Business, Ines Ajimi
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A Ride Sharing App plays the Political Game (and wins)

By: Ines Ajimi

On January 28, 2017, the enactment of an executive order banning citizens from seven majority-Muslim countries sparked protests in airports across the United States, including New York’s very own John F. Kennedy International Airport. While the New York Taxi Workers Alliance declared an impromptu strike in solidarity with the protests, Uber responded by disabling its price surge feature at the airport. Activists retaliated to this by launching #DeleteUber, a hashtag encouraging Twitter users to post screenshots of themselves removing the app from their phones. The following day, Lyft, Uber’s biggest rival in the United States, declared its opposition to the travel ban and made a formal commitment to donate $1 million to the American Civil Liberties Union (ACLU) in a blog post titled “Defending Our Values”.  Despite a statement from Uber announcing it would create a $3 million defense fund for its drivers affected by the ban, Lyft had, by the following week, surpassed Uber in Apple Store downloads for the first time in its history.

Prior to these events, Lyft had been slowly gnawing at Uber’s market share, but the timely intervention helped it grow from an 18% market-share this January to 25% in May, as reported by The Economist.  Moreover, Uber’s leadership crisis, following founder and former CEO Travis Kalanick’s resignation due to allegations of sexual harassment and sexism within their corporate structure, have impeded its ability to respond to its challenger. Lyft’s latest advertising campaign, “Sit for Something”,  which promotes a feature allowing users to donate to both political and charitable organizations in-app, suggests that the company attributes at least part of its success to its political positioning. Understanding why this may be the case here may help us shed light on how value positioning can be used by firms to gain a competitive advantage.

Why Be Political?

By and large, Uber and Lyft offer near-substitute services: both are mobile phone applications allowing users to remotely hail rides. Customers can switch costlessly between the two and compare prices and wait times at the press of button. Product differentiation is therefore essential to attract riders.

As Uber and Lyft have come to a head in most American states, this differentiation has occurred on two fronts: pricing and branding. Both companies have engaged in repeated price wars, using some of their venture capital funds (through their respective investors) to simultaneously cut fares and raise employee benefits. Though highly beneficial for consumers, aggressive price competition is ultimately detrimental to firms as their profits will be driven down. By contrast, successful marketing can create ‘brand loyalty’, fostering a user base which will consistently re-use the app and be less sensitive to price differentials than others.

Thus, both companies have sought since their inception to create a strong brand image: Uber, the incumbent, positioned itself early on as a ‘luxury’ transportation service, while Lyft promised a unique social experience for its customers. Though Lyft’s ‘niche’ appeal allowed it to get its early start, it did not appeal to a sufficiently large market to be a viable strategy.

Today, Uber’s controversies have given Lyft a unique opportunity to segment the ride-sharing market along ideological lines. By positioning itself as a liberal-friendly alternative, Lyft has become the preferred app for liberal-leaning consumers. As such, it is able to extract economic rents from these users in exchange for providing them with the satisfaction of consuming in accordance to their values. This marketing strategy is only useful if it targets a group with a high “relative profitability” – i.e. a group which is either comparatively larger or less price sensitive. A Pew Survey reports that as much as 65% of Uber and Lyft’s users identify as Democrats, which suggests that this consumer contingent may be indeed big enough.

However, according to Margaret Chon, a Professor of Law at Seattle University,  at least two conditions must be met for political affiliation to translate into consumer activism. Firstly, there must be a salient political issue which, in their opinion, is insufficiently being addressed by the government. Secondly, brand practices must be highly visible, allowing consumers to ‘police’ the firm’s behavior.  Together, they create a demand for brands to fill in the policy gap by pro-actively addressing these issues. In the case of #DeleteUber, a strong, pre-existing social movement became aware of the company’s opportunism and decided to hold it accountable through a social media campaign. Lyft’s branding, which had long emphasized their attachment to community-centered values, allowed it to quickly capitalize on the rising anti-Uber sentiment.

A Successful Strategy?

At a first glance, Lyft’s canny political positioning has given it a much-needed boost in its fight against Uber. Firstly, as mentioned previously, Lyft’s downloads rose for the first time to the Apple Store’s Top 10 immediately following the boycott. Secondly, the Financial Times has reported that the Uber boycott has led to a persistent drop in its market share “from 84% at the beginning of this year to 77% at the end of May”. This is especially apparent in urban areas such as New York, San Francisco and Boston, where it has decreased by approximately 10%. More broadly, Lyft has been able to press its advantage to narrow the gap in downloads between apps  from 165% in 2016 to 70% in 2017.

Though encouraging for Lyft, savvy marketing is far from sufficient to overturn Uber in the long-run. Companies eventually recover from PR disasters: Samsung, Volkswagen and United Airlines have all been rocked but not toppled by their respective scandals. Moreover, companies which have a presence abroad can rely on foreign streams of revenue to alleviate political pressures at home. However, Uber’s ability to do so may be limited by its continued clashes with local taxi companies.

More importantly, a survey by Pew Research has found that only 17% of users use ride-sharing applications more than weekly. Thus, to increase revenue, Uber and Lyft will have to either encourage riders to user their service more frequently or continue to expand their reach. Indeed, both firms have reportedly been trying to launch subscription services and Lyft has recently increased coverage to rural regions where its rival is absent.

Learning From Lyft

The recent slew of politicized ads from brands ranging from Airbnb to Pepsi suggests that value positioning is viewed as a lucrative marketing strategy. Lyft was particularly successful in doing so for several reasons. Firstly, Lyft responded to consumer demand for brand activism in a way which held true to its previous brand image. Secondly, this decision was motivated by sound economics, namely its need to differentiate itself from Uber and its resonance with a lucrative segment of its user base. Finally, Lyft recognized that advertising isn’t sufficient in the long-run and has simultaneous pursued other competitive policies. In the Art of War, Sun Tzu says, “In the midst of chaos, there is also opportunity.” Lyft saw that its enemy was weak, and decided that it was time to strike.



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