Indian School of Business

ISB021
November 25, 2013

Sridhar Seshadri | Arohini Narain | Meena Saxena

Meru Cabs A Spectacular Growth Story

Our purpose is not only to make money it is to build a world-class company. Today,
we are the worlds third largest. So size doesnt excite us so much. What really excites us
is: are we world-class in the service that we deliver?
Rajesh Puri, CEO, Meru Cabs
Rajesh Puri, CEO, Meru Cabs, reflected on the four years that had passed since 2007, when Meru
Cabs (Meru) had made a modest foray into the radio taxi business with just 45 cabs in Mumbai. By
August 2011, Meru had grown to become the third largest taxi service operator in the world and the
largest in India. With a fleet size of 5,500 taxis and an equal number of drivers, Meru had scaled its
operations efficiently in the four metro cities of Bengaluru, Delhi, Hyderabad and Mumbai.
Recognizing Merus high-quality service, both the Bengaluru and Hyderabad airports awarded their
first contract for airport taxi services to the company. Its mammoth back-end technology gave Meru
the capability to automate most of its service processes and standardize customer experience. In less
than five years, this small company had redefined service excellence in the radio taxi business in
India.
Post-2009, while the company continued to increase its fleet size to match the ever-increasing
demand, it focused on improving per cab performance, making its technology robust and training cab
drivers in using technology efficiently. Puri knew that these critical components of service delivery had
to be addressed to ensure that Meru would not only satisfy its customers, but delight them.

RADIO TAXI INDUSTRY IN INDIA

With a market size of INR1 14.4 billion in 2011-12, the five-year-old Indian radio cab industry was
expected to grow by 30.9 per cent in the next five years. 2 The industry was dominated by four
companies Meru Cabs, Easy Cabs, Mega Cabs and TABcab (see Exhibit 1).3 The still fledgling
industry offered no obvious or accepted business model that could be emulated. By refining their
models through trial and error, radio cab companies in India stumbled upon two types of fleet-based
1

INR stands for Indian Rupee. 1US$=INR 59.27 (as on June 22, 2013)
Indian Radio Cab Market 2012 Challenges and Growth Opportunities, UR Associates Research, August 2012.
3
Indian Radio Cab Market 2012 Challenges and Growth Opportunities, UR Associates Research, August 2012,
p.10.
2

Professor Sridhar Seshadri, Arohini Narain and Meena Saxena prepared this case, solely as a basis for class discussion. The
authors thank Arun Khan for assisting with the writing of the case. This case is not intended to serve as an endorsement, a
source of primary data, or an illustration of effective or ineffective management. This case was developed under the aegis of
the Centre for Teaching, Learning, and Case Development, ISB.
Copyright @ 2013 Indian School of Business. The publication may not be digitised, photocopied, or otherwise reproduced,
posted or transmitted, without the permission of the Indian School of Business.

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2016 to October 2016.

