Uber’s pricing strategy

uber

Background

Uber Technologies, Inc., originally called UberCabs, was founded in 2009 by tech start- up veterans Garrett Camp and Travis Kalanick and headquartered in San Francisco. Uber is designed to bring safer, more comfortable way to travel, and to improve urban transport.


Business model

Uber is not limited to be a taxi company, its business scope is gradually expanding and covered the life services business and financial services business. In most of the markets Uber served, customers could select from one of four services: UberX, UberBlack, UberSUV, and UberTaxi.

UberX was the least expensive option and dispatched drivers in smaller vehicles than those used for the other services. On its website, Uber claimed that its UberX service was “10% lower than taxi prices.”

uberX

UberBlack, the original Uber service, used black town cars; fares for these vehicles were roughly 35% more than for UberX.

uberblack

UberSUV worked well for large parties and was priced higher than the UberBlack service.

ubersuv

UberTaxi allowed passengers to use the Uber app to hail a regular taxi. Unlike users of the other Uber services, customers using UberTaxi paid the driver directly.

ubertaxi


Uber’s price

To set up a perfect price is the key point for any product. Especially for Uber, which didn’t have any fleet of vehicles, also did not directly employ drivers. Compare to the tradition taxi service, Uber could be seen as a new entrant of the car service market. So price will be the first point that attract people.

Before set a perfect price, the company should make an inner and outer investigation. The normal steps in setting price show as follow.

屏幕快照 2016-04-30 下午2.06.05

The appearance of Uber is to follow the need of the market, before Uber occur the traditional car service market was occupied by taxi and limousine. The whole taxi market experienced in short supply situation. In particular, during peak periods, average taxi passenger waiting time on the road between 20 to 30 minutes. Lots of needs in car service market provide opportunity for Uber to develop business and set up a ideal charging model.

Uber’s product was a smartphone app that allowed urban dwellers to hail vehicles virtually. Fares fluctuated, and the company employed no drivers itself. Instead, Uber served as an electronic dispatcher as passengers and drivers connected digitally through its proprietary software. So, Uber has low cost in operation and the price of Uber has a great competitive advantage.

The main competitors of Uber are traditional taxi and limousine. In New York, taxicabs charged passengers based on time and distance, which were calculated by a taximeter prominently displayed inside the vehicle. Taximeters calculated fares based on a highly regulated and standardized fare schedule (e.g., $3.50 per mile for the first five miles and $5.00 per mile thereafter). Livery vehicles had no taximeters, and fares were usually based on time, or rough distance with a predetermined minimum price that was agreed on in advance. Uber can adjust its price level through analysis competitors’ pricing strategy.

After consider all factors demonstrated above, Uber set up a normal charging model.

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It is worthy noting that Uber has surge pricing strategy- Uber’s policy of dramatically increasing fares during periods of peak demand (e.g., rush hour, New Year’s Eve, Halloween, and inclement weather).

屏幕快照 2016-04-30 下午2.47.30 Fares were continually adjusted according to a mathematical formula and could be as much as seven or eight times the normal Uber rate.

At the same time, some negative comment about surge pricing of Uber occurred. Customers sometimes found themselves with a bill for several hundred dollars for a trip of a few blocks.  One customer’s fare was calculated at the rate of $23.25 per mile. One San Francisco customer paid $30 for a ride of less than two miles on a busy Saturday night in February 2014.

 

The price sensitivity of costumers should be considered by Uber management group in order to eliminate negative impact. The reason why most of costumers select Uber not only because service, the more important reason is low price. Uber should adjust its surge pricing strategy to cater to customer preferences. However, there is no pricing strategy is perfect, Uber should improve pricing strategy continually to be close to perfect.

 

By kennyfang (214267189)

References:

Solomon, B 2016, ‘Uber Granted Patent For Surge Pricing Verification’, Forbes.com, p. 1.

‘UBER PRICING STRATEGIES AND MARKETING COMMUNICATIONS’ 2014, University of Viginia, Darden Business Publishing

‘Uber price surges on New Year’s Eve spark criticism with some paying more than eight times usual fare’, ABC Premium News.

 

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