Friday, November 21, 2014

Does Price Competition Increase business?

Uber (UberX ride platform) and Lyft are battling it out on the front lines. Both of these ride technology companies keep reducing fares, which are obvious economic strategies to stimulate ridesharing business and compete against one another. Unfortunately, this price model is basically killing driver earnings. Rides are much harder to score now than before these price cuts took into effect. Does price competition increase business or hurt drivers?

Current drivers are actually struggling to make ends meet on so-called busy day/nights. Clients are objecting to request rides during surge pricing, instead they rather wait than pay double to triple the cost. As promised in emails to match driver earnings, hourly price guarantees are not being honored. There is no viable way to compare these hourly results because Uber Weekly summaries have gone missing for as long as a month, on twice occasions.

With Lyft trying to keep up, Uber seems to be welcoming reduced prices across the board to speed  ahead. Why worry whether drivers are feeling this heat burning a hole in their pockets? Isn't competition good for business? Well, in this case, it appears that Uber doesn't care too much about drivers making money. Based on their marketing strategy in 2014, decapitating Lyft and putting them out of business are primary objectives of theirs that may monopolize the ridesharing industry.

An UberX driver shared that Sunday nights in San Francisco are a hit or miss. One Sunday, this driver earned a healthy $225 before gas and toll expenses, and commission deductions. However, the following Sunday this driver scraped by making a miniscule $70 on a Walking Dead type of night. Receiving a ride request in the late PM and early AM hours required strategy. Several months ago, ride requests came naturally without manipulating prices via surge and/or price reductions (promos and price cuts).

It is bad right now. Current earnings are nothing remotely close to past trip earnings during the first half of 2014 and during the Fall of 2013. These price reductions haven't generated the type of business that Uber claimed would represent the turning point for increased earnings. Uber emails featuring unreliable graphs compare UbeX driver earnings in two standalone months, building a correlation between price drops and that drivers are earning 15% more. Nonetheless, driver earnings have significantly decreased post-price reductions. How is this data accurate? We don't concur.

What Uber doesn't factor into this equation is their 25% Summer promotion. They took the 25% hit, allowing drivers to make decent earnings before reducing prices after the summer. This thrill ride ended, and now drivers are taking the price hit and earning less.

On September 15, 2014, Uber slashed prices nearly 15%, which their argument is that clients would likely take more rides and business could multiply. Drivers are still waiting for these increased earnings. If drivers want to earn more money, they must drive additional hours, spend more on gas and increase overall mileage. It is a lose-lose to drive without any guarantees set into place.

Unfortunately, ridesharing competition is influencing fares. Drivers are unable to withstand these price drops because the cost to operate is too excessive. Wear and tear (mileage), repairs (poor road conditions busting axles, eating up tires, and hill wearing down brakes), maintenance (frequent oil changes), gas (top expenses), tolls, and other expenses involving ridesharing are restricting drivers.

Giving drivers access to $.05 and $.10 savings in one approved gas station near Cesar Chavez Street won't alleviate gas cost. Will a driver travel from the Presidio and/or the Marina to fill-up at this gas station? No way! To make this comical, there are certain hours these gas savings are available. Drivers receive better savings using gas programs offered at supermarkets and at Shell gas stations than at a generic gas station. For the most part, Shell, Chevron, and 76 gas stations feature the best premium gas for luxury vehicles.

In essence, price competition is moving ridesharing in a bad direction. Instead of improving quality, Uber and Lyft are duking it out through pricing wars to win the ridesharing battle. They want to sink prices so low that someone will lose the game. In our most honest opinion, there is no viable way that Lyft can sustain these low prices. No existing ridesharing driver will find motivation in taking long trips to make 30% less than in December 2013 and January 2014. It's discouraging for drivers to watch these prices drop. Reducing prices won't increase business tenfold, unless this strategy is to gain additional clients/riders/passengers in an attempt to increase prices in the future and establish a monopoly.

Drive smart. Develop a strategy to survive as a ridesharing driver.