ISB021

business models company owned and franchise based (see Exhibit 2). Typically, radio cab
companies relied on two streams of revenue generation fares and advertisements (commonly
referred to as cabvertising).
Though it was in a nascent stage, the radio taxi industry in India witnessed huge demand and high
growth. The fleet size of radio cabs, mainly concentrated in four Indian metros, 4 was about 15,000 in
2011-12. With demand far outstripping supply, the total number of radio cabs was expected to
increase at a compound annual growth rate (CAGR) of 25 per cent.5 The decline in the fleet size of
non-radio taxis due to ageing cabs, the significant growth of Indias urban population, increase in
disposable incomes, high traffic on other forms of public transport, greater perceived comfort
compared to driving ones own vehicle, official reimbursement of taxi fares, influx of tourists and
increased airport trips, were some of the factors that contributed to the soaring demand for radio cabs.
However, constraints on the supply side due to the shortage of suitable and educated drivers, high
cab maintenance costs and varying government regulations in every state hindered growth. Many
drivers who already owned their own cabs or worked for other non-radio cab operators balked at
paying the high daily rental fee to the radio cab company. Even though radio cab drivers typically
earned 70 per cent more than their non-radio taxi counterparts, many drivers preferred not to join
radio cab companies. The fact that it was compulsory for them to pay daily rentals even if they were
not driving the cab meant that they had to work every day of the week. Issues such as these reduced
the availability of drivers. Further, the radio cab industry was highly regulated and government
regulations were state specific. Red tape, the ceiling on the number of permits that could be held by a
radio cab operator, stringent criteria for qualifying to become a radio cab driver, restrictions on size of
the radio cab and government regulations regarding fares, were some of the negatives of the
regulatory environment in which the radio cab industry operated. Factors such as these contributed to
the sub-optimal supply of radio cabs, resulting in high rates of denial of service (see Exhibit 3). Given
the existing demand scenario, the four big radio cab companies were estimated to have a shortfall of
3,619-5,467 cabs in the major cities in which they operated. 6
Rajiv Vij, CEO, Easy Cabs, was quoted as saying, Over the next five years, we expect to see 5-6
big cities, each with a population of about 20,000 radio taxis, with three large operators controlling 80
per cent market share. We also see the rise of 20 Tier II cities, with a population of 5,000-10,000 radio
taxis each, with 5-6 players controlling up to 70 per cent market share.7 For radio cab operators,
airport trips were the most preferred service, but point-to-point commuting services were also
expected to become increasingly lucrative. Analysts predicted that three to four years post 2011 there
would still be huge demand for radio cabs; however there would be significant competition from online
car aggregators 8 and car rental companies. In addition to providing services similar to radio cab
operators, these companies offered inter-city services, which were not offered by radio cab operators.
Competition would also come from economy radio cabs, which did not have a sizeable place in
metros, but were expected to successfully operate in other Tier I and Tier II cities, 9 where the four
major radio cab operators planned to make their foray in the future.
To meet the existing demand, the major radio cab companies had to scale up their operations.
This required greater investment, which the companies managed by infusing equity capital into their

Mumbai, Delhi NCR (National Capital Region), Bengaluru and Hyderabad.

The Radio Cab Market India 2012, Netscribes report; June 2012.
6
Indian Radio Cab Market 2012 Challenges and Growth Opportunities, UR Associates Research, August 2012,
p.15.
7
Rajiv Vijs quote is from a study by Sunstone Business School and was cited in the following article: Report: 30-50%
Revenue of Radio Cab Market Comes from Airport Transfers, Availability of Cabs Still a Challenge, Nextbigwhat.com,
October 17, 2012, http://www.nextbigwhat.com/report-on-radio-cab-industry-297/, last accessed on March 14, 2013.
8
Aggregators, such as Ola, Savaari and Taxiforsure, do not own a single taxi but take online cab bookings and provide
cabs by forging partnerships with local taxi operators who, in turn, employ the drivers, who can get their own customers
and the aggregators. The aggregator earns a commission of 10-20 per cent per trip.
9
Going by the classification of Indian cities based on the real estate market, there are primarily three tiers. Tier I cities
are characterized by a fairly well-established real estate market, where the demand drivers are quite pronounced. Tier II
cities are characterized by growing real estate markets, experiencing heightened demand and investments. Source:
http://www.india-reports.com/Products/try/IR-tier-2-3-011208-Try.pdf, last accessed on March 1, 2012.
5

2 | Meru Cabs A Spectacular Growth Story

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2016 to October 2016.

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businesses. Thus, even after five years in the business, major radio cab companies had not yet
become profitable.

MERU CABS
A first generation entrepreneur, Neeraj Gupta started his passenger transport business under the
name Travel Link in 2002. In 2004, Travel Link was rechristened V-Link Tours & Travels, and in
partnership with the private equity firm, India Value Fund Advisors10, the company launched Meru11
Cabs in 2007 in Mumbai.12 The initial fleet size of 45 cabs was operated by drivers who were salaried
employees of Meru. Nilesh Sangoi, Chief Technology Officer, Meru Cabs, reminisced, With the first
cab we put up, we were very sure that this was going to be a big scale operation. We were not going
to have just a few hundred cabs, but a few thousand cabs in every major Indian city. In its first three
years of operation, Meru focused on expanding its fleet size in the four metros (Bengaluru, Delhi,
Hyderabad and Mumbai). By 2011-12, Meru had amassed a fleet size of 5,500 cabs, all of which it
owned. Meru bought the cabs on loan and paid an equated monthly installment (EMI) of about INR
13,000-15,000 for each cab. 13 However, Merus share of the taxi business was rather narrow; for
example, of the estimated 56,000 taxis that plied the roads of Mumbai, Meru operated less than two
per cent. Given its huge investment in technology, Meru had still not broken even. Puri expected that
this would change by the end of 2011.

