Ludhiana Bus Service

Assignment Questions

Q 2. The proposed intention to reposition LCBSL on the value map may lead to change in
competitors’ positioning strategies. How should LCBSL respond to these changes?

Answer: -

The value Map is a tool for tracking how customers perceive product of service offerings.
Customers, whether households or businesses, can be reasonably assumed to be always on the on
lookout for products that give them the best value for their money. The Value Map shows the
performance versus price choice or tradeoff that customers face as they evaluate rival product or
service offerings and their unique selling points. Equipped with judiciously developed value Maps,
managers are able to gain insight as to how competitive their products are. The tool can be used to
track how customers are perceive product/service offerings in a world in which competitors’ price,
products and features are continuously changing or may change in response to strategic changes.
Markets with a limited number of operators or competitors, oligopolies, such as the public
transport sector in which LCBSL operates are predicted to have highly discerning customers and
operators who would respond to changes in relative value offerings and resultant market shares.
For this reason, oligopoly theory suggests that strategies affecting market position need to be
evaluated beforehand from the perspective of how rivals may respond to any significant
repositioning by one of the operators. The proposed repositioning of LCBSL involved moving up
the Value Map (Exhibit 3 in the Case material) by using high prices to communicate both superior
functional and subjective benefits of their transport service offerings. This strategy appears
justified as LCBSL offerings were at low price relative to benefits offered as well as the rising
purchasing power of residents of the city. A rise in the price to communicate the high value that
the company’s services would offer commuters may be risky as rivals such as the radio cabs could
offer better value by maintaining prices while making incremental adjustments to the benefits
offered to commuters. Consequently, LCBSL may lose market share depending on how far it
moves towards or above the Value Equivalence line towards the disadvantaged area of the Value
Map.
The negotiable nature of prices on rickshaws, which currently places them top of the Value
Equivalence Line, would pose even greater challenges for their positioning strategy proposed
particularly if they adopt measures to improve their performance in the areas of perceived benefits
which management of LCBSL seek to emphasize as a unique selling point in their repositioning
strategy. It can be said rise in the price of LCBSL services would lead to a revision of its benefits
by commuters if rivals choose to do nothing. If rival transport operators respond to the
repositioning strategy by improving their performance in the subjective areas of security,
Convenience, reliability and comfort, to avoid from a big loss of market share LCBSL have
effective differentiation strategies to benefit from the repositioning strategy, in the market demand
for transportation is likely to be price elastic as a significant proportion of commuter’s personal
expenditures. Effective differentiation may be reinforced by communication and promotions
intended to convince passengers of the uniqueness of the benefits it offers relative to the price paid.
If competitors responding by improving the standard of their product and services then LCBSL
may also have to escalation its standards to at the current share of the market. Lowering costs
while, marginally increasing prices could also be helpful in maintaining market share and
improving profitability.
Q 2. The percentage of non-core business revenue has been growing at various airports. Do
you see a similar trend for city bus services such as LCBSL?

Answer: -

Non-core items are prevalent in most businesses. These are the activities that make the business
run, even though they are not directly related to producing the service or product which the
business sells to generate its revenue. Some examples of non-core items are human resources, data
processing, supply-chain management, and logistics. Many firms that specialize in these areas and
businesses who wish to offload these tasks to free up manpower to focus on other things can
outsource these tasks. Tariffs for bus services, one of key revenue sources for LCBSL, were set by
the state government transport authority.

What are some feasible options for non- transportation revenue that may immediately be
implemented by LCBSL?

Diversification of revenue sources by extending uses of existing assets is a helpful strategy for
stabilizing profitability and returns on capital employed. Tapping into non-Core business revenue
would be advisable for LCBSL as is being experienced at various air ports to boost revenues given
the highly competitive nature of market and price elastic demand. The growing population and
purchasing power of residents of the city and Punjab area as a whole as well as its growth as a
commercial powerhouse suggest that the trend of growth in non-core business revenues of public
transport and infrastructure projects will continue for the predictable future.

In Tier II cities, the bus services were frequently booked for marriages and other public functions.
The fare sheet for this purpose was decided using the number of booking hours as its price metric
(see Exhibit 6b). This use of services contributed towards increasing the cash flow for the
organization. Various categories of passes included general, students, employee, holiday, and
senior citizen (see Exhibit 6b).