In preparation for New Years Eve, people are screaming about Uber’s surge pricing again.
On especially busy nights, Travis Kalanick’s on-demand car service jacks up its prices to help drive down demand for the limited number of vehicles on the road. Uber, says Kalanick, is a guaranteed reliable ride. It’s not necessarily an affordable one. After all, the company was founded as a luxury, black-car service that was more expensive than cabs.
Surge pricing is easy to complain about. But it isn’t really why people are angry with Uber. Most people understand that there needs to be a way to manage supply and demand. Uber also makes it very clear that a user will be charged a higher multiple before a ride is accepted during surge pricing. On New Years Eve, Uber even makes customers re-type the surge multiple before sending a driver their way.
What enrages people is the lack of transparency during surge pricing. It leaves them feeling ripped off because Uber doesn’t explain two things:
- Why the high multiples are in effect
- Where the money goes after an absurdly expensive trip.
Uber says its algorithms choose which multiple to display during surge pricing. But it doesn’t explain how those algorithms work in real time. How much demand created that absurdly-high 8X multiple, for example? How many pings was Uber’s service getting per driver? A simple feature to show demand in real time would appease a lot of whiners.
Additionally, Uber takes 20% of every fare; drivers keep 80%. Uber maintains that 20/80 split with drivers during surge pricing. As a result, everyone benefits financially except the consumer, whose benefit is not being stranded. It’d be interesting to see just how much money Uber makes (or loses) during surge pricing. The assumption is it makes a killing by charging 2-8X its normal rate, which upsets users who then feel ripped off. But if multiples get too high for customers, the company probably loses money until supply and demand even out.
Basically, surge pricing leads to a communication and trust breakdown between Uber and its consumers. Only showing one side of the equation (surge pricing without the real-time demand that’s driving it) doesn’t manage people’s expectations. Instead, it leaves many feeling cheated.
Think about why navigation app Waze is popular. It shows people why they’re waiting in traffic and thus offers an explanation for a frustrating experience. On a more basic level, think about the best waiters at busy restaurants. They let you know where your food is and why it hasn’t been brought out yet.
People have a lot more patience when they’re presented with logical explanations. Surge pricing without an explanation, however, doesn’t appear logical.
Here’s a good debate on surge pricing (and the frustrating results of it) on Twitter.
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