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Uber’s Surge Pricing Policy

Essay by   •  July 19, 2016  •  Case Study  •  1,290 Words (6 Pages)  •  1,316 Views

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I agree with Uber’s Surge Pricing Policy. Anyone with economics back ground will tell you that fairest price for any product is “Equilibrium Price” at which the supply meets the demand. What if the demand increased than supply? Price raises to control the demand or to attract more supply because you’ve a chance to earn more. Same logic is here with Surge pricing of Uber. May be some people might think about it as unfair, may be it is, but before we even think about how unfair is this surge pricing, we will discuss about few facts about the Uber below.

  • “Uber does not own cars and does not employ drivers. 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. These drivers are not bound by exclusivity”. SO what does it mean? Uber can’t control the supply to meet the demand of its customers all the time to engage in fair or equilibrium pricing. It has to employ a dynamic pricing so that it can attract more drivers during the peak hours to offer the service to its consumers or riders.
  • How much of the fair/fee goes towards the Driver? Since Uber does not employ drivers, it cannot offer them a fixed salary. Uber pays the drivers about 80% of the fare or fee they charged from customers. Uber has to maintain and develop the business with the remaining fare from each ride. The margin for profit is low here.

So based on the above facts I think still Surge pricing is one way to sustain and serve the customers efficiently. However this policy has its own risks. Since the Uber has exclusive rights to decide when and where it should implement surge pricing based on the statistics they were monitoring it has chance to exploit the policy.

I certainly do not agree with the current tactics and strategy of Uber because Uber is too aggressive and exploiting the market. Instead of keeping or increasing regulatory policies and standard back ground checks while hiring Uber decided to reduce these in order to increase its driver consumer force irrespective of many crimes and scandals involving its drivers in many nations. Uber always been poaching at other businesses for example the incident with Gett taxi or curbing the local traditional taxi business. May be instead of going tiptoe with its competitors and regulations Uber should consider more approachable and lawful policies, so that it can sustain in the business for even longer time.

Uber has become popular because of its unique business model and its peer to peer responsive mobile platform application where you can get the ride within minutes, I think major success factor in gaining the popularity is its consumer mouth of word. People who have taken Uber rides have very positive experience unlike the traditional cab rides. Uber drivers are friendly, atmosphere in the cars are very refreshing and encouraging the riders to use the service repeatedly. Unlike traditional cabs Uber cars are provided with reliable GPS and the ETA to reach the customer destination is 99% of the time accurate, which also enables the riders to come back and use the services repeatedly. Comparing to the traditional cabs Uber rides are usually cheap (except during the surge pricing) because of its state of technology in using the reliable GPS services to find the short routes to deliver the customers to their destinations. One more factor helping the Uber to gain its popularity is its wide range of services such as UberBlack and UberSUV, UberX, UberXL, UberSelect/UberPlus and UberPOOL. Rider has choice to choose which service he needs depends on the requirement and will only pay a fee for that service which also encouraging the riders to use Uber more frequently. Given all these positive factors there is no wonder Uber becoming a success in the short span of time.

Technically Uber employs no drivers. Uber coins a term for them as driver-partners rather than its employees. The payment from Uber to its drivers is also a flat rate commission system, where Uber charges 20% from each ride and pays the reminder to the Driver. Uber does not provide any benefits such as insurance, 401k plan etc. because Uber doesn’t employ them technically. It is more of a contracting nature where driver can decide whether he want to stay with Uber or not. Uber drivers can drive their own cars at their own time and duration of time. The regulations for becoming a taxi driver were complicated and expensive. Also, since the number of medallions was capped in a city, owning or leasing a medallion is very expensive for taxi drivers. Uber should value its drivers as much as its riders, they should establish strong employee relations, also since Uber is a high-growth market, it can afford to lower the commission per ride for a driver. This will help drivers earn more and provides incentive to go for one extra ride.

I think Uber business model as unique and robust as it can be and at the same time like every system it has its own flaws to deal with. Uber is mobile application platform which connects riders to drivers through its peer to peer responsive system with state of art technology. With Uber consumers both riders and drivers have chance to choose any of the offered Uber’s services depending on their need. As expressed before Uber drivers are more similar to individual contractual workers as opposed to a lasting utilize of a firm, however a driver who rejects a ride has genuine outcomes to face like getting let go. Uber does not permit its drivers to disregard demands while on the application. Uber tracks the time spent by every driver on the application and flames drivers who have low acknowledgment rates. The one flaw I see with Uber business model is it cannot maintain a personal relationship with its drivers. It cannot monitor or regulate the behavior of its drivers to its customers even though it placed controls such as monitoring the driver activity on the application, monitoring driver routes. Some other flaws are Uber is tormented with risk inquiries and protection issue, more than some other start-up administrations. Claims from taxi organizations and unions in a few major urban areas including New York, kept Uber occupied with standard court fights. There is an interest for such administration, yet overhead cost and expensive fights in court debilitate the business.

Uber's one of the most vibrant and popular companies of present time. Much of the way Uber likes to think of itself is all true, Uber is definitely game changing company. Uber had lot of media attention, with both positive and negative views. Uber has been in and out of the news so many times in its very short span of time due to its aggressive business tactics. Its ground-breaking future schemes are also receiving a great media attention. Uber benefits a lot through media attention and word of mouth. It does not have spent a lot resources on marketing as its already getting free marketing. The Uber’s business model is captivating and differentiating in that it frees riders as well as drivers with more adequate options and variable pricing methods, and assist them with real time and historical information using GPS technology, which facilitates and increase the chance of business of transportation services and create a larger market. The high value of Uber can be contributed to its compelling business model, its leading role in market segment, and its great market potential. The high value can bring up more resource for Uber, but also an expectation from investors, which may put limitation to its strategies.

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