Question
Taxi-M (TM)
Taxi-M (TM) operates 2500 taxis in a developing country. All drivers are full-time employees and have a professional taxi license. Although not compulsory, TM regularly conducts safety inspections of the taxis. Though safe, most of TM’s taxis are old and TM charges high prices. Many customers complain.
However, a multinational company, RE, with offices around the world, has started to offer a mobile application (app) called Best-Taxi (BT). Using their mobile phones, passengers can use BT to book and pay for a car journey. Any car owner can offer journeys through BT. For security reasons, the BT app registers passengers’ and drivers’ personal details.
TM’s sales are falling and profits are down. A number of TM’s drivers are becoming demotivated. Facing lower incomes, poor management and rumours of redundancies, many loyal drivers have left to offer taxi services using their own cars and the BT app. Some of these drivers are earning considerably higher wages than before.
The situation for TM appeared critical. However, local media have reported a higher rate of road accidents by BT drivers than licensed taxi drivers. Several of its drivers have assaulted and robbed customers. In response, TM’s management decided to downsize and differentiate itself from BT by positioning its service as a high-price, high-quality traditional taxi service. TM will:
• sell older cars and lease new luxury cars
• develop a unique selling point/proposition (USP) emphasizing comfort and safety.
Customers can book taxis by telephone and by stopping them in the street. TM’s target market will be business people, higher income families and passengers concerned about safety.
a.Define the term redundancy.[2]
b.Explain one positive and one negative impact of the multinational company, RE, on the developing country.[4]
c.With reference to Maslow’s motivation theory, explain two reasons that some TM drivers left to drive for BT.[4]
d.Discuss the new strategy to differentiate TM from BT.[10]
▶️Answer/Explanation
Ans:
When the business can no longer afford to employ a worker or the job does no longer exist or is considered necessary hence a person is unemployed. The business is eliminating the role.
N.B. no application required. Do not credit examples.
Candidates are not expected to word their definition exactly as above.
Award [1] for a basic definition that conveys partial knowledge and understanding.
Award [2] for a full definition that conveys knowledge and understanding similar to the answer above. Redundancy occurs through no fault of the employee.
b.
Positive impacts on the developing country:
• TM has new competition; consumers will have access to different taxi services, hence more choice at lower prices for the consumers.
• Tax revenue to the government of the developing country from profits made by RE taxi drivers.
• Working opportunities for drivers in the developing country will grow as any person with a car can download the BT app and begin his/her employment. Income will increase, standards of living will improve. Also, for drivers at TM there will be job creation and job security.
• In the future RE, with a possible increase in demand for the BT app may increase capital spending/infrastructure to manage operations. The developing country will benefit from an increase in economic activity.
• Technological transfer – the introduction of the BT app can be used in other industries to improve efficiency.
Negative impacts on the developing country:
• BT’s competition is threatening TM’s market position and even forcing it out of business.
• RE as a multinational company, is probably a powerful company, which makes TM’s survival even more difficult. TM as a local business cannot compete and has started to experience a fall in sales and profit. TM might end up closing and this would lead to increased unemployment in the country which may result in the government intervening to ensure that the political fallout from such a move is minimized.
• RE takes advantage of a lack of compulsory regulation and BT drivers have a higher rate of road accidents as well as safety issues- assaults and robbery.
• Profits from RE could be repatriated to their home country. The financial benefits may be limited- this argument is not really applicable.
• Award [1] for theoretical possibility.
• Accept any other relevant positive/negative impact.
Mark as 2 + 2.
Award [1] for identifying or describing one positive/negative impact for TM and a further [1] for a development with respect to TM. Award a maximum of [2].
[2] cannot be awarded per advantage/disadvantage if the response lacks either explanation and/or application.
For example:
• for an identification or a description of a positive / negative impact with or without application [1]
• for explanation of a positive / negative impact with no application [1]
• for explanation of a positive / negative impact and application [2].
c.
• Maslow’s physical needs refer to the basic physiological requirements of food, water and shelter. As TM drivers’ incomes are falling they may not be able to earn enough money to meet essential needs. Therefore, even the lowest level of needs is not fulfilled hence the drivers are demotivated. They will leave TM for BT as it seems that many drivers are making considerably more money.
