Is the Go-Jek – Grab price war already over?

On 18 Jan 2019, about a month after Go-Jek entered the Singapore market, running a “promotion” campaign offering fares of about 30-50% cheaper to customers , and attractive drivers incentives – it’s now changing gears.

It has now introduced dynamic pricing and increasing the prices by about 30% for customers. Incentives for drivers have also been cut. As expected, there were howls of protest from the newspapers and the Go-Jek facebook community.

You had me at Promos
When Go-Jek first entered the Singapore market, Grab had announced that they wouldn’t fight a price promo (“promo”) war.

There were 2 schools of thoughts back then. In a Today’s article dated 9 Dec 2018, Associate Professor Lawrence Loh from the NUS Business School said the era of competing on price alone is “numbered or even over”, and Go-Jek must take a longer-term view to retain customers by offering a wider array of complementary services.

On the other hand, transport economist Walter Theseira of the Singapore University of Social Sciences said that how the competition plays out in the industry hinges on whether Go-Jek grows slowly but steadily, or pumps streams of money into gaining market share aggressively. “If Go-jek somehow throws a lot of money at the market, achieves good market share and shows signs of putting Grab in an uncomfortable position market share-wise — for example, Grab finds that drivers are leaving en masse or its market share is slipping dramatically — I do think that Grab will not have much choice but to respond”

Price Promotions are so yesterday..

All companies have used price promotions at one time or another to gain market share. For the ride hailing industry, drivers and riders have no loyalty and will switch to get better pricing or the faster option to their destination.

Keeping that market share and breeding brand loyalty is not something achievable with just promos and incentives. Grab has wisened up to this fact since its drubbing post-Uber merger where it incurred consumer and driver wrath by withdrawing promotions. As Grab’s Lim Kell Jay had said “Handing out promotions is unsustainable, and that riders and drivers are going to be pissed when they are withdrawn”

Go-jek is not the new “Dave” in town.

Across all of Singapore, Go-Jek ads shouts about the the return of promos. It catches your attention, and it’s one of those ads that only a Goliath can afford (no puns intended).

While the ads are quite fun, as we have seen over the weekend, there can be severe backlash when incentives pared down. Go-Jek drivers who tolerated the low passenger fares because of the high incentives are now in a bind where the low fares to attract customers are not offset by a high incentive payout. Passengers on the other hand, like the low fares but complain about the long waiting times. With higher fares, the complaints will start coming in.

Reinventing the way it works with drivers?

Grab has stuck to its guns to not offer price promotions. It has been working on other longer-term sticky incentives to attract both drivers and customers.

It announced on 17 Jan that it had launched a free medical leave insurance scheme for drivers that hit a minimum level of earnings.

This is part of the Triparte work group between the MOM, the National Trades Union Congress (NTUC), and the Singapore National Employers Federation (SNEF) developed last year. Grab would be one of the first companies to implement this.

This, in Momentum Work’s opinion, is a win-win of how a government can work with a private company to provide safety net to self employed workers. Whilst it is a government initiative, the key to its success will be how a company will actually implement it. In Grab’s case, it has launched the medical insurance coverage on top of it’s current range of benefits from fuel discounts to scholarships and bursaries for drivers’ children. Time will tell how it will fare, and how other competitors will catch up.

Test and iterate quickly!

Whilst Grab has stopped promotions, it has been trying out a few initiatives to get its users to stick.

A few weeks ago, it launched a campaign of paying lesser fare if you use GrabPay Credit vs other payment methods. That campaign has stopped now, and it’s been replaced by a stamp card campaign. The stamp strategy, subscription models and other innovative ideas are the next level of building customer loyalty and encouraging users to stay in the Grab ecosystem. While some of these innovations will fail, we feel Grab is iterating fast to find out what makes their customers tick.

Grab or Go-jek – Who will win?

In Momentum Work’s 2019 prediction, we mentioned that Go-Jek’s expansion outside Indonesia will be slow. The experience in Singapore will be a litmus test for the expansion in other SEA countries.

Our CEO Jianggan LI will tell you that running a multi-sided platform is tough. You have to balance the needs of your drivers and passengers. Basing that platform on promos and incentives may give you a short term boost but cost you riders and drivers in the long run.

Why did Go-Jek stop the pricing promotions so abruptly? There are two hypotheses. One – Go-Jek has reached its goals of market size, or two – it has tested it and realized that promotions are not working.

This is a kind of de ja vu for Momentum Works. Both Uber and Meituan tried to enter China’s ride hailing market in 2014 and 2018 respectively and threw a significant amount of price promotions to win over market share from Didi. Their playbook must have dictated that price promotion was “the best way to gain market share”. However, history would show that in the next few years (months for Meituan – read our analysis here) that followed, this was not the case. Didi still retained market dominance because it found ways to make the customers stick without price promotions.

We believe that Go-Jek experienced the latter – they tested the pricing promotion and realized that it’s not working. We feel that Grab, like Didi is changing the way the game is being played here. We look forward to the new initiatives that it is trying to bring to the table.

Recently, Momentum Works did an informal survey with a bunch of VC, startups and corporate folks. We asked the audience – who will win, Grab or Go-Jek? All of them acknowledge that both Grab and Go-Jek are forces to be reckoned with. 70% of them acknowledged that price wars would harm both companies and 33% of them reckoned that the market is big enough for 2 big players.

Which company got the highest vote? We have to abide by the Chatham House rules, but we think that it will ultimately be Masayoshi Son.