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LYFT VEHICLE SERVICES: BUILDING TRUST AND REPAIRING A VALUE PROPOSITION Mathew Taylor wrote this case under the supervision of Professor Eric Janssen solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality. This publication may not be transmitted, photocopied, digitized, or otherwise reproduced in any form or by any means without the permission of the copyright holder. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, contact Ivey Publishing, Ivey Business School, Western University, London, Ontario, Canada, N6G ON1; (1) 519.661.3208; (e) cases@ivey.ca; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to publishcases@ivey.ca. Copyright @ 2021, Ivey Business School Foundation Version: 2021-10-13 CONTEXT In 2019, Rachel Tepper, the senior manager of strategy and business operations at the San Francisco headquarters of Lyft Inc. (Lyft), had been tasked with helping build and ultimately scale Lyft's new vehicle services division. Tepper was focused on answering two key questions: "How could Lyft earn the trust of consumers?" and "Should the company revisit its value proposition?" Tepper realized that answering these questions would be essential to Lyft's ability to see significant success within the vehicle services market. COMPANY BACKGROUND Lyft was a technology company that was an established player in North America's vehicle-for-hire industry, also known as rideshare.' Lyft held 32 per cent of the market share within this industry, and as a result, it was the second-largest rideshare company in the United States (where Uber Technologies Inc. was the largest). While it was continuing to grow, Lyft currently operated within 644 US cities and twelve Canadian cities. Operating from a mobile application available on iOS and Android devices, Lyft provided traditional rideshare services while also providing users in select markets with access to rental cars, motorized scooters, bicycles, self-driving vehicles, and-more recently-food delivery through a partnership with GrubHub Holdings Inc. While it offered a wide range of services, Lyft's core mission was "to improve people's lives with the world's best transportation."EXHIBIT 3 (CONTINUED) Diagnostics & Service Bells . Transmission swaps Engine diagnostics and swaps (Diagnostics only Exhaust system Fuel system Heating/AC Hoses . . . . . . .. .. Ignition . . Mirrors/sensors Suspension + steering Switches Collision Body work* Paint repair" Insurance claims*=EXHIBIT 4: LYFT'S CURRENT VALUE PROPOSITION lyn DRIVER Why Ly Chaos Help Become a driver RIDER BUSINESS LOG IN SIGN UP LYFT DRIVER SERVICES High quality, fairly-priced vehicle services A Choose from three comment options noor you From mutine checks and maintenance to complex repairs and support, falty priced services from expert technicians are here. Schedule serviceFinancially speaking, Lyfl generated roughly US$14 billion5 in revenue in 2020, a 35 per cent decrease from its 2G1? figure of$3.6 billion.\" Lyfl had yet to see a prot, and it had incurred a net loss of$l.3 billion in 2020, a drop from its $2.6 billion loss in Zilll'i'.T Understandably, the COVE-19 pandemic had exposed Lyfl's vulnerability to signicant decreases in rideshare demand. VEHICLE SERVICES [n 2019, Ly' ofcially expanded into vehicle services, rst providing access to Ly Driver Centers and Mobile Service onJy to its drivers (see Exhibit 1]. Lyft's vehicle services were offered in thirteen major US cities (see Exhibit 2}. Facilitated through the same Ly' app, the company now also offered services to end users (riders) in three fundamental areas: routine maintenance, diagnostics and service, and collision repairs {see Exhibit 3)} Lyfl's Driver Centers operated much like traditional automotive repair shops; however, their waiting rooms also provided a rare and unparalleled level of comfort. Equipped with high-speed Internet and various workspaces, Lyft's Driver Center lounges more closely resembled up-scale co-working areas than traditional waiting rooms. Lyft's Mobile Service, on the other hand, brought the company's \"experienced auto service technicians directly to your door\"; the company's well-equipped Mobile Service vans mainly provided routine maintenance and looked after common vehicle needs (see Exhibit 3}.9 [n the past, the company had provided these services exclusively for Lyft drivers and no: for end users. In 2021, Lyfl wasjust starting to offer these services to these users. It was motivated to do so for a variety of reasons, including diversifying existing revenue channels in the interest of company-wide protability, taking advantage of the higher-margin business of vehicle services, and operating within an industry with stable and predictable year-over-year growth."1 In the United States, the automotive mechanics industry generated over $64 billion in revenue during 2G2!) and was expected to grow annually by 3.3 per cent between HBO and 2025.\" Lyft had sought to differentiate itself from con'qaetitors within this industry by offering low prices, high service quality [i.e., expert technicians, faster repair times), comfortable lounges, and a user-friendly experience within its app. Lyfl's value proposition was based on its low prices and high service quality, but questions remained about whether or not this truly resonated with consumers and if it wou]d put LyPt in the best position to grow. COM PETITORB The crowded and highly fragmented vehicle services market was comprised of three groups: {1} independently owned service centres, (2} large-scale service centres such as Jiffy Lube International Inc. and Midas Inc., and [3) dealerships. Service providers within this industry typicaJIy achieved success by winning in one or more of the following areas: price, service quality, and trust. Dealerships were generally considered to be the leaders in terms of service quality, whereas smaller, independently owned service centres normally succeeded through building trusting relationships with customers. In terms of price, while dealerships often covered the cost of servicing for vehicles that were still protected under warranty, they were traditionally more expensive after warranties expired. Large-scale service centres were traditionally more affordable, and the