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Product Management

If Not Surge pricing , what else could Uber Do?

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.

By having surge pricing Uber is actually making space for cheaper options as counter-leverage in the market.

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.

But if not dynamic  surge pricing , what could be a possible pricing model assuming you have to have some kind of surge pricing

  1. 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.
  2. 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.

Implications

  • 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.

 

 

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Categories
Product Management

Could Uber’s Surge Pricing become Uber’s failing

Uber , Ola, Taxi for sure and all other taxi Apps are truly disruptive to the taxi business and have made life easier for many people.

Now a taxi is just a touch away and you pretty much know how far away it is and when it will reach . Like scores of customers , I am sold on this idea and am a frequent user of almost all these apps.

So lets talk about what these Apps finally want to be. For the sake of this discussion let me talk about Uber . Uber’s tagline was/is Everyone’s Private Driver.

Sounds good right? Yup it does. Uber wants to be your driver wherever you want to go , whenever you want to go , as if you own the vehicle without actually owning it.

So what does Uber need to do to achieve this objective

  1. Available all the time: This can be solved by having more and more drivers sign up . Uber , Ola etc are aggressively recruiting drivers and this should be a solvable problem. The next step in this should be better demand forecasting and having drivers on standby in not so busy places. This currently is being done but seems to be mostly driver driven rather than company driven.
  2. Affordable: It should be cheaper to use Uber than Own a vehicle. The trick here is that it needs to be perceived as cheaper , not just be cheaper. People do not take out a pen and paper and calculate cost of ownership of a vehicle , they simply would calculate Per Km Cost and would be OK if Uber is slightly expensive in this regard. This would need considerable marketing and customer education
  3. Reliable: There are 2 types of reliability here
    • Reliability of availability : I should know that I would get it , irrespective of where I am , it could be a super busy downtown or a picnic spot at the end of the city. I should be able to rely on it. If I cannot, I will always have the need to buy my own vehicle or maybe use other modes. I cannot plan a trip with uber with a possibility of not getting one on my return journey. This again is a solvable problem by having more and more drivers and using better placement and routing algorithms
    • Reliability of Cost: This is something which people do not really talk about much . Why do you think people in various Indian cities do not like Autos and use them as primary means of commute? Why do people use autos because they cannot afford a car yet ? Apart from all the above mentioned points , there is an added issue of auto drivers literally looting customers by jacking up the price at will . This is something that Uber and Ola have inherited from auto drivers and call it surge pricing(price increases based on demand) .     You never know what price these companies would quote, and you cannot even bargain. Just because it is in a swanky app and has a cool name and is done automatically by an algorithm , does not really change what it really is: Extracting as much money as possible.

Now I am not debating if it is right or wrong, it makes business sense to charge as high as you can especially since all these companies are simply burning cash ,but my point here is about “will it help Uber achieve its ultimate objective or being everyone’s personal driver”?

To demonstrate the point , let me bring in a personal example. I wanted to use uber to go till a bus stand instead of an auto , simply because it was too easy to get it. Uber suggested that since it was peak hour, I would be charged 1.2X times for a distance of 5 Kms. I still decided to use it though. The moment I reached the bus stand , just out of curiosity I rechecked the price and it was 5.0X times normal. This was in the span of 15 minutes and a distance of 5 Kms. If I had been quoted this rate, I would have definitely not taken uber . Looking  at such variation, my instant reaction was , I cannot always depend on Uber and possibly missed the 5.0X window by a few minutes. It is like a game.

Surge pricing is Ok if it is not too high. Eg: when you quote using the “Bata Pricing” of 1.XX times(say 1.98 X) , people still perceive it as 1 ish . It seems Ok and can be tolerated but when it crosses integers and is in the range of 2X 3X and even 5X , I get a feeling that I possibly cannot depend on it. Your own car or an auto running on meter (autos are legally not allowed surge pricing , except for night rates) would not surge prices.

Basically , I cannot depend on uber during the times I might need it the most and that exactly is the problem

This simply means that people will always keep a second option open, an alternate mode of transportation , thus defeating the whole purpose of Uber’s tagline . I have all the apps on my phone in addition to various numbers of local taxi players not signed up with uber.

Uber cannot make a profit until it becomes a dominant player ,and it cannot become a dominant player until there are enough cheaper options available in the market and having things like surge pricing might actually keep the cheaper options lingering in market longer.

 

 

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