Tuesday, February 02, 2016

How price cuts change trip cost?

Over the past few years, Uber staged multiple fare cuts to undermine the ridesharing industry. It appears that Lyft won't go as low as UberX. What Uber failed to consider is that price competition can/will influence their driver pool. Hotels are not reducing their prices, they are providing better accommodations to attract guests. Uber is slashing prices for reasons beyond helping drivers.

We keep reading about Uber reassuring their decision to make price cuts is to stimulate business and help drivers make more money. When Uber claims that there is less downtime and an increase in the number of trips per hour, they don't share that these are poor quality trips - minimum fares.

Poor quality trips won't stimulate driver earnings. Nevertheless, slashing prices will require drivers to make more of these type of trips at much lower prices. Instead of completing two quality trips at a higher price, drivers are receiving requests to take short trips. The problem with this is that clients are rarely ready at pickup locations. It may take 5-6 minutes, even longer, for clients to show up. This represents lost time, thus influencing drivers to lose money. 

Another issue is that clients drop pins at the wrong pickup address. There are times when clients are gaming the system to avoid surge pricing. By inputting destination as pickup address, this enables the client to request an Uber to their destination and then the client will call and make up an excuse about the app experiencing problems and Uber needing to address this problem. 

Clients requesting, canceling, requesting and canceling trips impact driver earnings. The same client is abusing the system to hook drivers while surge pricing is in effect and canceling driver. They will continue this action because Uber doesn't take action and no cancellation is charged to rider before 5 minutes. There is no limit to the number of requests and cancellations. 

One UberPool rider requested 9 trips and canceled 9 times. He extended an UberPool trip another about 30 minutes. He called and threatened his Uber driver for his mistakes. Uber didn't block the rider from displaying this abusive behavior. 

The cost of trips are significantly down. A few years ago, a Berkeley to SFO trips cost $60+. With recent price cuts, this trip now cost $35. After all deductions (bridge toll, Uber fees, safe ride fee, airport fees, and gas), a driver will net less than $20 on this 35-40 minute ride. This doesn't take into account the pickup time, especially the extended trek into the Berkeley hills. 

In 2013, the cost to transport a client from the Sunset District to downtown SF cost $30-$35. A few nights ago, an Uber driver transported a client from Berkeley to Livermore for $35. 

$10 trips are now minimum fares. A driver on the 20% commission schedule will only see $3.20. Uber is collecting 39% against minimum fares. Drivers are driver longer to make the same. A long trip from the past would pay more than 40 minimum fares right now. 

Driving with Uber is no longer a god opportunity. If you don't use a reliable vehicle, you will lose out. New car owners and those who lease with Uber can sustain price cuts. It will discourage them to take longer trips for less, but they can survive price cuts until Uber figures out how to respect their Partners. 

Uber hourly guarantees trick drivers into believing they can get matched if fares don't add up. Unfortunately, Uber uses unethical formulas to measure different increments of time. Their back-to-back feature is an acceptance rate killer. Reject a second trip while on another to use the restroom may disqualify drivers from reaching minimum 90% rate. 

Reducing prices is said to stimulate business. Why would a driver miss the minimum trips per hour by .02 per hour and not get matched? Uber doesn't want to pay the match. They operate like insurance companies trying to find every-which way to disqualify drivers. There is no other reason why an Uber driver made $15 per hour last week, when Uber guarantees at least $17 minimum in the East Bay. After all fees, this driver received a deposit for $75. Uber earned more than this driver. The safe ride fees exceeded this payout. This Uber driver spent more on gas than he received. He also paid out for his lease, which was twice the direct deposit. 

If Uber is indeed a reliable company, then they wouldn't need to cut prices to stimulate business. Their inpatient reaction to reduce prices during the slow season impacted Uber drivers. Uber probably has an ulterior motive for fare price cuts, that has nothing to do with their drivers. Possible reasons for this latest price cut are price competition, maintaining higher overall trips (like a website generating unique visitors) and generating safe ride trips (increase revenue) at the expense of drivers. 

A trip from San Francisco to San Jose once cost $200 in 2013. This trip would now cost less than $80 with no traffic. If a client took the reverse route, it would cost $59 based on rock bottom East Bay and South Bay prices. It is cheaper for clients to travel from East Bay and South Bay into San Francisco than from SF to these two regions. 

Uber slashed prices in East Bay and North Bay three times since September 2014, This move has dropped rates 45%. No trip anywhere in San Francisco to any point in SF will make a driver $20 unless surge pricing activates. A trip from SF State to the Ferry building once cost $30+.  It is not even worth taking the risk to drive in SF at low fares. 

