Should Ridesharing Apps Purge the Surge?

Consumers routinely rail against variable pricing on social — is it enough for Uber and Lyft to rethink the practice?

Seems like Uber never runs out of fires to put out.

After the recent terror attacks in London, Uber found itself in another PR dilemma. The embattled ridesharing company received renewed flak for disabling surge pricing too late, leaving users agitated and feeling like the company was profiting from the tragedy.

Perhaps learning from its previous missteps, Uber tried to make amends by refunding users who requested rides — but it was not enough to escape from users’ wrath. Social media quickly lit up as consumers rushed to call Uber out.

An angry social reaction to Uber’s surge prices is not new — the #DeleteUber movement first reared its head when the company charged higher prices to protesters fighting Trump’s Muslim travel ban due to high demand.

Together, these events raise an important question: Is surge pricing causing bad blood between Uber and its riders?

Before we get into that, though, we should answer a fundamental question: Why does Uber rely on surge pricing? Uber’s surge pricing is based on algorithmically finding an equilibrium price for drivers and riders when demand for cars is higher than supply. Uber claims that surge pricing draws more drivers to the road to meet high demand, and users are informed of higher prices and can choose to wait (or not ride at all) if they do not wish to pay a higher fare.

Unsurprisingly, this explanation doesn’t do much for riders who open their apps to see multiplied fares. Consumers have strong feelings about surge pricing, and they’re not shy about expressing them on social. In this post, we dig into that social media data to answer the most pressing question about surge pricing: Is it turning consumers away from Uber and Lyft?

Extreme Surge

Social media reactions to surge pricing are most common when the surge is the most severe — for instance, in Stockholm, Uber “tested” demand for ‘50X’ surge equivalent to $57 per minute. In other instances like New Year’s Eve, users reported paying as much as $400 for a 25-minute ride.

Clearly, extreme surge prices drive up negative conversation on social. But, overall, is surge pricing hurting Uber? Does it irk consumers enough to make them switch to another service? Or back to cabs?

Analyzing the Surge Conversation

When we used Crimson Hexagon to analyze conversations around ridesharing, we found that, although fares of taxis were higher, surge pricing is among the top pet peeves for consumers, especially over weekends nights when the volume of its conversation outpaces taxis.

It’s interesting to note the uptick in posts discussing surge pricing over weekends.

A plausible explanation for this is laid out by a Harvard Business Review article, which said, “Humans are hardwired to pay attention to stimuli that change and ignore those that remain stable. So when prices fluctuate constantly (and other features don’t), customers naturally turn their attention away from hedonic and experiential aspects of the product — the very factors that make a strong brand and allow the company to enjoy a price premium — and focus on price.”

There’s no denying that surge pricing and Uber have become synonymous. But Uber isn’t the only ridesharing service to work variable pricing into their model.

Lyft the Surge

Surge pricing is most often associated with Uber (thanks to its higher profile and history of bad press), but rival ridesharing app Lyft is also guilty of employing the same tactics, though perhaps with more tact.

And yet, in consumers’ eyes, raising prices to balance supply and demand, is most closely connected with Uber.

From May 2016 to March 2017, Uber’s surge pricing posts on social dwarfed Lyft’s. Consumers posted 78,820 times about Uber and surge pricing, and just 4,007 about Lyft and surge pricing (which is called Prime Time in Lyft’s lexicology).

So, we’ve seen that consumers express strong opinions on social about surge pricing, and that they associate surge pricing with Uber. It stands to reason, then, that Uber would bear the brunt of the negative sentiment attached to surge pricing. Right?

 

End of the Road

In principle, variable pricing is a simple economic concept (and one that makes Uber data an economist’s dream), but Uber is a great example of how companies are forced to toe the fine line between doing good business and protecting the integrity of the brand. Luckily for them, social media can act as a sounding board for consumer reactions to new features. And specific to surge pricing, getting a hold on riders’ willingness could help fine tune dynamic fares.

This is a part of a larger series on the automotive industry. Click here to download the full report.

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