Merus Drivers Key Stakeholders

Merus scaled-up operations required it to change its business model to a subscription-based
model in 2009. Under this model, Meru owned the customer acquisition process and the assets and
was also responsible for cab maintenance; the service offering was delivered by the driver on behalf
of the company. The drivers ceased to be employees of the company; they were now entrepreneurs
who had to pay a deposit of INR 10,000 to be assigned a cab. Following this, they could operate the
cab by paying a predetermined fixed daily rental fee (ranging from INR 900-1,100) to the company.
The fee had to be paid regardless of the day of the week. In return, Meru assigned customers to the
driver based on its patented assignment system. The financial returns to the driver could be
substantial, with drivers expecting to earn a daily profit of INR 500-1000, depending on the day of the
week and on their own initiative and hard work. Merus cabs were insured, and any loss not covered
by insurance was shared by the driver and the company on a fifty-fifty basis.
The key piece to Merus success, as many saw it, was making the driver an entrepreneur.
Salamuddin, a Meru cab driver since 2009, explained:
In the beginning, when I was working (for a salary), I used to worry that if I did not reach
work on time I would lose my job. Now I do not have that fear because I have the car
with me 24 hours a day, and reaching the customer on time is in my hands. That
removes the fear of facing the employer, and I am self-disciplined. The company has
provided us with facilities that make us feel responsible and this makes us want to get
our customers to their destination on time, so as not to lose the customer to another
company.

10 MERU: Redefining The 'Taxi' Experience, December 1, 2008 11:23 AM, http://www.merucabs.com/media-

centre/press-releases/2008/meru-redefining-the-taxi-experience.php, last accessed on December 10, 2012.

11
According to ancient Indian texts, the Meru Mountain was the epicenter of the Earth, and when the churning of the
oceans (sagar manthan) took place, Mount Meru was able to withstand all the resulting turbulence. As a brand, Meru
aimed to embody similar qualities of unshakeable reliability This part was taken from the company website http://www.merucabs.com/about-us/our-philosophy/, last accessed on March 15, 2013.
12
Company website: http://www.merucabs.com/about-us/the-leadership-team/, last accessed March 15, 2013.
13
Shinde, Shivani, and Mitra, Sounak. Meru in Search of Profit Track, Business Standard, September 28, 2012,
http://www.business-standard.com/article/management/meru-in-search-of-profit-track-112092802006_1.html,
last
accessed on March 17, 2013.
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The company actively sought to bring on board the right type of driver one who displayed a
willingness to take risks and was educated and qualified to operate Merus equipment. The driver
selection process included a rigorous examination, at the end of which the selected drivers were
trained for five days and then put on the job. According to Salamuddin, training was important as it
helped drivers understand customer requirements. He elucidated:
The customers expect drivers to arrive on time and be polite and the cab to be clean. As
per company policy, customers are not required to pay waiting charges, and the driver
should not ask for them either. The system in the cab also indicates the speed limit,
which makes the customer aware if the driver is over-speeding. In order to avoid making
the customer anxious, we drive within the speed limit. We also do not have a music
system in the cab, since that can irritate the customer.
Meru placed considerable emphasis on the maintenance of its cabs and equipment. The cab had
to be taken to Merus own service center at predetermined intervals for preventive maintenance. The
resulting cab downtime meant a loss of earnings for the driver. Salamuddin explained:
When a car goes for maintenance work, I cannot make money. The rent that I pay to the
company is stopped. But if the car breaks down over the weekend, I need to keep paying
the rent, since the cab gets registered for servicing only on the next working day of the
following week. I do get reimbursed, but almost after a week. In the meantime I would
not have earned anything, as my car has broken down.
On the plus side, Merus reputation proved to be a boon for the drivers. For example, cab drivers
from other companies were regularly stopped by the local traffic police for checks of their credentials
and papers. Meru drivers were rarely stopped because the traffic police had come to acknowledge
that Meru cars tended to have the necessary papers and insurance in place. Additionally, Merus
policy in the case of a drivers death or permanent disability due to an accident was to contribute
towards his hospitalization costs and provide money to his family. They also offered employment,
such as housekeeping work, to a member of the family. In 2010, Meru began negotiating with
insurance companies to secure cheaper insurance policies for their drivers. Since drivers were not
salaried employees, banks would not give them housing loans. To help them, Meru tied up with a
micro-housing finance company that extended loans exclusively to Meru drivers and also
recommended housing projects to them. Meru convinced all its drivers to open bank accounts and
collaborated with banks to teach drivers how to save money. According to Salamuddin:
Merus high investment in technology has benefited drivers greatly. Prior to joining Meru,
I had to manage the customer on my own; but with this new technology, the call center
manages the customer and we get more business. I believe that I can work for Meru for
the next 15-20 years because I make more money here.