Uber drivers should shift their driving to higher paying regions. These drivers shouldn't waste their time and effort in low paying regions where they must work harder to make much less. Focus on surge pricing. Limit airport rides by driving at different times. These rides are no longer lucrative because airport fees, Uber and safe ride fee consume a larger share of the fare. 

We remember a time when miles cost $2+ and per minute exceeded .50. Pickup charge was once $3. The entire ridesharing industry is bottoming out for drivers. Whereas, clients are enjoying cheap trips at the expense of Uber drivers. There is a limit to how low fares can go before drivers quit. 

We don't recommend Uber testing this minimum level. It can be costly to their future. They will have millions of clients with barely any drivers to handle this demand. Then, taxis will notice this shift and become relevant again. Like Lyft in 2013, this ridesharing app didn't have enough drivers to handle their heavy demand. 30% of all riders on one particular night didn't get a ride. 

If Uber keeps manipulating the price structure, drivers will leave and go to the competitor. It will happen, so avoid price competition. With higher rates in San Francisco, drivers will shift their driving there to saturate the market. Thus, there won't be enough drivers to operate in the East Bay and South Bay regions. Therefore, surge pricing will go into effect to multiple trip cost. 

Make up for lost driver earnings with a tipping feature. How many times have clients and drives requested a tipping feature. Even Sidecar, who went out of business, could figure out how to integrate a tipping feature in their app. Uber has the resources, but doesn't want to burden their clients. They don't protect their drivers, allowing clients to treat Uber drives poorly. If this treatment is caught on video, Uber will take action. If not, it won't get any attention.  

Uber drivers have a right to decline trips. If a client is requesting their trip and the Bay Bridge is jam-packed, Uber drivers may think about cancelling this trip. They won't make enough money to drive into San Francisco from the East Bay. Moreover, drivers must pay toll cost upfront. They may generate so many toll violations that their vehicle registration will get locked down. 

It is a lose-lose to operate as a ridesharing driver. Prices must increase or supply will decrease. Uber could implement loyalty rewards to stimulate business. Price competition will prove costly to Uber. We're sure they are trying to push out the competition. The cheaper the rates, the more people will request rides. However, these people enjoy using Uber so much they don't really care about the prices. 

Uber is punishing their drivers using price competition to become a monopoly. The unfortunate aspect of this move is that no regulations prevent Uber from bottoming out rates. Again, drivers lose in this department. They have no rights, but they can take action to reject rides and cancel rides at pickup address where such trips are not financially worthwhile to accept. They can begin trips upon arrival. If UberPool clients are not ready in 2 minutes, they can cancel as no-show. 

Clients must be ready or get left behind. Fare cuts change driver behavior. No more waiting past 5 minutes. No more re-routing to new pickup address miles away. If client makes a mistake, they'll get canceled at wrong pickup address. Cheap trips are unacceptable. Fare cuts are driving ridesharing into the ground. Clients enjoy this service, but drivers are suffering to afford the bulk of expenses. 

Picketing on the roads won't change anything. Drivers possess the power to implement change driving on the road. They can rate clients the right way. In result of honest client ratings, drivers can be selective on the rides they accept and reject. Drivers don't have to engage in conversation with clients after trips. A lot can change to which clients may choose to switch over to Lyft to regain that spark. 

For the most part, price cuts are making most longer trips unappealing. Shorter trips now fall under the minimum price category. Drivers are expected to operate like robots, giving many cheap rides per hour to pad Uber's pockets. Uber will disqualify drivers for hourly guarantees based on measuring increments of time rather than overall stats. 

When will Uber reach the bottom? How low can they can go before drivers ship out? This recent price cut is discouraging drivers. Making trips between the East Bay and San Francisco are not worth the low fare. It is only worth taking a trip out of San Francisco to the East Bay to receive the higher fare prices. Hopefully, Uber can restore their past holiday promotion to encourage drivers to produce. 

San Francisco drivers who miss 2.2 trips per hour during peak time won't receive hourly matches. With the way clients make drivers wait or are usually lost, this per hour average is set too high. Request drivers to average at least 1.5 trips over all hours driven. Weigh acceptance rate against overall acceptance rate for that particular week. Guarantee overall amounts to excite drivers. Disqualifying drivers from promotion and reducing prices will discourage them to drive. 

Long trips originating from East Bay and South Bay have low value. In the past, working these regions would be worth your time. Now, it will take a driver 25 hours to earn what they once made in 5-8 hours with surge pricing, long trips and steady requests. Too bad ridesharing services have gone into the wrong direction. The scary thing is that if all ridesharing players are pushed out, then Uber will charge extremely high prices. Therefore, Uber clients will lose out in the end. With patience, Uber drivers will become winners again.