Uber paid attention in Econ.
I have a client (not Uber* - let's call the client Zebra) with a demand problem. Not the usual demand problem, where nobody wants your stuff. No, Zebra has the opposite demand problem. Zebra sells out of stuff and making it takes a long time and a lot of care. It's exquisite stuff, believe me. What should Zebra do? Raise prices. Of course they won't. Because they are nice to the people who buy their stuff. I love Zebra for it, but what about the people who can't buy Zebra's stuff because it's sold out? Fortunately Zebra is in the luxury discretionary space.
The car service space is a different animal altogether. When you need a ride you need a ride.
Uber offers a fleet of well-screened well-suited drivers who steer shiny black cars. There are only so many. They plan to ensure that enough wheels are on the road in the right places and at the right times. They plan their supply to meet demand. At my agency we call it resource management. Economists call it fitting the curve.
Holding a supply curve up to a demand curve is easy when you have predictable demand volumes and geographies. Even volatile volumes can be snugged if those changes are predictable ahead of time (e.g. the seasonality of umbrella purchases when Winter drips its way across Seattle).
Uber is doing something brave and smart: they're playing with both curves.
Problem: Supply management turns ugly when you face unpredictable points on your demand curve. You don't know how many resources you'll need to get stuff done. To a business owner, that's scary. Like Halloween, a perfect example of unpredictable demand in the car service business. Uber knows that demand will increase on and around Halloween, because it's a big night out. A big few nights out. That said, it's kind of hard to predict demand with any accuracy. They know their customers' costumes will be awesome. But they don't know the severity, duration, or geographic dynamics of that surge.
Solution: A couple of hours ago, Uber sent me an email explaining this demand spike. The message walked me through four points:
- They helped me to understand the upcoming supply shortage. Makes sense.
- They want to make sure I can get a ride if I need one, with the service and short notice I've come to expect. Sounds good to me.
- They prepared me for "Surge Pricing Up to 2X"
- They promised to let me know when Surge Pricing is in effect, so I'm never surprised.
Bottom Line: Pay more, up to twice more, but know a driver will be there for you. Same quality of service, same availability you've come to expect. Honest. It's up to you as the consumer if its worth it. Elasticity changes fast when substitution opportunities are all booked. I flash back to my high school economics class' willingness to pay curve. My high school and college econ professors always urged us to make decisions "on the margin."
Essentially, I'm arguing that if it's raining, and there are no cabs, and you shouldn't be driving, it will be worth it to ride with Uber.
Uber closed their customer email by kicking off a costume photo contest and a chance to win a $100 credit. They're also winning hearts and minds with a Viaduct promotion (50% discount promo code: FUBAR).
Those of us in cities like Seattle, Boston, and San Francisco can have trouble reaching a cab company on the phone--forget about finding one able to take us to dinner in time for the reservation. Or finding a cab on the curb to get from happy hour to dinner. Or waiting for a cab when we're late and need to be at the airport. You know what I mean.
Uber will get you a car fast. The car will be nice. My beautiful wife and I took around a half dozen Uber trips in San Francisco the weekend before last. All of them were long wheelbase Lincoln Town Car L models. If you aren't paying attention you may just think the front seats are scooted all the way up, but the frame is bigger. I liked to compliment the drivers on this. They would invariably say, with an appreciative humility, "Oh thanks for noticing. It's only six inches but the customers really like it." And enjoy them now; once the last Town Car croaks their replacement livery model from Lincoln is ghastly.
Uber's mobile and SMS ride request application is cool if you're into the geekery of that--and it's not a trivial technical challenge--but what I appreciate most is the payment system. At first blush, there doesn't seem to be one. You request a car. Your car arrives. You get where you're going. Your driver thanks you, opens the door, and you hop out. No money. No change, no tip, no cash, no begrudging driver wrecking your card with a mechanical slidey swipe machine. Of course, you pay a premium, but you get a premium. Value dynamics are food for a different thought. We'll save that topic for later.
*Disclosure: Uber is not a client of mine. If they were, I would disclose that in a disclosure footnote like this one. I may describe client situations anecdotally without naming names.