I had earlier written an article on why I think Uber’s surge pricing is detrimental to Uber’s growth . My major point was that with surge pricing as insane as 7X times normal fare, I as a customer would never want to be in a position where I do not have a counter leverage to Uber.
Let’s be clear, Uber is not making any money(it is burning cash) and will possibly not make any money unless it is almost the market leader and consumers do not have much counter leverage , enabling uber to move away from it’s current predatory pricing towards a more sustainable pricing model.
By having surge pricing Uber is actually making space for cheaper options as counter-leverage in the market.
But if not dynamic surge pricing , what could be a possible pricing model assuming you have to have some kind of surge pricing
- Time Slab Based Surge Pricing: Prices can be jacked up based on time slabs. Eg: Night rates , office hours . Something that is predictable and transparent.This would become much similar to generic Taxi model (which actually earns) but may not fit in Uber’s current approach.
- Surge Protection Model: The initial assumption of dynamic surge pricing was that surge pricing would enable more drivers to come on the road . But a recent Washington Post article suggests that Surge pricing only leads to redistribution of drivers and not necessarily bringing in more drivers. Ie: People in areas with less demand start seeing much longer wait times, something that beats the whole concept of “Everyone’s private driver”. If the article is correct , we can assume that the primary objective is not being met
The other way to make this a success would be to have much more users use uber .Having users prefer Uber over any other mode of transportation.And that can be done Via Surge protection Model. this is how it would work
Surge Protection Model
Now this is like differential pricing , where certain section of users would be prevented from surge pricing while others would still bear the burnt. Think of it as surge insurance. For gaining entrance to the elite group you need the first hook/investment this could be 1 Ride on surge prices . Just 1 ride
So anyone who takes 1 ride in Ubers Surged prices , say 5X times normal would be protected from surge pricing for say next 1 month. This user pays normal fares while everyone else pays the dynamic price
How to keep the user hooked
A simple rule where surge protection would continue only if the user avails 1 uber ride a week (numbers can be worked out) . We could potentially extend surge pricing protection for he user indefinitely until the user keeps using Uber at-least once a week.
- A user knows that by taking just 1 high priced ride, he/she can potentially be unburdened of thinking of surge pricing for a month(indefinite , based on scheme). The thought of future gains may offset the pain user feels now, improving conversion rate of people taking rides at surge pricing
- Whenever such a user will have an option between various players, user would tend to use Uber to keep surge protection alive thus increasing the number of returning users
- Human beings do get a kick out of knowing that they are getting a much better deal than others. When a user sees that they are travelling at say 10$ Km while others are being charged 7X the amount , their ride would feel much more affordable and happier
- This could even enable Uber to jack up it’s base prices to bring them in-tune with actual costs
- Higher the surge prices go, more loyal the customers in the surge protection program become . In a weird way , surge pricing may become a marketing tool.
Obviously numbers can be worked out, and the idea can be a little offbeat but no harm in thinking about it.