What exactly is surge or dynamic pricing?
It’s an algorithmically-driven pricing that varies with demand and supply, or, when the demand is excessive and supply is less, the fares increase based on scarcity of available drivers. When demand exceeds supply of cars, surge fares are charged by applying surge multipliers, not manually, but based on algorithms or pricing bots that make use of real-time data. Simply put, the rate is revised to bridge the demand supply gap, along with reducing time delay. It also ensures that more taxis ply during rush hours and meet the increased demand. Peak-hours, weekend, a festival day, or rainy evening might augment the demand and shrink the availability of cabs for the same exact reason– while riders look for more cabs; drivers may choose not work during those times. It’s simple logic.
Lack of awareness and transparency
Here comes the tricky part of this rather unfamiliar pricing. Despite being active in my city for more than three years, Uber team still fails to help riders understand why fares swing wildly on certain days. Hardly a few commuters in the city are aware of surge pricing, the reason why most riders equate the sudden increase in fares to gouging or swindling. The dissatisfaction and subsequent bad press related to dynamic pricing mostly stems from lack of awareness and inadequate transparency on how dynamic pricing works. That said; riders too are guilty of willful denying the benefits that come along with the fare change which is in no way exorbitant when compared to auto rickshaw and taxi fares. If auto rickshaws and taxis can charge above meter rates and swindle riders, how can surging be termed as gouging and unjustifiable? Surging doesn’t last long, whereas, auto rickshaw and taxi drivers contriving tricky ways for fleecing their passengers remain a usual affair. Furthermore, surge pricing is not a hidden cost. Riders are informed upfront about the fare change, and have the choice whether to take the ride or not. In short, surge pricing is a win-win solution that promises comfort and convenience, with hardly any time delay, even during peak traffic hours.
Is surging a new concept?
Absolutely not! From airlines to resorts, most businesses make use of the whack-a-mole game of surge pricing to strike a balance between demand and supply. Revenue algorithms of most airlines are programmed to apply surge pricing when demand increases and supply declines. Haven’t you seen airfares skyrocketing during holidays and weekends? Hotels and resorts also make use of dynamic pricing to adjust the tariffs of rooms and holiday packages based on demand and supply changes. Of late, the Indian Railways too have implemented surge pricing model, says a recent news paper report. The tatkal ticket booking too is faintly similar to surge pricing or real-time pricing that most people are aghast about. Online retailers also adopt dynamic pricing in periods of increasing demand and limited supply. So why can’t we accept the ride hailing company’s rationale?
If we’re vehemently against the dynamic pricing model, shouldn’t the criticism apply to other industries as well? Why blame the ride hailing companies alone? Shouldn’t we argue with our vegetable vendors as well for hiking prices based on changing demand and supply ratio? If capping surge pricing and limiting the frequency of pricing changes is an absolute necessity, it applies to every business that makes use of real-time pricing model. That said; here is one solution that that cab aggregators can make use of – Rebrand the entire concept of surge and focus on promoting the increased convenience and availability that comes along with the fare change. Surge as a label has garnered humongous amount of negativity and it’s high time to replace it with a better and welcoming one that benefits everyone.
On a side note, unlike Lyft, Uber doesn't help book trips in advance, lock in your fares when they are low. Will apps like SurgeProtector, Ride Fair, and Surge for Uber help avoid surge pricing? Not sure, as the reviews are mixed. Surge protector has a 2.7 rating on Google Play Store, whereas the rating of Ride Fair is 4.7 and Surge for Uber is 4.2. Heat map on Uber Driver App might help find areas where surge prices are in effect, says an recent online article. Can drivers “go offline enmasse”, trick the algorithms used by ride hailing companies, and force surge pricing? It's possible, claims a research by Warwick Business School.