independent service centres normally maintained the ability to compete through lower prices.'2 While Ly's brick-and-mortar Driver Centers competed directly with these \"ell-established providers, Lyft's Mobile Service operatedwithout a similar direct competitor. As a result, Tepper wondered whether Ly's most valuable point of differentiation was its Mobile Service rather than the company's overall low pricing or high service quality. CONSUMERS Early in Ly'ft's expansion, Tepper had thought carefully about moving forward with the most compelling value proposition forend users. Lyft believed that focusing on young professionals, primarily those between the ages of twenty and forty, would put the company in the best position to grow. This was because individuals in this gropp deeply valued mdamental aspects ofLy'ft' s offering, or particular ltS lower prices and increased convenience through faster service times. In order to better understand buyer behaviour within the vehicle services industry, Ly'ft interviewed a sample of young professionals from the cities in which it offered or would soon offer vehicle services. When asked, \"How do you select a vehicle services provider?" interviewees cited trust, reliability, and reputation as the most important qualies. Moreover, multiple interviewees also identified their desire to avoid poor and deceptive business practicessuch as overcharging or recommending unnecessary maintenanceas reasons why dealerships were more attractive. Based on these interviews, it was clear that dealerships benefited from being considered more trustworthy, whereas independently owned and even large-scale service centres were seen as less trustworthy. During these interviews, participants were also asked about their rst impressions of Ly''s entrance into vehicle services. Without additional context, multiple individuals were surprised by this move, which was a signicant departure from the company's core rideshare business. However, when key pillars ofLy's value ition were raisednamely, lower prices and faster servicing timesparticipants seemed more willing to give Ly'fl a chance. This was demonstrated by a few noteworthy comments, including, \"Well, I welcome the increased competition to the marketplace. It lowers pricing and forces other people to continuously innovate. [But] I'm not sure ifI'd try it immediately. A car is a pretty substantial investment, and ifit requires servicing, I'd rather take it to a more established shop.\" Another respcmdent said, \"For me, and probably a lot of other people, it would take a hit of time for Ly'fl to earn respect in the car maintenance industry.\" Vehicles were expensive, and consumers were understandably careful about where they chose to get them serviced, whether for routine maintenance such as oil changes or for largerjobs like collision repairs. While Ly'ft's current value proposition, built around pricing and quality, seemed to resonate with some consumers, it was clear that the company had to ford a way o'fbuilding trust with end users. BUILDING TRUST Though providing reliable service was a clear rst step, Tepp-er wondered what actions Ly could take to win the condence of individual riders. Financially speaking, some options included discounting prices for new customers and incentivizing existing customers to spread awareness through referral bonuses. However, Tepp-er wondered whether doubling down on low prices would be sustainable and to what extent this would attract new customers. In terms of incentivizing referrals, questions also remained as to how these incentives should be priced, since the revenue generated from a mere oil change was very different from the revenue generated from something like a transmission repair. Because trust was linked directly to fair pricing within this industry, Tepper also thought deeply about Lyfl becoming radically transparent when it came to pricing. Both in-house and external research indicated that consumers craved increased levels of transparency in the area of automobile maintenance. L\" Perhaps with Ly''s resources as a data~driven technology company, Tepper could work towards repositioning the company's vehicle-services arm as the most honest provider of vehicle services. As mentioned earlier, low prices and high service quality were already valuable to its desired consumers, but being the amt transparent about these priceswhat was behind the prices and how they compared to those of key competitorsmight be an uncharted yet clear path to building trust with consumers. Tepper wondered how radically transparent pricing could \"'Ol'k and ifthere were other ways Ly'ft could become a leader in this area. FUTURE OF LYFI' VEHICLE SERVICES [n 2(121, as Ly had recently begun to offer vehicle services to end users, Tepper was aware that many important questions remained unanswered. Should Lyfl continue leading with the value proposition displayed on its website: \"High quality, fairly-priced vehicle services\"? Or should the company pivot to focus more on trust (see Exhibit 4}? She also wondered which actionable steps the company should take to build consumer trust. Should Lyft focus on building out nancial incentives, lead through unprecedented transparency, or shift its focus elsewhere? On a tight forty-eightvhour deadline, Tepper prepared to present newly iterated value propositions to the company's vice-president ofbusiness operations. She was expected not only to provide a new value proposition for Ly 1u'ehicle Services as a whole but also to draft ideas specic to Driver Centers and the Mobile Service. Working late at the ofce, Tepper sat at her desk and began brainstorming. EXHIBIT 3: LYFT'S AVAILABLE SERVICES Driver Centers Mobile Service Routine Maintenance Synthetic oil change . . Tire rotations Brake services Tires repairreplace (Repair only) Wiper blades . . . . . . . . Cabin filter change Engine filter change . . . . . Battery services Spark plugs Wheel alignment" Windshield repairEXHIBIT 3: LYFT'S AVAILABLE SERVICES Driver Centers Mobile Service Routine Maintenance Synthetic oil change Time rotations Brake services Tires repaintreplace (Repair only) Wiper blades . . . . . . . .. Cabin filter change . Engine filter change . Battery services Spark plugs Wheel alignment" Windshield repair