MERUS OPERATIONS
Merus scaled-up operations and increasing fleet size had to be backed by a robust technology
framework, which could facilitate the automation of most service and business processes.

Merus Front-end Systems

Considered to be one of the most sophisticated users of technology, Meru operated modern airconditioned cabs that used clean green fuel. The cabs came with several in-built features, such as a
Mobile Data Terminal (MDT), which contained a cab location tracking GPS system, a two-way
communication GPRS system, and a digital touch screen, which provided an interface for the driver.
The driver had to log in at the beginning of the day using his ID so that Meru knew which driver was
driving which cab. Logging in enabled the meter and signaled to Merus back-end operations that the
cab was available for business. The tamperproof digital fare meter and the odometer were connected
to the MDT. Since the digital cab meter was integrated with the GPS system, Meru ensured that
4 | Meru Cabs A Spectacular Growth Story

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2016 to October 2016.

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every fare was tracked. Passengers were given a printed receipt for every fare, providing details of
the distance travelled and the total amount payable.14 All Meru cabs were equipped to process debit
and credit card payments. The company recently installed indicators in the cabs to signal whether
they were free to be hired or not. By efficiently managing technology and its 24x7 Customer Service
Center, Meru ensured that cabs were available round the clock. In order to offer superior service
delivery and reduce cab breakdowns, Meru regularly serviced the cabs at its own service center and
had patrol vans that conducted periodic spot checks of cabs. Car cleaning was also a part of cab
maintenance and an essential component of the service package.
When Meru began operations in 2007, each MDT cost the company approximately INR 100,000.
By 2011-12, the cost had dropped to INR 60,000. Two factors brought the cost down: First, since the
MDTs were imported from Italy, the improvement in the value of the Indian Rupee vis--vis the Euro
made a difference; second, the manufacturing cost of the MDT dropped. The original MDT was an
over-designed piece that was not fully suited to Merus requirements. Post 2009, Meru had worked
with the manufacturer to create a product that better suited their needs. Puri explained:
We buy a vehicle just as a retail customer would buy a car. It is tailored to our
requirements to a certain extent, such as having the petrol/ CNG (natural gas) option
instead of a petrol/ diesel option. We may also ask the manufacturer to make some
simple adjustments or modifications that make the cabs easy to maintain.
The MDT, which has the GPS, GPRS and the GIS (the location provider), the printer,
meter, and taxi top are fitted by Meru. The rooftop indicator is fitted by us, and wherever
a luggage carrier on the roof of a cab is required, we install that as well.

Merus Back-end Systems

Around 2009, Meru decided to implement enterprise systems that would help them as they
expanded over the next five to 10 years. They implemented Oracle ERP (Enterprise Resource
Planning), an e-business suite that consisted of a financials module, the Oracle HRMS (Human
Resources) module and the Oracle Enterprise Asset Management module. The financials module
helped them manage account payables and receivables, cash management, purchasing and treasury.
The Oracle HRMS module took care of their employee and driver management programs. The Oracle
Enterprise Asset Management module facilitated cab maintenance. Meru had a dedicated team that
supported the ERP modules.
Meru also implemented Siebel CRM (Customer Relationship Management), which they used to
manage the lifecycle of the drivers, beginning with their recruitment. This system helped them
manage the driver selection process, training process and the initial assignment of a cab to a driver.
Subsequently, when drivers went on breaks, Siebel CRM was used to determine their subscription
accrual, the start and stop of daily subscription fees, and so on. Sangoi remarked, We view our
drivers as our customers because they help us make money. They are not our employees. So right
from the time we recruit them, we manage everything on the CRM.
Customers could lodge a complaint either by calling the call center, where there was a dedicated
queue for complaints, or through Merus website. All customer complaints were routed through the
Siebel CRM system. Complaints about a driver were logged against him and proportionate action was
recommended in accordance with the complaint. Just as complaints were recorded in the system, so
was good feedback, for which drivers were recognized with certificates of excellence. The Oracle
SOA (Service Oriented Architecture) suite was used to integrate all this information.

