The Octopus Cards Limited Information Technology Essay

Octopus Cards Limited is wholly owned by Octopus Holdings Limited. The Octopus Cards is a contactless smartcard which can be used for public transport and for others payment and nonpayment application. The Octopus smartcard system was launched in September 1997. Octopus Cards system is the most popular smartcard system in the world with more than 95% market share in Hong Kong. Octopus Cards Limited has over 10m daily transactions and values over HK$90m. In this discussion paper, the innovation and creativity technology adopted by the Octopus Cards limited in Hong Kong will be addressed.

Radical and Product innovation

Awareness of problem and identify Market needs

Being an international financial center, Hong Kong has a well-developed and efficient public transportation network. The increasing number of passengers has created a need and opportunity for transport operators to develop a more comprehensive ticketing system.

Ideas Generation of Octopus Cards

In the past, besides the use of coins for fare payment, MTR used magnetic plastic cards technology for single journey and its stored value ticket. However, the magnetic plastic cards only can be used in the MTR. In 1993 the MTR took the lead in reviewing its fare collection technology and it was found out the contactless smartcard technology is the most appropriate platform for future need. In 1994, MTR joined with other four major public transport operators namely, KCRC, KMB, Citybus and Hong Kong Yaumati Ferry (HKF) to form a joint venture company named Creative Star Limited (later as Octopus Cards Limited in 2002) to oversee the contactless smartcard system’s development and implementation. (Ref: Appendix I)

Octopus Technology-Product innovation

The Octopus Cards is manufactured by Sony. It has a built-in IC chip and can communicate with different fare processors through the use of card reader/writer. User simply holds the Octopus Card over a reader after hearing a “Dong” sound, the correct fare amount will be deducted from the card automatically. The features of Octopus Cards are convenient and fast, secure and reliable, efficient and accurate, cost saving, contactless, multi-usage, easy reloading, and can be applied on discounts/loyalty programmes.

The reasons for Octopus Cards success

Octopus card fulfills the Cooper and Kleinschmidt (1991) three key factors for innovation success: product unique feature, proficiency of predevelopment and market needs (Szeto R. & Cheng E., “From Creative People to Innovative Organisations, 2010, Pg 157). The company also does well on below:

Joint Ventures with other-synergies effect

New technology is often risky and when the cost of entry into a new market or the cost of a new product becomes too large, the stakes become too high for a single organization. (Szeto R. & Cheng E., “From Creative People to Innovative Organisations, 2010, Pg 135)

Use Co-operation strategies lead to the success of Octopus. When the MTR management developed the payment system, they co-operated with other transport operators rather than self development of own payment system.

Another benefit from joint venture was widen the business network. Octopus system technology allows passengers to travel across multiple public transport modes using one single card. With wide system coverage and support for the public transport operator, Octopus system becomes popular and gains fast acceptance to public.

Identify the market needs and consumer behavior.

In previous years, the consumer only can use credit card and EPS as an electronic payment tools. However the credit card and EPS cannot be used for small amount of payment. Moreover the credit card company has to review the applicant credit status before approval. Octopus Cards can tackle these market loopholes.

Most of passengers are not willing to carry lots of coins, with the advantage of Octopus Cards, it provides a convenient way to them. With its security features, same as store value card, the customers are more willing to use Octopus Cards to buy small value things. In addition, the contactless design also provides convenience to passengers without withdrawing cards from wallets.

Innovation and multi usage function

Octopus Cards IC chips can storage difference data. As a result, octopus system can be widely used in transport, parking, retail, self service business, leisure facilities, wet markets, school and property access control.

Current innovation business

Octopus Cards Limited is a newly formed company. The company has clear goal – “Continuously innovate and delight our customers”. Its slogan is “Making Everyday Life Easier”. Nowadays, 95% of Hong Kong people have at least one Octopus Cards. The company targets on two types of customers: B2B (retail shops, KCR, MTR, etc) and B2C (public). The product life cycle and market has seemed to reach maturity. To sustain the business, the Octopus Cards Limited has adopted customer diffusion to extend the customer base.

In October 2005, Octopus Holdings Limited formed three new subsidiaries to target non-payment business of Octopus, which includes Octopus Rewards Limited, Octopus International Projects Limited and Octopus China Investment Limited. (Ref: Appendix II)

Non-payment Application

The Octopus Rewards Programme is a type of loyalty programme. It allows customers to earn and redeem cash reward, regardless of payment means. With this common platform, participating merchants can offer tailor-made discounts or special offers to their consumers without having any new rewards systems. Over 2.3 million customers have registered for the programme and they can enjoy the benefits at over 20 participating merchants.

