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Thursday, October 02, 2014

Reduced rates increase earnings with UberX

As you may all know, Uber reduced rates a few weeks ago. Trips that would normally generate good prices are now less appealing. However, somehow, drivers are making just as much money as in the past. How is this happening with Uber reducing rates on their highly popular UberX ridesharing platform?

First and foremost, reducing rates will motivate clients to use UberX more than usual. When prices drop on our favorite energy drinks such as Bing and Starbucks, we will make a special trip to purchase them. However, once these prices return back to normal we will refrain from purchasing as many of these energy drinks. 

In an economic sense, decreasing the cost of anything will increase demand. There is plenty supply of drivers on the road to give these rides. As drivers are dependent upon making a living giving rides, then higher demand translates into additional rides. Even though drivers are covering more ground and must transport more clients, they are now making more money. 

On Friday and Saturday, Uber held a promotion to guarantee drivers at least $30 per hour driving between 7pm-2am. These guaranteed hourly earnings are a step back from the exciting $45 an hour offered several months ago and during Pride. It is not even close to the $60 guaranteed on Bay to Breakers. Nonetheless, this driver gave 19 rides between 7pm-3am and made far more than $30 an hour. This driver reported that giving these rides didn't tire them out. It was a seamless process. 

Interestingly, this driver shared that he made several long trips, with three of these rides entering, leaving, and then reentering the city again. Clients are more willing to take longer rides because of these recent price cuts. If sales are held, consumers spend money. Sales drive the market. 

Reducing fares were perceived as the boiling point for UberX. It was assumed that drivers would make less money and grow weary of this untimely decision to affect their income. Sure, Uber incurred the summer promotion and drivers earned more based on the deferred savings. However, the complete opposite occurred and drivers are seeing surge rides and are taking longer trips. 

Most importantly, drivers are keeping busy and don't think much about their earnings. There is less downtime. There is less time driving through the city searching for available rides. We now view these reduce rates as an incentive to increase business. In offering a guaranteed $30 an hour, drivers are motivated to drive because they assume that a reduction in earnings will make them less money. Nevertheless, drivers are seeing more surge rides and longer trips than before this recent rate reduction took into effect on September 15, 2014. 

It is true that drivers can make more money with these reduced rates. They may need to drive more miles and make additional trips, but gaining access to consistent business translates into higher earnings. As Uber pointed out, UberX drivers earned more money in the summer as opposed to May.

Uber held promotions in the summer and incurred this loss in revenue by giving their drivers this money. The real truth about this recent price reduction is that more clients are willing to take rides, otherwise lost to walking and bicycling. Clients will request an UberX rather than walk in the rain. They may request an UberX instead of driving to work. In essence, rate reductions are standard in service industries competing to entice consumers.   

Price changes travel behavior; client want to take more frequent trips with UberX. Just as guarantees and incentives motivate drivers to take the road, lowering rates can have this same impact on clients choosing to increase their ridesharing usage. Why drive to a restaurant when an UberX that is 40% cheaper than a taxi and is available at the press of a button? 

We believe reducing rates can keep drivers busy. Therefore, drivers are focused on giving rides and time travel much faster. There is plenty of business to go around the city, so no drivers on any ridesharing platform will complain. Reduced rates on Uber's ridesharing platform UberX is stimulating business. As a result of this, clients are requesting more rides based on the affordability of trips. This rate reduction is good news for UberX drivers who depend on this ridesharing job to survive. 

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