Mobility is changing in China: Uber, Didi Chuxing and Car-hailing services leaders will drive new Chinese customers
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While value of car ownership and usage is rethought among Chinese urbanized, alternatives are emerging. Yet one model appeals more than the others: the car-hailing service of Didi Chuxing and Uber.
By 2021, about 600,000 vehicles in China will generate 80 billion yuan (USD12.34 billion) of added value. Will car owners use their vehicle more? No, but they will make it more useful for those who don’t own one. Today, among Daxue Consulting’s panel of Chinese consumers, non-owners of car and car-hailing services users felt “no need for a private car”. Moreover, according to reports, private car owners are considering selling their only car. There is a trend of rethinking the value of car ownership and usage in Chinese urbanized area.
Why is car ownership becoming less appealing for young urban residents of top tier cities, though? The pollution generated, the difficulties to get a car license given strict vehicle restrictions, the climbing gasoline price, parking fees, and most of all, the endless traffic jams are the main reasons for this shift. The fast penetration of alternative tech solutions to improve and simplify urbanized mobility is another criterion.
Besides public transports, numerous solutions of mobility involving cars without owning them are popping out, from long- or short-term rental to carpooling and rides with private drivers.
Booking a ride or a car is made easier thanks to mobile apps, and the different models that exist enable customers to choose the right service for different needs: a short-term car rental for a round trip, a ride shared to go to work or a private ride to go back at night. When it comes to mobility, Chinese citizens are indeed paying much attention to flexibility, personal safety, and reliability of the arrival time. However, in this young and multiple market, some models are more successful than others. The car-hailing market, in particular, is booming. During an investor presentation in June 2015, the domestic leader of this segment Didi Chuxing estimated its market to reach 50 billion dollars value by 2020, reports the Financial Times. According to reports and Daxue Consulting’s panel, while car-hailing is still,for obvious reasons, far behind taxi hailing, the service is largely favoured compared to car rental and carpooling.
Can Uber take the definitive lead on this market?
Chinese car-hailing users often have different applications for the same service on their phone. In this case, the first to be consulted is often the proven market leader Didi Chuxing. As a result of the merger of Didi Dache and Kuaidi Dache a year ago,the 1.4 billion ride providers backed by Alibaba and Tencent now corners nearly 80% of the Chinese market.
But Didi Chuxing’s leadership is challenged by the Baidu (in Chinese百度) backed Uber. Then follow smaller market players like Yongche, Zuche or AAzuche…: the potential of ride-hailing and private drivers services did not fall on deaf ears.
To stay on track with this highly competitive market led by domestic Internet giants with a unique base of users, companies must therefore differentiate. While Didi Chuxing’s private ride service addresses the middle-end segment, Uber entered China with UberBlack for premium cars and UberX for medium-level vehicles, giving customers the choice to select the car model they prefer.
The Californian based company also enables its clients to set themselves the pickup destination and hides the final destination to the driver, an important feature for Yu Ling, 23-year-old Beijinger who quickly made up her mind between the two companies: “Didi is not that professional compared to Uber. The fact that Uber arranges the fare on behalf of the driver means that he cannot refuse a client for traffic or other reasons, whereas Didi’s drivers can.”
Building the most convenient service to attract more customers in this fierce competition has indeed led the two companies to compete further on services quality rather than pricing. Uber China thus disclosed its plans to expand coverage in 55 Chinese cities (Didi was present in 400 cities as of December 2015) and its goal to reach profitability within two years. But both enterprises have another imperative: diversification. In order to more effectively address the various mobility needs of Chinese consumers, the local leader launched a ride-sharing service in June, followed three months later by its American rival.
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— Daxue Consulting (@DaxueConsulting) April 19, 2016