14

Company website
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Merus Operational Sub-processes

According to Gavin Dabreo, Executive Vice President Operations, Sales and Marketing, Meru
Cabs, Merus operations could be divided into four sub-processes (see Exhibit 4):

Customer Acquisition
Customers could make cab bookings via the call center, where calls came through the Interactive
Voice Response (IVR) system, or Merus real-time website, which accounted for 20 per cent of cab
bookings. IVR was a system through which customers could choose from several available options,
such as Book a cab, or Find out the status of a cab. The script was designed to differentiate
between existing and new customers. When a customer made a repeat call, Merus built-in CRM in its
IVR system helped them identify the customers name and booking history. This was helpful in
expediting the booking process for returning customers.

Booking Management
Since the IVR system was directly integrated with the cab dispatch system, Meru used its patented
algorithm to match a driver to a booking request. In order to reserve the cab, the agent pressed the
Dispatch button. The GPS in each cab allowed Meru to pinpoint those drivers closest to the
customer. Based on this information, the system picked five drivers to whom the customer request
was broadcast on the MDT in the cab. The particular job, with the pick-up address and time, was sent
to a set of five drivers closest to the customer. The broadcast did not reveal the drop-off point. With
the given information, the five drivers could choose to bid for the job by pressing "Bid on their MDT.
The system then assigned the job to a particular driver based on several parameters. Sangoi
explained:
We take into account various parameters the cabs proximity to the customer, the
drivers idle time, the waiting time of the cab and also how many bids the driver has won
in the last few hours. So we try to provide an equal distribution of bids. We also ensure
that no cab waits for too long without business.
Once the winner of the bid was selected, Meru sent the customer a text message with the details
of the assigned cab and driver and sent the driver the passengers pick-up details. This entire process
took less than two minutes.

Cab Delivery
On arriving at the customers location, the driver intimated the call center about the cabs arrival by
pressing the Reached button on the MDT. Subsequently, an SMS was automatically sent to the
customer from the call center to inform him of the cabs arrival.

Service Delivery
The cabs meter was switched on only when the customer boarded the cab. The customer was not
expected to pay any waiting charges. The trip was monitored electronically. However, drivers could
switch off their devices if they did not wish to be disturbed while driving. At the end of the trip, the
customer was given a printed receipt and had the option of paying by cash or card. Once the receipt
was printed, Meru knew that the trip was successfully completed and that the driver was available for
a new job. Sangoi remarked:
Of our 20,000 bookings every day, 99 per cent are done through the system. This helps
ensure that we dont overinvest in people and dont create inefficiencies; it thus helps
allocate cabs efficiently.
Their integrated booking, bidding and dispatching systems provided Meru access to useful data,
such as how much each driver earned and trends in earning. At the end of every trip, Meru could
6 | Meru Cabs A Spectacular Growth Story

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gauge the trip value, the metered and the unmetered kilometers, how many hours a driver had
logged, how much effort he was putting into driving the cab, and so on. This type of data analysis was
conducted and reviewed on a daily, weekly and monthly basis. This gave Meru valuable driver
performance data in terms of how many bids drivers were accepting, how many kilometers they were
driving, how many trips they were making and how many personal and company trips they did. If a
driver showed too many unmetered kilometer runs, Meru took necessary action by way of counseling,
training and putting the driver through corrective action. Similarly, earning trends could help pinpoint
areas of concern and trigger specific action measures.

Merus Fail Point Measures

In India, drivers of traditional taxis often increased the fare by taking a longer route. In Merus
case, drivers were given rigorous training to prevent this from happening. If customers complained
about drivers taking circuitous routes, drivers were accordingly counseled and trained; however, if this
behavior persisted, they were recalled and only permitted to go back on the road after undergoing
corrective action (see Exhibit 4).
Meru did not have a system to track whether a driver refused to do a job, except when they saw a
red flag in their system. The next job was assigned to a driver only when he exited the system and
pressed a button to indicate that the previous job had been completed. If Meru found that the charge
was only INR 15 or 20, or that it had been registered before the assigned customer pick-up time, they
knew there was a problem. However, Meru could not predict service failure and their subsequent
processes to manage the failure were manual. They had a team of call center agents whose job was
to monitor service failure and inform the customer that there was a problem due to which the cab was
delayed and that another cab would be dispatched in the next 15 minutes. However, Meru did not
have processes to prevent these service failures from occurring. This was a major area of concern for
Meru. Dabreo explained:
We have identified issues of both on-time cab delivery and on-time arrival of the
customer to the cab after the job has been awarded to the driver. We cant keep the cab
waiting endlessly as our asset is not being utilized. So there is a sub-process wherein we
make an out call to the customer to check whether he intends to take the cab or whether
we should send him a second cab later. These are probably the two areas that are pain
points, something we need to correct.
However, there is no overnight solution. We have got to keep doing intensive training
with the driver and keep pushing him to raise the envelope; while internally we have to
put in more checks into the system to gain better control over this problem what we
refer to as cancellations. In January 2010, we had around 200 cancellations a day on,
say, 7,000 jobs in Mumbai. Today, in August 2011, it has come down to 60.
Another area in which Meru aimed to improve its service was reducing the customer rejection rate,
which was largely a result of soaring demand and limited fleet size.

