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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 0N1; (t) 519.661.3208; (e) [email protected]; www.iveycases.com. Our goal is to publish materials of the highest quality; submit any errata to [email protected] i1v2e5y5pubs 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.1 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).2 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.3 While it offered a wide range of services, Lyft’s core mission was “to improve people’s lives with the world’s best transportation.”4

1 Lyft Inc. (website), accessed March 3, 2021, https://www.lyft.com/rider/cities. 2 Liyin Yeo, “Uber vs. Lyft: Who’s Tops in the Battle of U.S. Rideshare Companies,” Bloomberg Second Measure, July 14, 2021, https://secondmeasure.com/datapoints/rideshare-industry-overview/. 3 Lyft Inc., “Lyft and Grubhub Team Up to Bring Unlimited Free Delivery from Your Favorite Restaurants and Other New Perks to Lyft Pink ,” Lyft Blog, October 6, 2020, https://www.lyft.com/blog/posts/lyftpink-adds-grubhub-perks. 4 Lyft Inc., “Lyft Autonomous: The Future of Transportation Is in Your Pocket,” Lyft, accessed March 3, 2021, https://self- driving.lyft.com.

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Page 2 W25384 Financially speaking, Lyft generated roughly US$2.4 billion5 in revenue in 2020, a 35 per cent decrease from its 2019 figure of $3.6 billion.6 Lyft had yet to see a profit, and it had incurred a net loss of $1.8 billion in 2020, a drop from its $2.6 billion loss in 2019.7 Understandably, the COVID-19 pandemic had exposed Lyft’s vulnerability to significant decreases in rideshare demand. VEHICLE SERVICES In 2019, Lyft officially expanded into vehicle services, first providing access to Lyft Driver Centers and Mobile Service only to its drivers (see Exhibit 1). Lyft’s vehicle services were offered in thirteen major US cities (see Exhibit 2). Facilitated through the same Lyft 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).8 Lyft’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 In the past, the company had provided these services exclusively for Lyft drivers and not for end users. In 2021, Lyft was just 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 profitability, taking advantage of the higher-margin business of vehicle services, and operating within an industry with stable and predictable year-over-year growth.10 In the United States, the automotive mechanics industry generated over $64 billion in revenue during 2020 and was expected to grow annually by 3.3 per cent between 2020 and 2025.11 Lyft had sought to differentiate itself from competitors 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. Lyft’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 would put Lyft in the best position to grow. COMPETITORS 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 typically achieved success by

5 All dollar amounts in the case are in US dollars. 6 Lyft Inc., “Lyft Announces Fourth Quarter and Fiscal Year Results,” news release, Lyft, February 9, 2021, https://investor.lyft.com/news-and-events/news/news-details/2021/Lyft-Announces-Fourth-Quarter-and-Fiscal-Year- Results/default.aspx. 7 Lyft Inc., “Lyft Announces Fourth Quarter and Fiscal Year Results.” 8 Lyft Inc., “Lyft Driver Services: High Quality, Fairly-Priced Vehicle Services,” Lyft, accessed February 10, 2021, https://www.lyft.com/driver/vehicle-service. 9 Lyft Inc., “Lyft Driver Services.” 10 IBISWorld, Auto Mechanics Industry in the US, Market Research Report, March 24, 2021, https://www.ibisworld.com/united- states/market-research-reports/auto-mechanics-industry/. 11 IBISWorld, Auto Mechanics Industry in the US.

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Page 3 W25384 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.12 While Lyft’s brick-and-mortar Driver Centers competed directly with these well-established providers, Lyft’s Mobile Service operated without a similar direct competitor. As a result, Tepper wondered whether Lyft’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 Lyft’s expansion, Tepper had thought carefully about moving forward with the most compelling value proposition for end 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 group deeply valued fundamental aspects of Lyft’s offering, in particular its lower prices and increased convenience through faster service times.13 In order to better understand buyer behaviour within the vehicle services industry, Lyft 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 qualities. Moreover, multiple interviewees also identified their desire to avoid poor and deceptive business practices—such as overcharging or recommending unnecessary maintenance—as 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 first impressions of Lyft’s entrance into vehicle services. Without additional context, multiple individuals were surprised by this move, which was a significant departure from the company’s core rideshare business. However, when key pillars of Lyft’s value proposition were raised—namely, lower prices and faster servicing times—participants seemed more willing to give Lyft 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 if I’d try it immediately. A car is a pretty substantial investment, and if it requires servicing, I’d rather take it to a more established shop.” Another respondent said, “For me, and probably a lot of other people, it would take a bit of time for Lyft 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 larger jobs like collision repairs. While Lyft’s current value proposition, built around pricing and quality, seemed to resonate with some consumers, it was clear that the company had to find a way of building trust with end users.

12 IBISWorld, Auto Mechanics Industry in the US. 13 Tamara Charm, Becca Coggins, Kelsey Robinson, and Jamie Wilkie, “The Great Consumer Shift,” McKinsey & Company, accessed March 20, 2021, https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/the-great- consumer-shift-ten-charts-that-show-how-us-shopping-behavior-is-changing#.

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Page 4 W25384 BUILDING TRUST Though providing reliable service was a clear first step, Tepper wondered what actions Lyft could take to win the confidence of individual riders. Financially speaking, some options included discounting prices for new customers and incentivizing existing customers to spread awareness through referral bonuses. However, Tepper 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 Lyft 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.14 Perhaps with Lyft’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 most transparent about these prices—what was behind the prices and how they compared to those of key competitors—might be an uncharted yet clear path to building trust with consumers. Tepper wondered how radically transparent pricing could work and if there were other ways Lyft could become a leader in this area. FUTURE OF LYFT VEHICLE SERVICES In 2021, as Lyft had recently begun to offer vehicle services to end users, Tepper was aware that many important questions remained unanswered. Should Lyft 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 financial incentives, lead through unprecedented transparency, or shift its focus elsewhere? On a tight forty-eight-hour deadline, Tepper prepared to present newly iterated value propositions to the company’s vice-president of business operations. She was expected not only to provide a new value proposition for Lyft Vehicle Services as a whole but also to draft ideas specific to Driver Centers and the Mobile Service. Working late at the office, Tepper sat at her desk and began brainstorming.

14 Jackie Charniga, “Craving Transparency in Auto Retail Is Universal,” Automotive News, May 15, 2019, https://www.autonews.com/fi-blog/craving-transparency-auto-retail-universal.

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EXHIBIT 1: LYFT DRIVER CENTRE AND MOBILE SERVICE EXAMPLES

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EXHIBIT 1 (CONTINUED)

Source: Company documents.

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EXHIBIT 2: LYFT’S CURRENT VEHICLE SERVICES LOCATIONS

Current Availability (2021) Atlanta Georgia Austin Texas Chicago Illinois Dallas Texas Denver Colorado Houston Texas Los Angeles California Philadelphia Pennsylvania Phoenix Arizona Portland Oregon San Diego California San Francisco California Washington, DC N/A

Source: Company documents.

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EXHIBIT 3: LYFT’S AVAILABLE SERVICES

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EXHIBIT 3 (CONTINUED)

Source: Company documents.

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EXHIBIT 4: LYFT’S CURRENT VALUE PROPOSITION

Source: Company documents.

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