Case Study: Auto-Rickshaw Drivers

From the woman selling jasmine flowers to the man making sugar cane juice to the young boy polishing shoes, everywhere I look there is somebody selling something. India is nation of entrepreneurs with small businesses filling the streets. Even though they may not know the correct terminologies or how to write a business plan, many people have better business sense than most recent business school graduates.

Auto-rickshaw drivers offer a great case study.

Much cheaper than taxis, auto rickshaws are for-hire three-wheel motor bikes with attached seats for short-range travel around the city. They can be hailed down on the streets and are very good for convenient point-to-point travel. The value proposition of auto-rickshaws is their cheap fare and are best for customers who are unwilling to use public transport and need easily accessible transport options.



An auto-rickshaw


Fares for autos are supposed to be by the meter but due to traffic problems and rising petrol prices drivers often charge a fixed fee for travel. Delhi auto drivers are notorious for charging foreigners much more than the locals. Banking on the fact that foreigners do not know the distances between places or the real value of the rupee, they often charge double the actual price. They have a clear understanding of the target markets and know that there is large market segmentation so it is profitable to offer different prices for different customer profiles.  

Fare prices also differ depending on if it is night time, raining, or extremely hot. For example, at night the drivers charge a special night fare as they know that there is a much smaller supply of autos and more inelastic demand as people are more tired. With a good idea of the market conditions, the drivers use their understanding of the wants and needs of the customer to find the maximum product price. However, the drivers also understand that due to fact that the customer probably does not own his own car and is unwilling to call for a more expensive taxi, he can be very price sensitive. Thus, they are willing to bargain to find the best fare and use discounting and promotions to appeal to the customer.

Drivers often wait outside of places such as markets or hotels where they think that people are the most likely to need a ride. This is especially true of high traffic areas where you will see lines of yellow autos waiting for the next customer. Drivers have a clear understanding of the ways to market and distribution points. Some especially eager drivers will even walk around outside of their autos and directly approach customers. They advertise themselves well with their uniforms and distinctive bright yellow autos which also helps in building a clear brand image.

To build customer loyalty and ensure repeat customers, some auto drivers are extremely friendly and will try to engage in conversation with customers along the way. At the end of the ride, they will ask for their phone numbers and for them to call them at any time if they need another ride to get around the city. This helps to ensure that they have as much sales as possible.

Lastly, fares are not the only revenue stream for auto drivers. If a customer asks an auto driver to take him somewhere to eat or to shop, the drivers will often bring him to places where they will receive a commission for whatever the customer purchases. Especially true in tourist areas, many drivers will have had prearranged agreements with shops or restaurants for taking customers to their store. By forming strategic partnerships, drivers diversify their revenue streams through mutually beneficial relationships.

Auto drivers are just one example of the entrepreneurial thinking of Indians. In a country where making a living is extremely difficult, people are driven to be innovative, passionate, and dedicated about the work that they do. People work with what they have and even those with very little capital make a strong effort to build a business for themselves. I still remember the image of an old man who owned nothing but a scale standing outside of the railway station trying to charge people money to weigh themselves. High levels of competition have inspired Indians to think critically about problems and work outside of the box to stand-out and differentiate themselves in the market.

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About Bill Cao

I am a rising sophomore pursuing a dual degree in Management and Sociology at the University of Pennsylvania. I am interested in social entrepreneurship and love reading, traveling, exploring.