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Nov 30, 2008 | Comments

A post by Sarah on competition for airport shuttle service in Bloomington got me thinking about the bus service in NYC.

Cheap bus service to Boston was long provided by Chinatown for $15. Service was poor, buses were dirty, no one spoke English. Someone must have thought, “I can make money by inexpensively improving a few things on the Chinatown service. They have no idea what they are doing. Half of the employees are uneducated, illegal immigrants.”

Two players entered the market in 2008, one backed by a public company and the other owned by Grayhound Lines, the largest bus transporter in the US. Easy success, right? Shouldn’t the wealthy, business-savvy, and mature firms upset the incompetent Chinese service?

Pre-2008

Chinatown buses have long dominated the NYC-Boston bus route. Fung Wah and Lucky Star were the only two players:

  • Price: $15 flat rate, first come first serve
  • Service: Horrible–there are stories of bus drivers deserting the bus and chickens getting loose in the cabin. Buses are rarely clean. Drivers and employees speak broken English.
  • Speed: what should take about 4 hours usually takes between 3-4 hours due to speeding.

2008- Two New Entrants

Bolt Bus

  • Ownership: Grayhound Lines
  • Price: Variable, $1 – $25. Book ticket for a specific route, date, and time.
  • Service: incredible; friendly-drivers, clean bus. WiFi and plugs in every seat. May only book ticket online.
  • Speed: 4-5 hours.

Mega Bus

  • Ownership: Stagecoach Group
  • Price: Variable, $1 – $25. Book ticket for a specific route, date, and time.
  • Service: similar service to Bolt Bus. WiFi, plugs, and TVs. May only book ticket online.
  • Speed: 4-5 hours.

Competitive Strategy

Bolt Bus and Mega Bus tried to improve on Chinatown services. It read almost like an MBA case-study. Let’s add WiFi and Plugs! Make the bus really clean! Have a fancy website! The prices were competitive, and I suspect that Mega/Bolt Bus will take a small percent of Chinatown’s market share.

Who Wins?

As cliche as it sounds, Chinatown buses, however, still outperformed the entrants in almost every operational category. Buses were actually fast. I rarely had to wait. Why?

Chinatown buses run continually. They fluctuate their bus inventory as demand increases. You don’t buy a ticket for a specific bus or time–you just show up. You wait in line until you can board a bus with capacity. This creates an incentive for Chinatown to move people as fast as possible. What does this mean? Drive faster. Do not make people wait. Order more buses when there is a spike in demand (people are queuing in line). Total travel time from NYC-Boston is about 1.5-2 hours shorter than Bolt/Mega Bus for these reasons.

Sure, people love the amenities on Bolt/Mega Bus. But we all just want to get from point A to point B as fast as possible. The new entrants missed this point: speed and waiting time is the most important thing in travel. Why would you not compete on this?

Bolt/Mega Bus chose to stick with the same principles that make traditional bus service so dismal. Scheduling buses like airlines/trains creates longer wait times, especially when there are delays. The arrogance of this choice astounds me, and I am guessing Grayhound is probably losing a ton of money fromĀ  cannabilism of their premium service.

These companies did not do their market research, and they probably thought that taking traditional bus service and lowering the price would destroy the incumbents. China, however, has won by a landslide.

In Short: If you’re going to compete in an established market, focus on getting most important thing to consumer right. Competing on other elements, such as service and technology are great, but don’t lose sight of what the consumer really cares about.

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