Redbus: The Next Step for Growth

Assignment 2: redBus: The next step for growth

A report submitted to

Prof. Rohini Patel

In partial fulfillment of the requirements of the course

Written Analysis and Communication I

By

Nikhil Peter Jose

Section A

Roll No. 188163

On

28-07-2018

[pic 1]

                                                                       Letter of transmittal

To:  Phanindra Sama,

        CEO, redBus

        Dec 28,2012

        Subject: Report on future growth steps

        Mr. Sama,

       This is in reference to the report that was to be prepared, analysing growth strategies for                

       redBus. Various possible options have been discussed in the report, and a

       recommendation has been suggested after carefully evaluating the options. The action

       plan  has also been mentioned. Please let me know in case you need any clarifications.

       Sincerely,

       Nikhil Peter Jose,

       Consultant

                                                                      Summary

redBus is the market leader in online bus ticket booking industry and is in search of growth strategies to increase their turnover to US$ 1 billion by 2015. There are a few available options, like setting up operations abroad, diversifying into other online booking service, starting their own bus fleet or focussing on expanding their current business. The criteria for evaluation are that redBus attains a turnover of US$ 1 billion by 2015, maintaining the core principles like transparency and customer satisfaction, and making sure that the option minimises risk. After carefully evaluating each option, the recommendation is that redBus should focus on expanding its core business, because this will ensure that redBus achieves the turnover target, while customers continue to trust redBus as an online ticket-booking platform. This is also the option with the least amount of risk involved.

Situational analysis:        

At present, the online travel industry has a market size of approximately 379 billion rupees. It has been growing at an average rate of almost 80% since 2007(Exhibit 1). More people using the internet for travel arrangements, and the percentage of online travel industry as a part of the total travel industry is almost 81%(Exhibit 2 ) The demand projection looks positive and it is estimated that 444,777 buses will be required in 2016, of which almost 37%(Exhibit 3) will be required for intra-district and rural services. About 31% (Exhibit 3) of this requirement will have to be met by the private operators. The bus travel ticketing industry is on a continuous growth curve, and one of the main reasons for this is the current socio- economic scenario. Internet penetration has increased (though it still is only about 10%), and most people now have a mobile phone. There has been an increase in the population density in urban areas, due to people moving in from rural areas, most of them to work in the services or manufacturing sector. This availability of cheap labour has in turn attracted multi-national companies to open offices here. These include some global bus manufacturers, thus making it important for redBus to decide on how to shape its future. RedBus is the market leader in online bus ticket booking industry even though it serves only a fraction of the total online travel industry.  RedBus can leverage this to expand their business.

Problem statement:

The current business model has to be evaluated and a decision has to be made on the growth strategy and the future business model to become an experienced and mature company, to achieve the target turnover of $ 1 billion by 2015.

Options:

Backstream or upward integration: Extending back to their own supply chain, by launching its own private buses, can prove to be an advantage for redBus as it will be the first step towards becoming a completely integrated company. Profitable routes can be identified, thanks to data analytics, and redBus can launch their own buses to cater to these routes.

The second option is to go International. There are two ways to go about this. One is to set up base in another country that has similar country specific indicators to India. The other would be to connect major cities across international borders.

The third option is to diversify. Taking advantage of the growth of the online travel industry, redBus can venture into service offerings like online bookings for air-travel, hotel booking

etc. This will make redBus compete against most of its indirect rivals, including famous online travel agencies like Yatra, Cleartrip, MakeMyTrip etc.

Another option is to stay grounded and focus on the core. RedBus started as an online bus ticket booking company, and they are the best in what they do. The growth potential of the market makes it another compelling reason for them to stay in the same sector.

Criteria:

• Making redBus a $1 billion revenue company by 2015
• Maintaining the trust and transparency that is an integral part of the company culture
• Minimising the risks involved

Evaluation of options:

Backstream integration: For redBus to launch its own service, it has to buy buses. They also have to estimate the number of buses that have to be added to their fleet using the data that they have. By launching their own fleet, they can ensure that the core company principles of transparency and trust are maintained. However, the problem here is that people might still prefer to book old services and not the buses owned by redBus. As of now, redBus is an online platform . People have trusted bus services and they use redBus to book tickets. There is a good chance that even after redBus launches its own fleet, customers would use redBus website just to book tickets. The revenue side might also take a hit initially because it will take a huge investment to start their own fleet and for it to start generating revenue.