New Era University

College of Business Administration

No. 9 Central Ave, New Era, Quezon City

CASE STUDY:
UBER PRICING STRATEGY

Submitted by:

Atienza, Geanloren

Peňones, Emmanuel

Lim, Diwanna Faye

Tabliga, Xanrifae Lyn

Valencia, Trisha Camille

MW 2:30 – 4:00 PM
 UBER PRICING STRATEGY
By kennyfang

BACKGROUND

Uber was founded in 2009 in San Francisco, California as UberCab by

Garret Camp. On New Year’s Eve, Garret spent $800 hiring a private
driver with friends and had been mulling over ways to decrease the
cost of black car services ever since. He realized that sharing the cost
with people could make it affordable, and his idea morphed into Uber.
Uber is designed to bring safer, more comfortable way to travel and
improve urban transport.

BUSINESS MODEL

Uber is not limited to be a taxi company, its business scope is

gradually expanding and covered the life services business and
financial services business. In most of the markets Uber served,
customers could select from one of four services: UberX, UberBlack,
UberSUV, and UberTaxi.

UberX was the least expensive option and dispatched drivers in

smaller vehicles than those used for the other services. On its
website, Uber claimed that its UberX service was “10% lower than taxi
prices.

UberBlack, the original Uber service, used black town cars; fares for
these vehicles were roughly 35% more than for UberX.

UberSUV worked well for large parties and was priced higher than the
UberBlack service.

UberTaxi allowed passengers to use the Uber app to hail a regular

taxi. Unlike users of the other Uber services, customers using
UberTaxi paid the driver directly.

UBER’S PRICING STRATEGY

To set up a perfect price is the key point for any product. Especially for
Uber, which didn’t have any fleet of vehicles, also did not directly
employ drivers. Compare to the tradition taxi service, Uber could be
seen as a new entrant of the car service market. So price will be the
first point that attract people.
Before set a perfect price, the company should make an inner and
outer investigation. The normal steps in setting price show as follow.

The appearance of Uber is to follow the need of the market, before
Uber occur the traditional car service market was occupied by taxi and
limousine. The whole taxi market experienced in short supply
situation. In particular, during peak periods, average taxi passenger
waiting time on the road between 20 to 30 minutes. Lots of needs in
car service market provide opportunity for Uber to develop business
and set up a ideal charging model.

Uber’s product was a smartphone app that allowed urban dwellers to

hail vehicles virtually. Fares fluctuated, and the company employed no
drivers itself. Instead, Uber served as an electronic dispatcher as
passengers and drivers connected digitally through its proprietary
software. So, Uber has low cost in operation and the price of Uber has
a great competitive advantage.

The main competitors of Uber are traditional taxi and limousine. In

New York, taxicabs charged passengers based on time and distance,
which were calculated by a taximeter prominently displayed inside the
vehicle. Taximeters calculated fares based on a highly regulated and
standardized fare schedule (e.g., $3.50 per mile for the first five miles
and $5.00 per mile thereafter). Livery vehicles had no taximeters, and
fares were usually based on time, or rough distance with a
predetermined minimum price that was agreed on in advance. Uber
can adjust its price level through analysis competitors’ pricing strategy.

After consider all factors demonstrated above, Uber set up a normal

charging model.

It is worthy noting that Uber has surge pricing strategy- Uber’s policy
of dramatically increasing fares during periods of peak demand (e.g.,
rush hour, New Year’s Eve, Halloween, and inclement weather).
Fares were continually adjusted according to a mathematical formula
and could be as much as seven or eight times the normal Uber rate.
At the same time, some negative comment about surge pricing of
Uber occurred. Customers sometimes found themselves with a bill for
several hundred dollars for a trip of a few blocks.  One customer’s fare
was calculated at the rate of $23.25 per mile. One San Francisco
customer paid $30 for a ride of less than two miles on a busy Saturday
night in February 2014.
 
The price sensitivity of costumers should be considered by Uber
management group in order to eliminate negative impact. The reason
why most of costumers select Uber not only because service, the
more important reason is low price. Uber should adjust its surge
pricing strategy to cater to customer preferences. However, there is no
pricing strategy is perfect, Uber should improve pricing strategy
continually to be close to perfect.
I. Identification of the Problem

 The negative comment about surge pricing of Uber, because

they are increasing fares during periods of peak demand like
rush hour, traffic, rainy days, etc.) The fare increase as much as
seven or eight times than the normal price.

II. Objectives

 To develop better prices and value propositions as well as

improving their service to lessen the negative impact of the
customers.
 III. SWOT Analysis
STRENGTH
• Uber has no full-time drivers. As it
does not hire drivers, there are no
responsibilities toward employees.
• The system is convenient for the
drivers. They can work flexible hours
and even choose to be a part-time
employee. Drivers can also reject
unwanted clients.
• The prices are lower compared to
traditional taxi operators.
• High valuation of Uber. Many people
are ready to invest on it.
OPPORTUNITY
• Customers are often dissatisfied with
traditional cab companies because of
high prices and long waiting time.
•Rise in number of Uber drivers will
reduce the Estimated Time of Arrival.
This will make Uber more liked. The
startup will get more revenue and
drivers will be profited as well.
•Additional services like transporting
older patients to hospital, transporting
children to school and transporting pets
to the vet can be offered.
WEAKNESS
• The idea can be easily imitated.
Nothing will prevent competition from
presenting the same product.
• The relationship between Uber and
the drivers is ethically questionable. It
lacks the real connection. So, it is
expected that loyalty between Uber and
its drivers is quite low.
• Also, company and its customers
have no bonding. Incentive to remain
with Uber is low.
• Costs of operating vehicles are very
high. But, the drivers do not earn so
much.
THREATS
• Rising competition
• Absence of clear government
regulations in developing countries
• Future is unclear due to lack of
regulations
• Customer loyalty is less in this
industry
 IV. Alternative Course of Action

ACA 1:

Inform people about the Principles of Uber. Explain them why the
driver have to increase the price especially during peak hours.

Advantage:

The customers will be inform about the reason’s why they have to
increase price on the said hours and days.

Disadvantage:

Some riders or customers not pay attention to the notices of Uber

about cause of price surging.

ACA 2:

Place booth outside the mall for better transaction because not all
people have internet connection. In that way, the employee will be
able to tell in the customer about the reason’s why they have to
increase the price especially during peak hours.

Advantage:

The people who have no load balance will be able to book Uber.

Disadvantage:

The number of people who want to book Uber in mall.

 V. Action Plan

WHAT WHEN WHERE WHO HOW MUCH

TV Ads March – Advertisemen Advertisers PHP 538, 591

April 2018 t will be view GMA 7
on ABS-CBN
and GMA PHP 824, 374
ABS – CBN

Place booth May 2018 SM North and Management PHP 2,000,000

outside the SM Megamall
malls

Offer some December Company Management PHP 3,000,000

incentives for 2018
the UBER
drivers
(annual bonus)