Economy and Business Class in Taxi (maksimov E.S. Bmn173)

Economy and Business Class in Taxi

In the contemporary world, when people are going to buy something, they can choose not only between the producers, origin, or some features of the goods and services but also between various forms of their fulfillment. It means that because of the configuration, realization and cover of one certain product each another version of it will significantly differ from the basic one. Usually, people can face them when, for example they find a new house or car, book tickets for an airplane or a train, and even when people call a taxi. In most cases, consumers divide such transport services into two categories: business class and economy class, however, nowadays there are even much more kinds of them. And that list was added by two more modes - comfort and first class. But that is not the full list, in addition to that, many companies use the trick by adding to each category of goods or services icon “plus” with additional services or options, which breaks them into even smaller subgroups. All these classes differ among themselves in terms of comfort, quality and cost, so that makes possible for people who have different social position to use products or services in the terms to emphasize their status.

Usually, the business class is used by people who work a lot and they need different devices and comfort that are included in the cost of this service. For example, it can be an access to the Internet, and cellular or satellite communications, when it comes to air travel, and most importantly for users is a personal workplace. On the other hand, the economy class is usually used by persons, who simply what to get the basic product or service without additives. So, the user of this group of services most often are tourists, students and employees the company. Thus, we can assume that business and economy are variations of the same goal or service. Nowadays, the market for providing services of different classes can be considered the most demandable in the world and there are a countless number of companies, the main task of which is to benefit from each group of the consumers the maximum profit. At that point an important factor is determining the price, strategy and price discrimination in the market, and if it is, then determining the degree of its influence. To study and identify that important problem, was considered the taxi market in the St. Petersburg, in which business and economy class of that certain group of services are presented. That market grows and maintains as an alternative to the personal car or other public transport. Moreover, very different people use taxi services, so taxi company had to modify their products by comfort level, or some other features to fit every group of clients

What we can obtain is that the city's taxi market in St. Petersburg has a group of leaders. They are “Yandex Taxi”, “Uber” and “Gett”. They are generally the main players, which dominates the market, as the first two companies controls 69% of the market, while “Gett” holds 17%. Summing up the numbers we see that, they cover 86% of the city's taxi total market in St. Petersburg. The first obvious example of price discrimination in that market, which can be mentioned, is the use of coupons for one free trip by taxi or coupons for users of credit or debit cards with special discounts. Coupons are an attempt to distinguish customers at their reserve price and people who collect them and accumulate bonuses have a higher sensitivity to price than those who do not do it. Thus, the production of coupons allows, for example, the “Yandex Taxi Group” and “Uber” to increase the cost for business class taxi users many times and put more loyal prices for economy-class taxi users. And that division on categories of taxis orders, shows another pricing strategy, which is widely used and called versioning, that is the practice of providing different modifications of the same product, that means that consumers can choose the version they want, and at the same time users must pay multiple prices for a different variation of the product or service. Thus, it turns out that the service of calling a taxi business or economy class is just a different variation of one type of services, how to get from point A to point B. If you consider costs and prices for different taxi classes, you can understand the use of version control in this case. [pic 1][pic 2][pic 3]

To analyze that example of versioning, 3 companies were selected, which occupy a leading position in the market: “Yandex Taxi”, “Uber” and “Gett”. When assessing production costs, it can be noted that overhead costs, as a rule, vary greatly for each taxi fleet, the main costs are the cost of gasoline, maintaining of the good condition of vehicles, the money for the purchase of a new cars and the company's ownership. Since these costs represent a certain constant amount for each taxi departure and are characteristic of each taxi fleet, they are not included in the analysis, but we must consider that they exist at 40-50% of the price for one taxi ride business or economy class.

Table 1. The comparison of the price in rubles for 1 km for taxi order and it’s cost value

Made by author by the data from official websites of listed taxi companies

The basic unit for taxis is certainly a car. It plays a key role in price formation, even if the car is bought via loan program or was leased, since this also affects the cost of a taxi ride. In addition, the taxi fleet buys several cars at one time. The equipment of the vehicle is also not an unimportant factor, if this is handled by the manufacturer when ordering a car at the plant, the price will grow many times, so many taxi depots create their own workshops to convert the car to their requirements, whether it is an economy or business category, under the criteria of different classes. As car repairs are provided by many companies, the maintenance service at official dealers are too expensive and usually they are done on service station where the price is much lower. For economy class, the cost of car maintenance is approximately 9000-12000 rubles per 10000 kilometers or 0.9-1.2 rubles per kilometer, the cost of fuel is 3-4 rubles per kilometer and the insurance per kilometer will be about 3-5 rubles. The loss of the cost of the car is 5-6 rubles per kilometer. So, we can calculate that a taxi of economy class will cost 16 rubles per kilometer for company without driver’s salary. We should remember that the price for servicing the business class car will differ only in the cost of insurance, maintenance of the car and loss of the cost of the car and will be 25 rubles per kilometer. If we start to consider the payment of the driver, then in “Uber” it is absent, since the driver himself provides his car for taxi services. The driver only transfers 5-12% from each trip. In “Yandex Taxi” and “Get” employees have a fixed cost of wages 350 rubles per hour. On average, a taxi business or economy class passes for a day from 400-500 kilometers per twelve hours, which is about 10.29 rubles per kilometer. The full cost of a taxi economy class will be 26 rubles one kilometer, and the business class will cost 35 rubles per kilometer. At the same time, the average cost of one kilometer in each company is 74.6 rubles per kilometer in a business class, and 32 kilometers per kilometer in an economy class. Also, the costs that companies incur when providing an improved version of the moving service are easily covered by the price difference. After all, if you deduct from the cost of one kilometer of business class the cost of one kilometer of economy class (42 rubles), you can understand that the business class costs twice as much and with the help of this the company can make more affordable prices for sensitive users.