MERUS SERVICE
Sustainable and manageable growth was possible only if efficiencies were built into systems and
processes, and Meru was a frontrunner in adopting technology to derive efficiencies. Merus
commitment to providing an excellent customer experience by investing in technology was articulated
by Rajesh Puri:
In our industry, the fare and fuel price are controlled by the government. The car price is
controlled by the manufacturer, because we are just half or one percent of his total sales.
The question is, why do we install such an expensive device [MDT] when we have so
many other costs? We believe that to provide good and efficient service, this device is
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ISB021

essential for us and for our growth. We also need to keep track of the cabs as these are
our assets. INR 350 crores (~US$ 76 million15) of assets are out on the roads.
In order to satisfy its customers, Meru used its capital to make technology investments, rather than
spend it on advertising. However, one thing that Meru did diligently was creating brand awareness
and addressing packaging. They ensured that the distinctive green color of their cabs stood out, and
they ran several campaigns so that customers recognized the value of using a radio taxi, particularly
Meru. According to Dabreo:
We aimed to satisfy customer needs and establish a brand around it. We are embedding
in the mind of the consumer that our brand is built on a reliable, hassle-free proposition.
Hassle-free because the customer doesnt have to negotiate with the driver about where
he wants to go and there is no issue of a tampered meter because he gets a printed
receipt. And we stick to that. We have not yet gone to the next level of delighting the
customer.
When Meru started operations in 2007, they had not anticipated that demand would be as high as
it proved to be. Thus, they planned for a call center suitable for a smaller base of cabs. However,
given the rapid increase in demand, Merus call centers received a greater volume of calls than they
could handle efficiently. Thus, the call center experience left customers exasperated as the waiting
time could be as long as 15-20 minutes. The customer would be in a queue irrespective of the type of
request. So whether it was a booking request, cab status inquiry or complaint, Meru had just one
queue. Dabreo recalled, At that time, there was a joke that it was easier to go down the road and find
a Meru cab than get one through Merus call center. In order to reduce the queues, in 2009, Meru
installed a robust IVR system so that calls could be streamlined and transferred to people who were
free; they compressed the script in the call center and regularly trained their call center
representatives to adhere to the script. All these efforts helped bring the call time down from 2-2.5
minutes to 60-70 seconds. Dabreo explained:
When we started, 50-55 per cent of our calls used to end with the operator manually
assigning the customer to a driver. Training drivers to improve their service levels helped
reduce the pressure on the call center to manually assign drivers. Today, we have been
able to automate the process such that now only 2-3 per cent of the calls end in manual
assignments.
Additionally, Meru launched its real-time website in 2011 to help customers make online and
mobile bookings. In 60-70 seconds flat, customers could book their cab and get the cab number
online. Merus manpower strength was a little in excess of 700 (250 worked at the call centers). The
manpower to cab ratio was about 1:13 (without counting drivers, as every cab had a driver). At the call
center, the staff to cab ratio would typically be 1:25, as Meru typically over-budgeted in areas where
they thought the customer was going to be affected.
Meru recognized that the impact of cancellations was far higher on airport trips. In July 2011, they
launched the Assured Airport Service in Hyderabad, where they provided a 100 per cent cab
guarantee. They maintained a buffer of cabs through alternate arrangements in the office and in three
or four other places in the city. This way, if there was a problem, an alternate cab could be sent
immediately. The success of this service was evident from the fact that Merus bookings jumped by 25
per cent and the companys fail rate with respect to airport trips dropped to zero. Meru planned to take
these learnings to its other cities as well. All these efforts resulted in Meru earning customer goodwill
and loyalty.
According to Merus policy, a lag time of up to 15 minutes was acceptable between the time a
customer was to be picked up and the time that the cab actually reached the customer. Meru put this
policy in place because in the big metros, such as Mumbai and Delhi, there could be unavoidable
delays due to traffic bottlenecks. In 2009, Meru began fine-tuning its cab searching algorithm. Earlier,
15

The case is set in August 2011, when US$ 1 = INR 46.36.