• Maslow’s safety needs refer to the needs of security and protection. TM drivers may want to meet safety needs such as job security. TM is experiencing financial problems and there are rumors of redundancies. Uncertainty at TM could force many drivers to quit TM to a more stable position.
• Poor management may lead to a lack of love and belonging on the part of the workers. There is evidence implied by the stimulus of a lack of teamwork and cooperation, as TM’s drivers are effectively self-employed. Therefore, it could argued that TM’s drivers cannot reach the third level- Love and belonging.
• If the candidate does not use Maslow’s exact classification of any need Award [0]
• The inability to fulfil the higher level of needs are not relevant/ applicable in this case.
• Only credit relevant needs based on the stimulus
• Given that only 2 marks are available per need, a full explanation of the Maslow theory/ model is not expected.
Mark as 2 + 2.
For each need:
• for an identification or a description of one relevant Maslow need with or without application [1]
• for explanation of one relevant Maslow need with no application [1] for explanation of one relevant of Maslow needs with and application [2]. Award a maximum of [4] in total.
c.
• TM’s new strategy is to downsize and reposition the company as a high price and high quality traditional taxi service. Customers that are willing and able to pay for a more exclusive service will probably find the service attractive. This will put TM in a different target segment and will enable differentiation form BT.
• Current security and safety problems due to customers being assaulted by BT drivers and the higher rate of road accidents could help TM to develop a unique selling point emphasizing the fact that all TM drivers have professional licenses and cars have regular safety inspections.
• Leasing new luxury cars seems to be a good financial and operational alternative for TM as they won’t need to cash purchase the new vehicles. New luxury cars emphasize TM’s USP regarding comfort and differentiation from BT. Moreover, the taxi can be upgraded and regularly serviced for extra comfort to the newly targeted segment. Furthermore, customers are unlikely to be concerned whether the taxis are leased or not. This issue can be judged as of minimal / no importance. Leasing is cheaper in the short term and might enable TM to stay competitive in terms of quality/ price ratio.
• Technology can be a barrier for many people such as using mobile apps or even smart phones. Many customers, especially the elderly groups will find it simpler to telephone for a taxi instead of using a mobile app.
On the other hand:
• Using a mobile app to book and pay for a taxi service can be difficult for some groups of consumers, the increasing usage of technology and mobile apps shows that BT is very practical for most groups of potential consumers.
• BT as a multinational company is a strong competitor for TM, probably benefitting from managerial and marketing economies of scale. They may also introduce a service offering an exclusive maintenance that will compete with TM´s new market positioning. TM cannot patent their new service. The idea/service is very easy to copy especially by a MNC.
• Leasing is usually an expensive option in the long term as payments will have to be made over the duration of the agreement. However, this point does not impact on differentiation unless TM increases its price and becomes uncompetitive. This is unlikely.
• Accidents could be reduced if BT makes professional driving license a compulsory requirement to become a driver. Getting a professional driving license is not an important barrier of entry for BT. TM’s USP is easy to imitate and could be quickly eroded.
Overall, TM is in a very delicate situation. BT is a strong competitor and threatens TM’s market position. Although the new positioning strategy has several weaknesses it is a viable alternative to try in the short term before BT or other competitors move in. TM may be able to benefit significantly from first mover advantage. Otherwise, survival of the company is at stake.
Marks should be allocated according to the paper 2 markbands for May 2016 forwards.
• It is not expected that the candidate incorporate all of the above arguments.
• Accept any other relevant issue.
• Accept any other relevant discussion.
• A conclusion with judgment is expected.
A balanced response is one that covers at least one issue for and at least one argument against each action or the candidates may answer holistically by providing at least two arguments for and two arguments against repositioning.
For one relevant issue that is one-sided, award up to [3]. For more than one relevant issue that is one-sided, award up to a maximum of [4].
Award a maximum of [6] if the answer is of a standard that shows balanced analysis and understanding throughout the response with reference to the stimulus material but there is no judgment/conclusion.
Candidates cannot reach the [7–8] markband if they give judgment/conclusions that are not based on analysis/explanation already given in their answer.