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Assignment 2: redBus: The Next Step For Growth

A report submitted to
Prof. Preeta Vyas

In partial fulfilment of the requirements of the course


Written Analysis and Communication – I

By
Ayush Jain
Section C
Roll No. 188061

On
28-07-2018
Letter of Transmittal

To: Mr. Phanindra Sama,


CEO, Redbus

From: Mr. Ayush Jain


Consultant

Date: 12th August 2012

Subject: Recommendation of future growth strategy for Redbus

Please find below a report that fully analyzes and evaluates the current situation for Redbus.
The report contains the current outlook of the industry in which the company operates, the
alternative course of actions that are possible, evaluation of all the alternatives and
recommendation regarding the most feasible course of action which matches the company’s
objectives.
Summary

Situation Analysis:
Redbus has achieved phenomenal growth, it has 25 regional offices and a 65% share in online
bus ticket booking industry. The online travel market in India has experienced exponential
growth and the outlook is currently positive. The customer base of internet users is also
increasing in the country and more and more people are accessing travel industry through
internet. The outlook for Bus industry in particular is very strong with a growth rate of 25%
p.a. The competition faced by the companies is on three fronts: IRCTC & OTAs, offline travel
agents and lastly, many similar bus ticket booking platforms.

Problem Statement:
What should be the growth strategy in near future?

Options:
1. Operating own private buses
2. Expanding to other countries
3. Add-on service offerings
4. Focus on core business

Criteria:
1. Revenue & Profitability
2. Investment
3. Competency
4. Competition

Evaluation:
All the options are evaluated thoroughly on the four criterions.

Recommendation:
Option 4. Focusing on core business.

Action Plan:
Detailed action plan is provided which is needed to implement the recommended option.
Situation Analysis:
Redbus has achieved phenomenal growth since 2006, with a market share of 65% in online bus
ticket booking industry during 2011. As an aggregator, the company has addressed information
asymmetry in the industry through its core strengths, which are: transparent booking system,
customer centric approach, technologically sound platform and a network of 25 regional
offices. Redbus has simplified the complex manual booking process and focused on generating
value for all the stakeholders: travelers, bus operators and travel agents. The company’s current
revenue is INR 345 million, 80% of which is contributed by B2C segment.

The online travel market in India has witnessed exponential growth to reach INR 378.9 billion
in 2011 from a mere 62.5 billion in 2007, it is expected to continue this pace in near future at
50% increase annually. With the advent of technology and greater financial inclusion, the
customer base is widening. The number of people using internet to access travel industry is
increasing at a rapid pace of 32% per year, this puts forward a significant growth opportunity
for Redbus. The market size of bus travel industry itself adds up to US$ 2.5 billion at an annual
growth rate of 25%. With about 220 million tickets sold annually, the market potential in terms
of volume is huge.

For Redbus, there are broadly three avenues for competition: First being the market players
like- IRCTC online and Online Travel Agents, which operate on a large scale. Second, the
travel agents in small towns and rural areas which still use the manual booking system. And
third being other online bus ticketing companies which function regionally at a comparatively
smaller scale.

Problem Statement:
The company has a revenue target of US$ 1 billion, to be achieved by 2015. It needs to decide
a course of action to achieve this scalability and growth.

Options:
1. Backward vertical integration i.e., Operating own private buses.
2. Expand existing operations to other countries.
3. Diversify into other service offerings (air travel, package tours, cabs, hotels).
4. Focus on the existing business model.
Criteria for Evaluation:
5. Revenue & Profitability
6. Investment
7. Competency
8. Competition

Evaluation of Options:
Option 1
 Both Revenue and Profitability will suffer because the operating cost for buses is high
and the margins are very low.
 Huge investment requirements because physical assets will have to be maintained.
 Redbus has no experience in operating buses and it is not the core competency of the
company. If this option is to be considered, then new competency will have to be
developed. However, by analyzing the existing data, the most profitable routes can be
identified.
 Private bus operators already exist along with Public transport. Redbus does not have a
significant competitive advantage over them.

Option 2
 Revenue generation is higher domestically because of the huge population. Other
countries may not provide such a customer base to increase the revenue rapidly.
 Huge Investment will be required to research and set up operations.
 The company is competent to enter in terms of technology. But, the global markets are
complex, and the company does not have the required managerial power to enter the
markets right away.
 Most Asian countries already have local competition and Redbus will not have the first
mover advantage which it had in India.

Option 3
 Significant growth opportunity in terms of revenue as the industry is growing at 50%
per annum. But, profitability might get affected due to existing razor thin margins in
air travel, hotels and cabs.
 Investment in technology will be comparatively low as other services can be integrated
on the existing platform. However, due to intense competition, Investment expenditure
on marketing and promotion will be significant.
 The travel booking business is the existing competency of the company. It can
aggregate other services as well, but it will require greater management and operational
bandwidth. The quality of current business can also be affected with the shift in focus.
 The competition is intense and deep-pocketed. Redbus has 20% of existing business
coming from OTAs. Going in direct competition with them will antagonize the
association and significantly affect current revenue stream. Hence, the threat from
competition is highest in this option.

Option 4
 There is scope for growth in revenue and profitability. The online commerce market is
growing at 45-50% p.a. and bus transportation industry is growing at 25% p.a. with a
US$ 2.5 billion in market size, there is a significant growth opportunity in the existing
business.
 Investment is not required to develop the technology platform but will be needed in
order to achieve deeper market penetration and expansion to smaller cities / rural areas.
 The existing business is the core competency of the company. And Redbus is the best
at what it does: provide a platform to book bus tickets. With the increase in number of
people using Internet, the customer base will become broader and people will also shift
from booking through phone to website / application.
 The competition is not a problem in this option as the company itself is the market
leader with 65% market share. The existent competition is comparatively small and
regional in nature. This puts the company in a ‘high growth market’ with a ‘high market
share’, which is an advantageous position to be in.
Recommendation:
Option 4: The company should focus on the existing business model and build upon their core
competency.

Action Plan:
The company can put into effect the following course of action,
1. Research on prospective Tier 3 cities and rural areas to be targeted.
2. Implementation of growth strategy in the selected areas.
3. Encourage online transaction over phone bookings.
4. Marketing promotion to increase usage of the platform.

Word count: 943

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