Surge Pricing by Cab Aggregators- “Boon or Bane”
What is surge pricing??
Surge pricing refers to the adjustment (mostly hike) in price w.r.t the demand. Greater the demand for a particular commodity, higher will be its price set by the company so as to generate more profit. For example, consider airlines industry, they follow the surge pricing method to fix their prices. Later you book your ticket, more prices you have to pay to buy the same.
How are cab aggregators following surge pricing model?
Cab aggregators like OLA and UBER are in a price war with each other and to cater to the mass market they are offering huge discounts to their customers. But then how are they generating profits? No, as of now they are not generating any profits. These cab aggregators are burning out the investments they are getting from venture capitalists in order to gain more market share. Surge pricing model is only helping them reduce this investment burning ratio.
According to government regulations, cab aggregators can charge up to Rs 19/ Km as fare, however OLA and UBER are offering rides at Rs 11/KM (during normal hours) which is less than an auto as well. However, during peak hours when the demand is high and cabs are less they charge up to 3 times the normal fare and hence catering to the needs of its customers but at a higher price.
Why government wants to ban surge pricing?
Many people have complained that OLA and UBER charges more in night than in day. They believe it to be an unethical way of doing business since cab aggregators are taking undue advantage of its customer’s situation. As a result of all such complaints, government announced that cab aggregators should not follow surge pricing model and should charge a fixed price under all circumstances.
Will the ban on surge pricing prove to be “Bane or Boon “for its users?
There can be two schools of thoughts –
Surge Pricing should be banned as it takes undue advantage of our situation
Users might feel that cab aggregators are charging them extra fare when they are in dire need of cabs. This might lead to customers loosing trust on the services provided by the cab aggregators .It will also hamper the loyalty of its customers towards the brand and hence the overall brand image.
Surge Pricing is a good way to segregate its customers and why should we pay more for the services we don’t require
Imagine a situation where a customer uses cab services every morning to commute to his office. His office is 10kms from his home and everyday he pays Rs 60 base fare (for 4 KMS) + Rs 11*6= Rs 126 which is very less when compared to an Auto which would charge approximately Rs 150 (15*10). Now, one fine day government decides to put a ban on surge pricing model. As a result, Cab aggregators decides to increase the base fare to Rs80/4Kms and per Km charge to Rs 19/Km. Now the same customer would have to pay Rs 194 (80+6*19) which is much more than the fare paid for an Auto i.e Rs 150.
Such customers who don’t use cab facilities during peak hours (i.e generally during night time) are likely to switch to the substitutes if the overall price is increased (as a result of ban on surge pricing). These are price sensitive customers and they don’t believe in paying more for the services they don’t require.
Hence, if surge pricing is banned all users will have to pay a fixed price which would be higher than the current price and hence the probability is high that cab aggregators might lose a huge chunk of customers to the cheaper substitutes available in the market.
Recommendations for Cab Aggregators:
Put a cap on surge pricing, it shouldn’t be too high
Charging 3 times the fare is not a good way of doing business. Customers might feel they are being looted, lose trust on the company and switch to the competitor. Hence, taking this in consideration, cab aggregators should maintain a cap on surge pricing which should not be too high but affordable.
Set the policies in place , the process should be transparent
Cab aggregators should have certain policies in place and communicate the same to its customers. A user should be aware of why is he being charged extra and what is the process behind it. Transparency in the system will ensure customers doesn’t feel cheated and leave the company.
Special offers can be given to customers(in non peak hours), who are availing cab services during surge pricing
If a customer is regularly availing cab services during peak hours and is paying extra amount each time due to surge pricing, cab aggregators can identify such customers and can give them discounts or loyalty points to be redeemed in non peak hours. Doing so, company would be able to communicate a message that we “Care for our customers” and in turn customers are likely to trust the company more.
Is surge pricing model boon or bane? It’s still a mystery and is likely to remain so. For people who are happy with the services and prices offered by cab aggregators it is definitely a boon. But for people who have to pay extra during peak hours, it acts as a bane since they are the ones paying extra to compensate loses faced by the company. However, surge pricing model can be very handy for companies to segregate its customers and fulfill their requirements, provided it is used efficiently.