January 2nd I heard about Uber for the first time. A friend told me his daughter used it New Year’s Eve in San Francisco. Uber is a car service that lets you use your GPS enabled smart phone to call them and they will pick you up where you are just a few minutes later. My friend told me they charge a 25% premium over the price of a taxi for this service. Sounded interesting, but so what (to a pricing guy).
On January 3rd, I started noticing rants about Uber gouging their customers. Pricing problems? This is getting interesting. So it’s time to look into this little start-up company.
Uber is essentially dynamic pricing for taxis. They only have so many cars and they want to service their clients in as little time as possible. So as demand increases beyond their capacity, they increase prices to bring that demand back to a manageable level. From a customer’s point of view, you can either pay whatever premium they are charging, or find a traditional taxi.
What’s funny is, this isn’t even brilliant. It’s just common sense. Congrats to these guys for seeing and implementing this.
So what happened New Year’s Eve? Recall the first paragraph where my friend told me they charge a 25% premium over a taxi. I’m sure he wasn’t the only one who thought this. Uber’s customers had somehow come to expect a slight premium. Yet on the busiest taxi night of the year, some people were paying 7 times the price of a taxi. My friend’s daughter paid 2.75 times the normal rate at 1:10 am (see the receipt below). This shocked many users.
Most online rants claim that they didn’t know about the huge premium. Uber claims to have shown them a splash screen with notification that they had to approve before booking their trip. Who knows the truth?
OK, there are still some kinks to work out in execution. But one huge area for improvement: Uber needs to be very clear to everyone that they charge based on demand and sometimes those rates are very high. But I still love them. Uber is a net positive in the world. Customers now have a choice. Before Uber, people had to scramble to find a taxi on the busiest nights. After Uber, people can still use taxis, with any hassle that may include. Or they can pay more, sometimes a lot more, for much less hassle.
What’s not to like? Oh … wrong expectations.
What can you learn from Uber’s bad press? You need to manage your customers expectations, especially when it comes to pricing. Be creative, but transparent with your high prices. In business, nothing seems to create bigger negative reactions than surprising a customer with a significantly higher price, even during the decision process.
Mark Stiving, Ph.D. – Pricing expert, speaker, author