Assignment 2: redBus: The Next Step for Growth

A report submitted to
Prof. Preeta Vyas

In partial fulfillment of the requirements of the course

Written Analysis and Communication – I

By
Divyansh Kharadkar
Section C
Roll No 177069

On
28-7-2018
 Letter of Transmittal

To,

Mr. Phanindra Sama,

Chief Executive Officer,

redBus

Bangalore, Karnataka

Date: 28-8-2012

Subject: Evaluation of situation of redBus along with recommendation and plan of

action

Dear Mr. Phanindra Sama

As requested, please find the evaluation of the current scenario of the company. I
have included possible options along with the criteria on which I have evaluated
them. I have arrived at a recommendation based on this evaluation and also
formulated a plan of action to go forward with that recommendation.

Divyansh Kharadkar
One Page Summary

By developing a nation-wide network and enhanced use of technology, redBus has created a
niche position in the bus-ticket booking industry. Positive socio-economic environment changes
like internet penetration and migration to cities will ensure a stable growth for the company in
the future. The demand for bus transport, as a result of these changes, has also been growing at a
steady rate. This increase in demand can attract bigger players in the online travel industry,
which poses a threat to the company. On the other hand, redBus can also use its brand to venture
into other online travel businesses. The key in choosing its future course of action would be the
values and philosophies of the company, which have been instrumental in shaping its trajectory
until now.

Hence, the problem for the company is “What course of action should redBus take as its future
growth strategy?”

The options it has to look forward to are-

1. Vertical integration, i.e. venture into operation of buses

2. Expand into the global market
3. Offer more services than its current portfolio
4. Continue with its current business model

The criteria on which these options are evaluated are-

1. Ensuring transparency and high-level customer service

2. Impact on relationships with existing bus operators
3. Capital efficiency

The evaluation for these options is as follows-

1. High on first criterion but low on second and third

2. Low on first criterion and high on second and third
3. High on first and second criteria but low on third
4. High on all four criteria

Based on this evaluation, it is recommended that redBus continue with the same business model.
Situation Analysis

redBus has created a niche position for itself in the online travel industry by specializing in the
bus-ticket booking industry. It has created a nation-wide network of bus operators, a vast
database of ticket-booking transactions, customers and bus routes, which has become its
competitive advantage over the years. Today it has a 65 percent market share in the bus ticket
industry, and its goal is to achieve $1 billion annual revenues by 2015.

Achieving such a high goal is especially possible because of the continuous high-growth rate of
45 percent in the travel industry. Socio-economic environment changes in the country like
increased penetration of internet and higher demand of skilled labour is encouraging higher
online-bookings for bus tickets. Even in places where internet has not reached, ticket bookings
have increased due to higher demand of transport, which means that there is still a huge potential
market to cater. Many operators outside India have approached the company to expand in their
countries because redBus has helped them grow in business and improved their operational
efficiency.

Demand for bus transport is increasing at a steady rate in the country. Overall, the number of
buses in the country has grown at a steady rate of 7-8 percent every five years since the last
decade. Although private bus transport industry has only 15-25 percent market share in the urban
operations and the intra-district rural services, but in the inter-district services its share is 45
percent and in the inter-state operations its share is more than state transport, going up to 55
percent. Also, demand for buses in this sector has been growing at 14.5 percent as opposed to 2.3
percent in the inter-district transport. This growth also reflects in the socio-economic changes
happening in the country as more people migrate to the cities for better jobs. This is a good sign
for redBus as bus-ticket bookings will be growing at a steady rate. The company could also look
to venture into bus operations, looking into the growth in bus service demand.

The growth of redBus will attract competitors like MakeMyTrip, Yatra and Goibibo to enter in
this industry. These companies have a stronghold in other industries like air tickets, hotels, cab
booking which have higher margins but cater to a smaller customer segment. Bus-ticket booking
caters to the middle-class segment whose age is between 20 and 40, which is a much bigger
segment. Additionally, these companies are much bigger and more experienced than redBus,
which means they pose a threat to the company.

On the other hand, however, many travellers have requested redBus to venture into other forms
of travel like air ticket bookings, hotels etc. The demand in this segment is also likely to increase
because people are earning more, which shows in the consistent 7 percent growth in the GDP of
the country. But competition segment will be fierce because there are much bigger players in this
industry.

The values and philosophy of the company has been a key to reach this stage of growth. First and
most important is transparency and reliable customer service to its customers, which has created
a good rapport among its consumers. Second, the relations it has developed with the bus
operators, which is a big asset to the company. Third, a focus towards capital efficiency, which
has helped the company gain trust among its investors. redBus’s investors are especially of a
good opinion towards the company because it is the most capital-efficient company in the travel
industry in India.

Problem Statement

What course of action should redBus take as its future growth strategy?

Options

1. Vertical integration, i.e. venture into operation of buses

2. Expand into the global market
3. Offer more services than its current portfolio
4. Continue with its current business model
Criteria

First criterion is ensuring transparency and high-level of customer service, because redBus’s
customer service was the key to beat so many regional players in the online bus-ticket industry.
Second will be impact on relationships with its existing bus operators, because the company will
lose business if bus operators stop using redBus’s platform. Third will be impact on capital
efficiency, because it has been a crucial measure which has kept the company’s investors
satisfied.

Evaluation

Option 1 ranks high on the first criterion, because redBus would be able to ensure transparency
and customer service, using its website for the ticket-booking. On the second, however it ranks
low because running its own fleet would cannibalize into the existing bus operators business. It
ranks low on the third criterion also because according to given data, it would be able to maintain
capacity utilization of 70 percent only.

Option 2 ranks low on the first criterion, because the market is entirely new and it wouldn’t be
able to ensure a high-quality customer service. On second criterion it ranks high because
expanding into global market will not affect its relationships with bus operators in India. It ranks
high on the third criterion because it would be operating on a similar business model.

Option 3 ranks high on the first and second criteria, but low on the third because it wouldn’t be
able to ensure capital efficiency by venturing into a new business model.

Option 4 ranks high on all the criteria. Since it will be in the same business model, it will be able
to deliver better customer service, maintain its relationships with the bus operators and maintain
high capital efficiency.

Recommendation

In accordance with the above evaluation, the company should go with Option 4, i.e. continue
with the same business model
Action Plan

Find more profitable routes by using the company’s data mining software to suggest to its
current bus operators. Contact more bus operators to sell the BOSS software to get more bus-seat
inventory. Open more call centers in Tier II cities to handle travellers’ queries. Increase
penetration and get more customers to book tickets via the redBus website.

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