The popularity of rideshare services has led to a change in the way consumers hail a cab. To encourage independent drivers to be on the road when demand for drivers increases, companies such as Uber and Lyft practice dynamic pricing. Following the pricing model of the airlines, which change pricing based on supply and demand, rideshare company pricing can vary wildly based on the number of orders for rides, weather, peak times like rush hour traffic, and local events. When the company expects demand to rise, they use a multiplier to raise fares exponentially, based on the demand. During a surge in pricing, a $10 standard fare can rise by 2, 5, or even ten times the base rate, making it hard for consumers to know when and how much extra you will pay.
What is Surge Pricing
Taxi companies charge for services based on the distance to your destination and traffic conditions. You pay an initial base plus an incremental amount each minute and mile, traveled. For longer distances or popular routes, many companies offer a set fare.
Rideshare companies do not hire drivers to work a specific shift: Independent contractors drive personal vehicles.Drivers can work when they choose which gives companies, like Uber and Lyft, the problem of encouraging drivers to work more when there is higher demand. Due to the challenge of inconsistent demand for drivers, rideshare companies start with a base fare according to the distance from pickup to drop off. When the number of riders (or anticipated number of riders) is higher than the number of drivers, the company implements a surge price. The principle behind the pricing strategy is that more drivers will accept ride requests when riders pay more.
Surge pricing becomes a multiple of the base fare. When demand is a little higher, it might be a surge of 1.5, which would be a 50% increase in the fare. The problem is that the surge fare can rise to 10X or more than the base rate, which creates a backlash among riders who may not realize the extent of the increase when accepting the ride. To combat the bad press, Uber, began requiring customers to accept the higher fare based on the surge multiplier. The purchase screen identified the surge multiplier, but the total fare was still not clear, leading to confusion and complaints.
10 Options for Keeping Surge Pricing in Check.
- Anticipate your needs and plan ahead. Traveling to and from events and at rush hour will typically result in some degree of surge pricing. However, rideshare companies limit surge pricing to geographic areas at high demand times. Planning around that by arriving early or staying late can eliminate or reduce the increased cost of the ride.
- Adjust the time or location. Changing the pickup location can eliminate the surge. The app map will identify the surge, giving you a chance to walk a few blocks to get a lower fare. You can also wait out the surge. Sometimes in less than half an hour, the pricing will fall. Walking a few blocks or waiting half an hour can eliminate the surge.
- Use discount codes. Rideshare companies offer a range of discount codes for riders. Using the promotional code during a popular time can reduce or eliminate the additional cost of the ride. Check the code ahead of time because sometimes companies block codes during holidays or large events.
- Refer-a-Friend. Share the service with a friend and both you and your friend could score a free or discounted ride, depending on the current promotion.
- Don’t play favorites. In this case, loyalty does not pay. Download the apps for all rideshare companies in your city and compare rates across companies when you need the service. Surges occur based on rider demand, which means not all companies surge at the same time.
- Order a different ride. Uber offers ride classes based on the vehicle type. Most drivers and riders use Uber X. When Uber X surges, try Uber Select, which is Uber's luxury vehicle class. If demand is not high for more expensive vehicles, you could end up paying less for a nicer ride.
- Car Pool with Uber Pool. The new app presents riders the option of choosing an individual or shared ride. Using Uber Pool means the driver will pick up multiple riders heading in the same direction. It will often take longer to get to your destination, but you will pay less for the ride. The other advantage of Uber Pool is a fixed price at the time you order the ride.
- Utilize surge tracking apps. Surge Protector and Cut the Surge are apps which track surge pricing on rides through Uber. Available on iPhones, it will show you in real time where the surge is and give you an estimate when the surge will end.
- Enroll as a driver to get the behind the scenes look at pricing and surges.
- Order and cancel. While not good for drivers, long time users order a ride and then cancel before the ride arrives. The rider then re-orders the ride when the surge ends, and there are plenty of drivers in the area. Multiple riders ordering rides brings more drivers to the area, which then lowers or eliminates the surge because of the supply and demand algorithm.
- Call a cab. In most instances, rideshare companies cost less than a taxi. However, when surge pricing raises the bar significantly, a taxi can be the least expensive option.
The part-time independent contractor is a trend among businesses that has grown exponentially in the last decade. Rideshare companies have flourished in this environment offering you an alternative way to get around without renting a car or paying for a taxi. The surge pricing, however, can eliminate any savings if you do not pay attention to the total cost of the ride. Taking the above steps can save you money and frustration, allowing you to get where you want at the lowest possible price.