![]() So why does Uber’s dynamic pricing even exist? The answer lies in understanding that Uber is fundamentally a marketplace, where supply is controlled not by the company but by the legion of independent contractors and transportation providers with whom they work.īack in early 2012, Uber’s Boston team noticed a problem. This past New Year’s Eve, the CEO even published a how-to video encouraging riders NOT to ride at certain times. Additionally, the company has gone out of its way to publicize how and why the program works. They have inserted special splash screens where the customer has to key in a specific confirmation of the increased rate. Ever since the company first encountered feedback about its pricing model, the company has gone out of its way to make sure that customers are aware of the policy and how it works. The vast majority of the time, Uber’s increasingly low basic rates (uberX is often 40% cheaper than the local taxi alternative) are the primary price points for the service.ĥ) Uber is remarkably transparent about its dynamic rates. All told, it’s a fraction of the time that Uber drivers are operating. ![]() Despite this, some competitors still hold on to the convenient delusion that Uber is solely a high-end service, perhaps akin to CDNow assuming Amazon was only a bookstore.Ĥ) Uber’s dynamic pricing (“surge pricing”) affects a tiny minority of all Uber rides, less than 10% of trips. Dynamic pricing is most common on peak times on Friday and Saturday nights, on certain Holidays, such as Halloween and New Year’s Eve, and during particularly big events and bad weather conditions. The company has also intentionally worked to lower price on uberX as often as it can (in some markets it has already lowered price four times). UberX is now the company’s most strategic and fastest growing offering, and has become the company’s largest offering in many cities passing Uber black in number of daily rides. This goal is to expose Uber’s amazing customer experience to a much broader base. However, since its launch of the low-priced uberX brand over 18 months ago, Uber has been laser-focused on leading at all price points. Some have suggested Uber is a “luxury brand.” This confusion is understandable, as Uber’s initial focus was on traditional black-car services. The bottom line is that this is a low margin business - much more akin to Amazon than Google.ģ) Uber is a committed to being a low-price leader. These expenses include payment processing, payment fraud, refunds, customer service, dispute resolution, cellular handsets and service fees for the drivers, and local regulatory efforts. What’s more, of the percentage that is retained by Uber, a large portion goes to cover variable expenses within the service. On average, over 80% of gross fares end up in the hands of drivers. Many of them work on multiple services, and many have “regular customers” that they engage off the Uber platform.Ģ) The majority of Uber fares go to these independent drivers. These drivers are not bound by exclusivity. Each day, and each hour for that matter, these drivers decide whether or not to open the Uber application and accept requests for rides from Uber customers. Uber does not own cars and does not employ drivers. Uber’s drivers are independent agents that are either self-employed, or work for someone who owns multiple cars. Clarifying Certain Specifics Regarding Uberīefore diving into Uber’s dynamic pricing model, it is important to clarify some of the key elements of how Uber is structured and operates.ġ) Uber is a marketplace and Uber’s drivers are all independent agents. I also have quite a bit on the line, and as a result have spent a great deal of time contemplating the policy as well as the potential alternatives. But consider that as a result of my role I have access to more information that might enable a deeper perspective. I am an Uber investor and board member, and therefore expect that many will dismiss these thoughts as naked bias. However, there are still many misperceptions about how the model works, and the purpose of this post is to clarify some of those misperceptions. Perhaps the only consistency is that people have deeply passionate views on this topic. Over the course of the past year, many writers have offered their perspectives on Uber’s dynamic pricing strategy.
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