Incremental product

The Octopus Cards Limited broadens their income source by targeting the business on Sold Octopus and Bank Issued Octopus and corporate custom-made octopus.

Sold Octopus Cards

The Sold octopus is a specially designed Octopus Cards, including key chains, ornaments, watches and commemorative limited edition cards, there’s an Octopus to suit your lifestyle. For example: Hello Kitty Octopus Cards. Octopus Cards is not only for the purpose of payment but also becomes a kind of fashion.

Bank Issued Octopus

Today most people have registered the Automatic Add Value Service (AAVS) to reload the Octopus Cards values. Octopus starts to cross over their products with Credit Card Company. For example: Citibank Octopus Visa card. The customer can enjoy both octopus reward and credit card benefit.

Octopus for corporation

The Octopus Company creates a compelling marketing tool with a Corporate Octopus, Corporate Mini Octopus, or customized Octopus premium to enhance the corporate image.

Process Innovation

In the past, Octopus system only can be used on large chain store, e.g., Café De Coral or 7-Eleven etc. The Octopus Cards Limited does not have enough resources to broaden their business to some small stores or small business areas. The expensive installation and monthly charges also create the barrier for the small business to use their product. Recently, Octopus Cards Limited appointed four Octopus service providers: Bank of China, Hang Seng Bank, PCCW, Union Cash Register Co., Ltd. The providers can help rent the octopus reader with a much cheaper monthly fee.

Octopus Cards Limited can take advantage of the synergies effect by using the strength of the service providers to penetrate all segments of retail sectors faster.

Ideas recommendation for future opportunity

Incremental product

Resizing the Card Reader

Octopus Cards Limited can redesign the current card reader. Octopus Cards involves many design mini-Octopus Cards. But the size card reader and design remain unchanged. The company can design slim size reader, support wireless and 3Generation network.

The slim size and 3Gs Octopus Cards Reader can apply in Charity Flag Day, Taxi fare payment or in Newspaper Hawker. In addition, it can be used on online shopping or TV shopping. The slim size card reader can also be installed in laptop and television. The public may use the octopus card reader at home to settle the payment in future.

Multi Currencies Support

Octopus Cards can use some creative swiping techniques such as Dual Currency Debit Card(雙幣卡) technique. People can use two types currency Hong Kong Dollar (HKD) or Renminbi (RMB). The Octopus Cards Limited can partner with China Bank to issue these types of Dual Currency Octopus Cards.

Cross over Product

The Octopus Cards Limited can cooperate with Phone Company. Most peoples have mobile phone and Octopus Cards. These two things become necessary for Hong Kong People’s lives. Cross over product like the octopus mobile phone can be a future trend.

For the process innovation

Alliance with credit card company

Besides the product innovation, Octopus system can join alliance with Credit Card Company. As credit card system with advance technology and well-developed global network, sharing experience can enhance Octopus system to penetrate to global market easier.

Consultancy services

Octopus Cards Limited is a success and experienced company on smartcard technology. The company can use its knowledge to provide consultancy service to other countries and to share their technology and services for potential customer.

VIP membership card service

Nowadays, most people have over a dozen of discount or VIP cards for various shops or restaurants. Carrying them all around is impractical. Octopus can try to develop VIP or loyalty cards. In future, peoples can bring one Octopus Cards to enjoy shopping and VIP service. For the merchant, it can be easier for them to track the consumer usage and spending pattern.

Increase customer Satisfaction

Today Octopus holder can only check balance and transaction in Octopus Enquiry Machines at MTR stations, some 7-Eleven or Circle-K outlet or PCCW eye device. To enhance the customer needs, Octopus Card can establish platform for card user s to download the transaction statement via the Internet. In addition, with the needs of global market and concern on security issues, the company should shorten the lost card processing time, say, from now 6 hours to real time block card.

Conclusion

Innovation is the cornerstone of Octopus success. With a clear goal, Octopus Card becomes the most famous innovation product. Product feature and the innovation strategy both are important for the company. In future, Octopus can utilize their competitive advantage and market leader position to formulate more creativity ideas to make our lives easier.

Appendix

Joint venture shareholder of Octopus Holdings Limited

Source from: Octopus Holiding Limited

Corporate Structure of Octopus Holdings Limited

Source from: Octopus Holiding Limited