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Thursday, October 16, 2014

Lyft Prime Time requests 50% tip to driver

Image rights: Lyft


Lyft developed their own version of surge pricing. Many clients complain about Uber's surge pricing, but Lyft also unveiled Prime Time to charge passengers a 50% tip to encourage drivers to go online and move into these busy areas.

The meaning of surge pricing and Prime Time is to convince drivers to drive. People assume drivers should be available at all times. Ridesharing services are not a taxi service where people are scheduled to drive. It is up to drivers to drive whenever they want.

Surge pricing and Prime Time increase the supply of ridesharing vehicles on the road. Clients and passengers may think this feature is unfair, but it is unfair for drivers to endure fare cuts.

Fares have dropped so low that a routine ride from the Marina to Downtown San Francisco cost $10. Good rides from the furthest part of San Francisco (Richmond + Sunset) are no longer feasible without surge pricing and Prime Time. The cost of gas wipes out profits.

There is no profit to drive at all times unless you get on the road during busy times. Drivers may get lucky to earn money on slow days, since unexpected rides can make them decent money (i.e. Emeryville to Redwood City). It doesn't always work that way.

Clients and passengers can complain about surge pricing and Prime Time. Without these features, you will have a tough time getting a ride. Will drivers move into the Richmond and Sunset districts to drive you? Probably not. Most taxis won't go there on weekends.

It is all based on luck to get rides in these regions. A driver may transport a client to the Sunset or Richmond districts, and then another client may need a ride back to the downtown region.

Ridesharing companies will hold promotions to encourage drivers to get on the road. Clients and passengers may view the lack of cars on the road as a problem. However, drivers are losing money and must make financial decisions to drive.

Do clients and passengers think drivers can make money if they are waiting outside while a client is taking 10-20 minutes to come outside? What if the client makes a mistake with the pin drop and drivers must waste more time and miles searching for them?

Drivers only get paid 80% of the ride, that is after the ride starts and ends. Outside of those times, the driver is not earning any money. The cost of gas, tolls, snacks, waters, wear and tear, maintenance, repairs, car payments, insurance, and other expenses absorbed by the driver make ridesharing services a loss.

Would you work for $3 an hour? What about for free? Sometimes and most times, ridesharing services turn a loss. Ridesharing companies don't own vehicles and pay nothing to drivers to operate unless rides are given. The driver assumes all cost and must accept the 80/20 commision pay scale to stay connected, and legally be able to provide such services. Otherwise, drivers can't legally pick-up passengers as a TNC driver and make money performing ridesharing services.

Surge pricing and Prime Time motivate drivers to gravitate into busy areas. Making $10 an hour is not convincing enough to destroy a personal vehicle and spend a fortune on gas. Drivers take huge risks transporting clients and passengers to their destinations. However, implementing a price multiplier and/or tip increaser can make driving more enticing and will far outweigh this added risk.

Drivers don't have to be available to give rides. It is their choice whether to drive or not to drive. A $10 trip is like a restaurant receiving one $10 tip off one table. It is not enough to drive on busy roads and to deal with pushy and rude passengers.

Surge pricing and Prime Time are up to the client and passenger. If riders are not in a hurry and don't care to get to work or home, they can wait it out. However, a surge can last a long while and waiting to save money may not be worth this extra time. The next time a surge arrives, think of how the airline and hotel industry operate. People complain, but they still pay these high prices. It is all about demand. If you choose to wait for a ride to save money, you may be waiting a long time.

When there are no price multipliers, you will get a great deal. Ridesharing companies are essentially requesting you to pay more at certain times. It is not all the time, just at times when cars are in short supply. Last year, we heard Lyft drivers were unable to meet the high demand, and 30 percent of requesting riders couldn't get rides on weekends.

Riders have a choice to pay higher prices or avoid this service at that particular time. Surge pricing and Prime Time are useful tools to increase supply and lower demand. It can reduce demand rather fast.

Lyft Prime Time will charge their passengers a 50% tip that goes directly to drivers. Uber uses GEO surge pricing, where different areas have different price multipliers. One area may be surged at 1.25x, another at 2.50x and another at 2.0x. Outer regions may not have a surge at all.

Just remember ridesharing users that you don't have to accept a ride under price multipliers. You are warned ahead of time that a surge or Prime Time is going on. Demand is high. Therefore, drivers are requested in these areas to accept rides. It makes it worthwhile for a driver to take a few trips at this rate. With the recent rates bottoming out, drivers are feeling the pinch.

Many drivers can't get on the road to perform ridesharing services due to repairs, wear and tear, no gas, and no toll money. A driver promotion and surge pricing and Prime Time may convince them to take a risk and get on the road to give rides.

SideCar implemented a marketplace to give their riders a choice to select the best ride that suits their needs - whether this be ETA or pricing. Drivers can set prices which they believe are fair to get ride requests. This is why there are different cars, prices and ETAs.

Price multipliers work best to reduce demand. Because drivers are not driving company cars, there must an incentive to drive. The cost to operate is extreme. Like most new businesses, chances are that drivers are operating at a loss. Once these drivers figure out the driving business, they can make some profit. Reducing driving and working at busy times can help drivers to survive the ridesharing game.

Lyft is imitating Uber with Prime Time pricing. SideCar launched the driver marketplace earlier this year. Uber has always designated surge pricing as a tool to increase the supply of vehicles on the road. Ask yourself if your time worth waiting for a ride? If you can wait, maybe you can save. There is no guarantee to get a ride in busy areas. Think of Outside Lands and Hardly Strictly.

A possible World Series in San Francisco will make rides challenging to locate. As a client and passenger, you make the final decision to accept or reject price multipliers. Clients and passengers will complain of high prices during busy times. Hotels and airlines jack up prices all the time.  It is common at busy times to request higher price to feed the high demand.

Ridesharing services must boost prices to increase supply; otherwise, demand will increase and no supply will be available to drive clients and passengers. At other times, it's slow and rides are cheap. Pick and choose your future rides. Happy Ridesharing!