the company paid close attention to what Rajesh Puri, appointed Chief Executive Officer (CEO) of Meru in 2009, later called the 5Cs or components of the radio taxi business — customer, company, call center, cab and chauffeur.
Meru’s mammoth back-end technology enabled it to automate the service processes and standardize customer experience. In 2008, Meru’s high-quality service fetched them airport taxi service contracts from both Bengaluru and Hyderabad airports. By 2009, Meru started focusing on increasing its fleet size, improving its cab performance and training its cab drivers to use technology efficiently. By the year 2011, Meru had grown to be India’s largest radio-taxi service provider with a fleet size of 5500 cabs. Even so, Meru’s market share was tiny. For example, in Mumbai alone, its fleet was a mere 2% of over 56000 operational taxis.
In 2011-12, the radio-taxi industry in India was worth Rs 14.4 billion and was expected to grow by nearly 31% in the next five years. In sheer numbers of taxi cabs, the industry was expected to witness a 25% compound annual growth rate. Apart from Meru Cabs, the other major players in the industry were Easy Cabs, Mega Cabs and TABcab. Analysts predicted ballooning demand, despite competition from online cab aggregators (though Uber was yet to enter the scene) and car rentals.
Yet the industry faced major growth constraints on the supply side: shortage of educated drivers, high cab maintenance costs and varying government regulations in each state. Most important, business models were still in flux. Most radio-taxi operators in India were still fine-tuning their business models through trial and error, choosing between the two major forms of company-owned and franchise-based operations.
Against the backdrop of an industry that was still finding its feet, Meru was already streamlining its processes. In 2009, Meru had adopted the subscription-based business model. Under this model, the driver was no longer an employee of the company working on fixed salary, but was an entrepreneur who paid a deposit of Rs 10000 to be assigned a cab. Drivers could earn up to Rs 1000-1500 a day. Meru owned the customer-acquisition process and the assets and was responsible for cab maintenance; the service was delivered by the driver on behalf of Meru. This business model made drivers more self-disciplined, since they were the ones responsible for getting the customers to their destination on time. Meru’s key focus was to increase the number of trips assigned to the drivers.
Meru reinforced its commitment to providing world-class service to its customers by actively training the drivers. Salamuddin, a driver with Meru, explained how training helped drivers understand customer requirements:
The customers expect drivers to arrive on time and be polite and the cab to be clean. As per company policy, customers are not required to pay waiting charges, and the driver should not ask for them either. The system in the cab also indicates the speed limit, which makes the customer aware if the driver is over-speeding. To avoid making the customer anxious, we drive within the speed limit. We also do not have a music system in the cab, since that can irritate the customer.
Meru’s investment in technology not only helped the drivers get more business and make more money but also helped Meru deliver consistent and reliable service to its customers. Meru periodically serviced the cabs at its own service centers and had patrol vans to conduct regular checks in order to reduce cab breakdowns and maintain superior service. Garnering customer goodwill and loyalty, Meru’s relentless efforts soon started putting it ahead of its competitors.
Call center and Cab
Streamlining and automating the processes efficiently across call center, cab, and chauffeur gave Meru a significant competitive advantage and helped it differentiate itself from other players. A key strategic decision by Meru was to invest heavily in technology, rather than advertising, in order to drive service efficiencies. In line with this commitment, in 2009, Meru had installed a robust Interactive Voice Response (IVR) system providing a 24×7 Customer Service Center and improving its service levels with reduced call queues and call times. In 2011, Meru launched their real-time website, providing customers a platform to book their cab, get the cab number and driver details online in 60 seconds flat.
All of Meru’s cabs were air-conditioned and used clean green fuel. The cabs came with a digital touch-screen interface called the Mobile Data Terminal (MDT). The driver logged in to the MDT at the start of the day using his identity number, allowing Meru’s back-end operations to track his trip activity and availability. Whenever a customer made a cab booking via the call center or through the website, Meru’s patented algorithm matched a driver to a booking request and the customer would receive an SMS with the cab and driver details. Each trip was monitored electronically and Meru tracked the successful completion of the trip and the driver’s availability for a new assignment. Meru’s commitment to providing an excellent customer experience was summed up by Gavin D’Abreo, then Executive Vice President, Operations, Sales, and Marketing:
We are embedding in the mind of the consumer that our brand is built on a ‘reliable, hassle-free’ proposition. Hassle-free because the customer doesn’t have to negotiate with the driver about where he wants to go and there is no issue of a tampered meter because he gets a printed receipt. And we stick to that.
Meru fine-tuned its cab searching algorithm to search for cabs within a proximity of five kilometers from its earlier parameter of seven kilometers. By 2011, Meru was able to refine its search algorithm to recognize different sub-areas within a city or locality.
The next step was an “Assured Airport Service” introduced first in Hyderabad, which provided a 100% cab guarantee. To deliver on their promise, the company maintained a buffer of cabs through alternate arrangements in three or four other places across the city. By August 2011, Meru was able to claim 97% on-time service.
The Other Cs — Costs and Competition
Despite being the third largest taxi service operator in the world and the largest in India, even by 2011, Meru had not been able to break even financially. There were several constraints to Meru’s growth – internal inefficiencies, long cab downtime, lack of qualified drivers, driver strikes, rapidly expanding operations and competition from other players. Reflecting on what these issues meant for Meru’s growth, Puri stated,
I think the purpose has not really been to earn money. We are still a loss-making company and will probably break even in another quarter or so [by March 2012]. I think the whole purpose has been: Are we fulfilling a basic consumer requirement well and are we changing the lives of people associated with us? It could be drivers, mechanics or any staff here.
Would Meru be able to sustain its competitive advantage and break even? Would it expand to other cities and other countries? Would Meru leverage its technology to anticipate and prevent service failure? Could Meru not just satisfy its customers, but also delight them?
About the Authors
Professor Sridhar Seshadri is Deputy Dean, Operations, and Professor and Area Leader, Operations Management at ISB.
Meena Saxena is currently Director, Alumni Relations at ISB.
Arohini Narain is a freelance case writer with the Centre for Learning and Management Practice at ISB.
About the Case Study
Seshadri, Sridhar; Narain, Arohini; Saxena, Meena (2013). Meru Cabs – A Spectacular Growth Story. Indian School of Business case no. ISB021. Harvard Business Publishing. http://hbsp.harvard.edu/
About the Writer
Glory George, a Research Associate at the Indian School of Business, wrote this Case Spotlight.