Sunday, August 24, 2014

Keep dynamic pricing details private and anything is possible

James Surowiecki has a great article about the psychology of Uber's dynamic pricing model:
The basic reality of Uber’s business model is that when people want a ride the most, it’s likely to be the most expensive. This will always be irritating, just as exorbitant prices for last-minute airline tickets are irritating. But over time, surge pricing will also become more familiar and less surprising.
From a customer-relations and marketing perspective, I've never really understood why Uber has insisted on making its 'surge pricing' multipliers so public and in-your-face. Most products that use dynamic pricing keep the sausage-making in the kitchen, and simply provide a price without additional context. Most consumers accept the vast majority of product prices on a take-it-or-leave-it basis, and aren't too concerned about why a price is what it is.

If for whatever reason Uber can't rid itself of the self-damaging public surge multiplier, I suggest implementing a loyalty scheme whereby frequent users could sign up for some amount of future rides at a locked-in price. Uber would cover the difference to the driver to ensure the demand-response function of dynamic pricing stays intact. Uber's ability to pool risk opens up tremendous potential. You could even imagine a service where Uber prices become cheaper the more you use it (again, with drivers collecting full prices and Uber making up the difference).

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