8 | Meru Cabs A Spectacular Growth Story

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ISB021

the parameter was cab proximity within seven kilometers; it subsequently became five kilometers. By
2011, Meru was able to distil its search algorithm to different policies for different sub-areas within a
city or locality. By August 2011, Meru boasted of 97 per cent on-time service.

THE ROAD AHEAD

According to Puri, there were five Cs (components) involved in the radio taxi business
customer, company, call center, cab and chauffeur. The last three, which were the customers
interfaces with the company, had been closely addressed by Meru. The company was now focused
on making these systems a part of the organizational culture as it wanted to go beyond the limitations
of a commercial transaction arrangement with the chauffeur. The other area they were working on, but
had not got right, was vehicle maintenance. Meru aimed to reach a stage where they never refused a
customer booking. In order to reduce the customer rejection rate, Meru toyed with the idea of either
running a program for loyal customers or serving customers on a first-come, first-served basis. They
recognized that they had to differentiate themselves from their competitors by running specific
programs for loyal customers, and planned to launch a 90-day pilot program for their top 10,000
customers later in 2011. There was talk that Meru might announce grand expansion plans both within
and outside India. However, Puri denied these speculations:
We dont want to go wild on expansion until we have got our existing four cities right. Our
focus is to meet the current and latent unfulfilled demand in the existing cities [where
Meru operates] first. After we have done that, we will look at other models of expanding
in smaller cities because our current model is good for very large cities.
Despite Merus rapid rise, there were several constraints to its growth. Among the most pressing
concerns were the short supply of qualified drivers and management of its ever-growing operational
scale. Meru had been facing competition across the board from similar operators, such as Easy Cabs
and Mega Cabs, as well as from limousine companies such as Orix.
Merus senior management was clear that in the next few years, the company had to break even,
optimize its operations in the existing cities, address the soaring and latent demand in those cities and
meet its competitors head on. However, the shortage of good drivers, driver strikes, long cab
downtime, presence of built-in inefficiencies (around cancellations) and state-wise fare variability,
were some of the problems that hindered Merus progress.
Reflecting on these issues, Puri enunciated,
I think the purpose has not really been to earn money. We are still a loss-making
company and will probably break even in another quarter or so [by March 2012]. I think
the whole purpose has been: Are we fulfilling a basic consumer requirement well and are
we changing the lives of people associated with us? It could be drivers, mechanics or
any staff here.
With growth waiting on the anvil, Meru had to plan its next steps, and in doing so, encountered the
following frequently discussed questions: What should Meru do to maintain its competitive
advantage? Should it move towards greater customization in its service offering? Should it remain in
the existing cities or expand to other cities and countries? Should it adopt different business models
for different customer segments and cities? How should it manage drivers and encourage them to
deliver excellent service to the customer? How should it improve the drivers earnings and number of
trips? How should it become more proactive in anticipating and preventing failure? Finally, how should
Meru align its technology, skills and processes to become consistent across the organization?

Meru Cabs A Spectacular Growth Story | 9

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ISB021

EXHIBIT 1
COMPARATIVE ANALYSIS OF MAJOR CAB OPERATORS
Incorporation year
Fleet size
Area under
operations

Market share
(volume
terms)
FY11 Net sales
(INR million)*
Sales CAGR
(FY07-11)*
FY11 net profit/
(loss)
(INR million)*
Accumulated profit/
(loss)
FY07-11
(INR million)*
FY11 Total debt
(INR million)*

Meru Cabs
2007
5,500

Easy Cabs
2006
2,700

Mega Cabs
2000
2,500
Mumbai, Delhi,
Bengaluru, Kolkata,
Ludhiana,
Chandigarh and
Amritsar

TABcab
2011
1,200

Mumbai, Delhi
NCR,
Bengaluru and
Hyderabad

Mumbai, Delhi
NCR,
Bengaluru and
Hyderabad

37%

18%

17%

8%

1,393

2,084

261

N/A

79.2%

31.3%

223.3%

N/A

(430)

16

5.8

N/A

(1,157)

129

(5)

N/A

1,167

1,468

402

N/A

Mumbai

* The net sales, net profit, accumulated losses and total debt figures in the case of Easy Cabs are for Carzonrent
(which owns the Easy Cabs brand) as a whole. We estimate that radio cabs contributed to 25-30% of the total
company revenues in FY11.
Note: These four players cumulatively accounted for 80% of the market share of the Indian radio cab industry.
Source: Indian Radio Cab Market 2012 Challenges and Growth Opportunities, UR Associates Research, August
2012, p.10.

