As people learn to co-exist with the coronavirus, a tantalising question emerges for the struggling transport industry-will people change the way they commute?
Boston Consulting Group (BCG) conducted five waves of surveys with over 12,000 respondents since March 2020 to understand people's travel concerns and priorities during and after the lockdowns.
The same (survey) found that even though respondents are becoming more assured about their future income and less worried about venturing out (by Wave 5 survey, 53 percent respondents had resumed travel for work), there is a significant shift in preferences that will require innovative approaches to serve them.
Consumers balance social distancing and costs
As expected, social distancing and hygiene are the two most important criteria, more than cost itself. While public transport was the dominant way India commuted pre-COVID, 71 per cent respondents now find public transport like buses and metros risky while this number dropped to 27-28 per cent with private cars and two-wheelers.
However, for high frequency commuters, who travel four or more times a week, costs continue to have a (slightly) higher importance in addition to social distancing and cleanliness (Exhibit 1). Consequently, they are more likely to continue using hired mobility/public transport as long as safety is addressed.
Preference for lower-cost personal vehicles
The stress on social distancing and hygiene is likely to increase preference for personal vehicles. 57 per cent of respondents expect to spend similar or more on cars and 64 per cent on two-wheelers in the coming months (Exhibit 2). However, consumers may optimise their spending and buy a less expensive model or consider purchasing a used vehicle.
Post-COVID, recovery is expected across both public and personal options. 80 per cent of polled respondents are expecting to spend similar or more compared to pre-COVID times across different modes of transport (Exhibit 3).
However, this will need to be watched closely given the possibilities of fundamental changes in underlying transportation demand with employers exploring long-term work-from-home models.
Re-imagining urban mobility
The evolving customer mindset points out to two key drivers in the short-to-medium term:
- Preference for safer transport that offers social distancing and,
- Optimisation of expense and capital spend to address income uncertainty.
The interplay of these drivers has several implications for industry players; a few are outlined here.
New vehicle sales: OEMs can enhance focus on entry level variants and provide flexible, innovative financing (for example, EMI moratoriums, back-ended EMIs, etc.) to even induce fence-sitters, who may otherwise defer their purchases.
Subscription model: Many consumers may eventually want to return to shared mobility, but in the short-term, a subscription model with shorter tenures and all-inclusive monthly payouts could provide a good tradeoff to access a private vehicle without capital outlay. Once tested, this model can become a prominent part of the
landscape even in the post-pandemic world.
Digitisation of sales/service: OEMs need to really leverage digital extensively across discovery, testing, selection, purchase, financing and after-sales. This requires innovation in the operating model for e.g., service being delivered in a hub-spoke model with pick-up and drop, and AR delivering dealership experience at home.
Used vehicles: More consumers are likely to purchase used vehicles to optimise costs. This market is not so well organised in India and presents an opportunity for larger OEMs and third-party aggregators. If operators can focus on demand aggregation and upgrade their consumer propositions, such as providing refurbishment and certification of vehicles, financing packages and after-sales experiences, it will help drive loyalty and pride in ownership and help grow the used vehicle market.
Shared mobility: The basics will continue to matter. Health of passengers (and staff) will remain a top priority. Practices such as partition between driver and passengers and frequent vehicle sanitisation will become the norm.
However, this is also a good time for providers to experiment with new mobility models addressing new customer demand spaces, such as essential workers, cargo and food delivery, weekend rentals for consumers, day long rentals for travelling salespersons etc.
Some experiments have already begun, such as two-wheeler fleets for the delivery economy. Innovations such as mixed-model mobility solutions where the same assets are used for multiple services over the week can help fleet operators drive up asset utilisation, drive down unit prices for consumers and deliver better economics.
Urban mobility in India is on the cusp of transformative change in the wake of COVID-19, driven by the need for social distancing and optimised expenses. Key constituents of the urban transport industry- OEMs, used vehicle aggregators and mobility players-will have to mount a differentiated response and embrace key changes to not only return to health but also propel urban mobility into a new, exciting and future-ready trajectory.
(Vikram Janakiraman is a Managing Director and Partner at BCG, Natarajan Sankar is a Managing Director and Partner at BCG, Aditya Khandelia is a Principal at BCG.)