Is Uber Shooting Itself in the Foot with Surge Pricing?

in Dec 28, 2018

Ever popular transportation service Uber is coming under fire for what some say is an exploitative business practice. Uber tends to be a convenient and economical way to get around town – especially for inner city dwellers that don’t own vehicles and travelers who don’t necessarily need a rental car.

In an effort to encourage drivers to work during busy times to ensure that Uber customers don’t receive a “No cars available” notice, Uber instituted surge pricing. In essence, surge pricing is a multiplying factor based on demand. Let’s say you need a ride home from downtown New York City on New Year’s Eve, after watching the ball drop. Chances are great that with 2 million people trying to get home, there won’t be many taxis or Ubers available. In these cases, Uber surge pricing has been known to grow upwards of 9 times the normal fare. Revelers found this out this past New Year’s Eve when they woke up to find they had paid $205 for an 8 mile ride. Or, in one man’s case, $1,100 for a trip that would normally cost $125.

While these fare increases typically only occur during really busy times, in an effort to entice drivers to work, these price increases are irritating customers worldwide. Uber may be a giant that has arisen quickly. However, the company must ask itself what would cause a customer to discontinue using its service faster – lack of available cars or the perception of price gouging?

Uber has enjoyed a rise in popularity due to the simple fact that consumers have embraced it’s convenience and lowered transportation costs. Uber drivers are held to certain standard for the type and age of the vehicle they drive. And many users state that Uber vehicles are much nicer than many of the aging taxis that exist. However, while taxis are regulated, along with the fares they can charge so as to avoid price gouging, Uber is not.

There was also the Australian hostage crisis which saw an armed gunman take hostages in downtown Sydney forcing evacuations. Well …. Uber’s surge pricing took effect causing fares to rise to a minimum of $100 for people to evacuate. Enraged Australians quickly took to social media denouncing Uber’s actions as exploitive. To their credit, Uber quickly refunded everyone that had paid for a ride and made additional rides available free for anyone else fleeing downtown.

While Uber’s surge pricing makes sense from a business standpoint, in our supply and demand driven market, every consumer forced to pay hundreds of dollars for five minute rides that should in fact cost just $10, is a customer who is at-risk to discontinue use of the service. That customer could also be a megaphone for bad publicity through social media and word of mouth. This could backfire on Uber and the company may find that users forgo using their services on nights when they estimate it to be busy. They could then end up with drivers that have no customers.

Customer loyalty is a fragile creature. Uber has enjoyed success by creating an excellent customer experience. And the customer experience is usually king. In today’s economy, consumers have more options than ever–and they know it. With the growth of the Internet, they can get almost anything they want, whenever they want it. As a result, they increasingly value excellent experiences.

This is a different game, with different rules. Companies win or lose because of the feeling they give customers, not necessarily because of features or prices.

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