10 | Meru Cabs A Spectacular Growth Story

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ISB021

EXHIBIT 2
PREVALENT BUSINESS MODELS IN THE RADIO CAB INDUSTRY

Business Model of Meru Cabs

Beyond the daily

fees, the extra
income through
fares goes to
drivers

Driver is given a
vehicle for which he
has to pay a daily fee
of ~INR 800-1000

Agent from
companies
approach drivers

Drivers pay a
refundable
deposit and
application fees
and undergo
training

Operator owns
the vehicles but
drivers are
assured a
certain amount
of fares
everyday

Franchising Business Model of Easy Cabs

Easy Cabs tied up
with Delhi Metro Rail
Corporation to set
up kiosks at 25
metro stations
-

Trained and verified drivers,

technology back up and parking
space will be allotted to
franchisee

The operator expects

the franchisee to look
after the day-to-day
management of
operation

The operator is looking at a franchisee who has some understanding of running taxi
business and can maintain the companys standard of service delivery
It asks for non-refundable fees for a period of three years from the franchisee who
will be given a fleet of 50-100 cars and a certain amount of money to maintain them
The franchisee will have to pay a monthly rent for the kiosks as also appoint 3-4
people as staff

Source: Netscribes, The Radio Cab Market- India 2012 report; June 2012; p.10

Meru Cabs A Spectacular Growth Story | 11

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2016 to October 2016.

ISB021

EXHIBIT 3
CURRENT DEMAND ANALYSIS FOR THE BIG 4 COMPANIES
Meru Cabs
No. of calls
received per
day
Average call
rejection rate
No. of calls
entertained per
day
Current fleet size
% utilization
Trips per cab per
day
No. of additional
cabs required

Mega Cabs

TABcab

Min.

Max.

Min

Max.

Min

Max.

Min.

Max.

22,000

24,000

20,000

22,000

18,000

20,000

10,000

12,000

25%

31%

40%

45%

40%

46%

30%

42%

16,500

16,500

12,000

12,000

10,800

10,800

7,000

7,000

5,500
75%

5,500
75%

2,700
75%

2,700
75%

2,500
75%

2,500
75%

1,600
80%

1,600
80%

4.0

4.0

5.9

5.9

5.8

5.8

5.5

5.5

1,375

1,875

1,350

1,688

1,250

1,597

549

914

Total cabs requirement

assuming no overlap of
calls
% of unique calls
Total cab requirement

Easy Cabs

Min

Max

4,524

6,074

80%
3,619

85%
3,845

90%
4,071

80%
4,859

85%
5,163

90%
5,467

Source: UR Associates Research, Indian Radio Cab Market 2012- Challenges and Growth opportunities; August 2012;
p.15

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ISB021

EXHIBIT 4
MERUS SUB-PROCESSES AND FAIL POINT MEASURES

SMS sent
to customer
with cab
and driver
details

SMS sent
to customer
about cab
arrival

Customer
Acquisition

2. Booking
Management
No

Cab unavailable
Merus call centre
agent or website
rejects customer
upfront. Thus, no
booking made

No driver bids
Booking made,
but no driver bids
received- Meru
allots cabs
manually or sends
SMS to customer
rejecting his/her
booking

Yes

4. Service Delivery
No

Yes

3. Cab
Delivery
No

1.

Printed receipt
given to
customer after
trip. Meru
knows driver
available

Cab does
not reach
customer
Out-call
made to
customer
manually
regarding
sending
another cab

Customer
keeps cab
waiting
Out-call
made to
customer
manually
regarding
sending
another
cab

If customer
complains after trip
Driver not
permitted to go for
any other trip
unless he
undergoes training
and corrective
action, if required.

Source: Developed by authors from discussions with company officials

Meru Cabs A Spectacular Growth Story | 13

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2016 to October 2016.