Is the taxi app flagging? Why Hailo couldn't crack America

This is what has happened in the taxi market as brands like Hailo, Uber, Lyft and GetTaxi all emerged around the same time in response to a market ripe for disruption.

Each of these services grew up in different geographies, and through a combination of local market knowledge and accelerated growth they began to dominate their native locations. They then looked for expansion to gain quick growth in other markets, and in Hailo’s case in the US, ran into two dominant successful home market leaders – Uber and Lyft. In the US this made Hailo the challenger brand rather than the dominant player.

As a challenger brand you need to create differentiation, and in this sector, differentiation is required for both the supply side (the drivers) and the demand side (the end customers). From a product perspective the taxi market sees no sustainable feature differentiation, which leaves Hailo as a challenger with a ‘me too’ product and a brand that has been developed to resonate with a foreign audience.

This leaves only three levers that it could bring into play: price (which is primarily an acquisition lever for demand side and a recruitment lever for supply side), quality of service (which is primarily a retention lever for demand side) and marketing to raise both brand awareness and propensity to purchase through proposition differentiation for both demand and supply side. And in a fast paced high growth market like the US taxi sector, as soon as one lever is pulled then others quickly jump to copy.

Price levers lead to price wars, which can also create false growth; for customers a lower price may encourage lots of trials but this may change in terms of behaviour as soon as the price increases. For supply side, giving drivers a bigger cut may attract new drivers but will they switch to another app when the cut goes down? Demand and supply-side price cutting erodes the margin for businesses despite the immediacy of volume spikes created through trials. Unless a company has very high levels of funding and is prepared for a long term entrenched price war this is clearly an unsustainable tactic.

Service is another differentiating factor, and is crucial to long term success in terms of generating ongoing loyalty amongst end users. Taxi services rely on the drivers themselves to provide this service which does not have a universal standard. In London, Hailo had the advantage of being developed by cab drivers, so it knew their pain points, but when entering the US, Hailo did not have this advantage and was thus starting from a far lower base than its incumbent competitors.

So marketing becomes the primary differentiator and we feel Uber won hands down. With Uber’s deep pockets and aggressive above the line campaign – all over cab wraps, subway ads and highly tempting promotion codes – it swiftly owned the market with both customers and suppliers. The higher customer demand generated by marketing created more usage and more driver recruitment in a hyper growth virtuous circle.

Whilst it is very sad to see a UK tech success story like Hailo decamp from the US, it's not a new story, but a common tale in the world of digital disruption. Any hyper-growth sector will have multiple entrants but only a couple will survive in their specific geographical locations. Hailo needs to seek out markets where local competitors have less leverage with price, service or marketing if it is to succeed in second mover geographical growth.

Fighting on many fronts never works – as every war ever undertaken shows us. Hailo needs to consolidate in its core markets and grow loyalty and service to generate a successful business and not get drawn into costly short-term fights with well-funded competitors.

Ross Sleight is chief strategy officer at Somo. You can follow him on Twitter @sleighty