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.