Innovation

Uber Reveals A Method Of Upcharging Customers That Will Further Damage The Company’s Image

by Penn Collins

May 22, 2017

One of the biggest complaints Uber has had to face recently (and there have been many to choose from) is that the gap between what the passenger pays and what the driver earns is getting wider and wider. Thus far, Uber has kept its billing and charging strategies quiet, but, in the face of mounting complaints and question, the company has come clean … somewhat. 

It’s no secret that the company’s current business model is far from sustainable, burning cash at a rate that no amount of scaling and adoption could save the upside-down economics in place. Speaking to Bloomberg, the company acknowledged that in some markets they’ve deviated from the familiar approach to something they have dubbed “route-based pricing,” using data points to determine what the most is that a customer is willing to pay. In addition to using distance, time, and driver availability to establish a fare, the company is going to use factors such as time of day, pick-up location, and drop-off location to determine the price sensitivity of the customer.

A big departure here is the company’s abandonment of supply and demand to exploit inefficiencies in human nature and demographics to take a bigger slice for itself: 

If two riders are taking similar trips to different neighborhoods, there’s a good chance the rider going to the “wealthier” neighborhood will be charged more. This very scenario is the one being latched onto by critics and skeptics: 

While this move will undoubtedly rub customers and drivers (who will see reduced demand with no corresponding additional revenue) the wrong way, the company believes it’s done its part toward transparency by offering “up-front pricing” over the past year. This feature guarantees a rate to customers before they get in the car. For the sake of drivers, Uber will report to drivers the price a passenger paid, but it won’t explicitly list the company’s “cut” from the ride.

The company hopes that it’s able to leverage this nascent prediction technology to ultimately satisfy the corporation and its drivers, but that doesn’t mean the journey to the goal will be a pleasant one. As Microsoft researcher Glen Weyl has observed in his time working with Uber as a consultant, “They could really lose the trust of the riders. It’s a very dangerous moment for them, but there are good economic reasons to do it.”

As all things do, this decision comes with clear, but difficult to quantify costs in the arena of goodwill and customer relations: 

As is so often the case, the crossroads of long-term viability and near-term goodwill proves rife with pitfalls. Thus far, Uber’s proven shaky at best in managing the trade-offs, and this development will once again test the controversial company’s ability to manage its growth. 

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Uber Reveals A Method Of Upcharging Customers That Will Further Damage The Company’s Image