Another Look at Uber’s Surge Pricing
Last March Abbey Road Associates shared a point on view on the merits and drawbacks of surge pricing.
We pointed out Uber’s poor communications about their surge pricing policy, and their failed attempt to recover from customer blowback, with an overly defensive response replete with fancy graphs and analysis. We suggested that better communications up front would have preempted the sticker shock and member resentment.
In this update, we examine what worked and what didn’t with their latest surge pricing communications strategy.
If the volume of complaints and news coverage is any measure of success, Uber’s new approach had decidedly mixed results. The blogosphere and the Uber Twitter feed were ablaze over the holiday season with the sticker shock and complaints. Two new competitors – Lift and Sidecar – gave Uber a bloody nose by imposing a 200% cap on prices, while Uber’s went as high as 800%.
This is a shame since surge pricing demonstrably raises supply, an important consumer benefit. Compare this to hotels or restaurants, which have fixed supply, where surge pricing simply extracts more value from higher demand.
The key for Uber – or any firm grappling with the risks of surge pricing – is to understand the source of consumer discontent, in addition to being transparent.
So how transparent was Uber? Very. It was impossible to order a ride on Uber and overlook the alerts about surge pricing during peak periods. After placing an order, there was simply no way to honestly experience sticker shock post ride. Comments in about post-ride sticker shock were either dishonest or posted by those suffering from serious short term memory loss.
But: transparency per se is insufficient to counter consumer’s perception of being gouged. Uber’s rather tone-deaf responses to tweets was ineffective. The company did not explicitly apologize, – and should not – but their “just the facts ma’am” attitude was unhelpful.
What Uber should have done is to explain why surge pricing helps (= it increases supply of cars) and who is benefitting from the surge prices (= the drivers, NOT Uber).
In our view, most customers would grudgingly accept higher pricing if shown the benefits to supply and if they understand that surplus goes to the “little guy” and not an “evil, price-gouging corporation”.
In short, if you are going to use surge pricing, we strongly recommend that you:
1. Explain the benefits to the consumer – be customer empathetic
2. Articulate who benefits from the price increase. Customer’s sense of social justice will be appeased
3. Deploy a sympathetic post period social media strategy
In all of our pricing assignments, Abbey Road includes a thorough and comprehensive assessment of, and recommendations for, messaging and market roll out of any pricing changes, so your post price-change Twitter feeds are as positive as possible.