My Experience With Uber – Strategy With RS

This Friday I took a ride with Uber in Mumbai, & got talking with the driver.
This is what I learnt from him about the Uber Business Model in the 20 minutes I spent with him:

1. Fixed Incentive per ride: Uber gave him Rs. 175 incentive per ride irrespective of the distance of the ride.

2. Standard Operating Procedure: When I called him to ‘give’ directions, he did not ask me about my destination. Only when I sat in the vehicle did he politely ask me about it. I was pleasantly surprised & intrigued because the majority of cab driver, I have encountered, ask me about my destination & only if it suits them, then I am permitted me to sit in the cab. The Uber driver told me that he has been advised never to ask for the destination till the guest is seated in the vehicle – this I surmise is to ensure that they do not proactively refuse short distance fares.

3. Surge Pricing: When Surge pricing is levied, the benefit goes to the Uber driver. This also encourages other Uber drivers, in other areas, to converge on the location where Surge price is in play – chances are that the rush is likely to get cleared faster.

4. Behavioral Science Principle: Humans fear loss 2 times more than a similar gain. Uber has built its rating system based on this insight. On this platform, both driver & guest, can rate each other. When they join the Uber universe each is accorded 5 Star. And depending upon their conduct & behavior, the points are updated in real time – if driver / guest misbehaves or their conduct is not proper then they can express their displeasure by giving poor rating. Take the driver – his incentive will be reduced if his rating is poor; he will be denied lucrative long distance fare & so on. Take the Guests: if a guest receives a poor rating from the drivers then what are the consequences for him / her? At the time of booking, the rating will be flashed to the driver … many a times if the rating is poor then drivers refuse to accept the booking. Now look at what Uber does to reinforce good behavior of guests – on its own it upgrades such guests to better vehicles; during Surge pricing they will be proactively offered a lower surge price. Result – the Uber platform is self-correcting.

What is Uber strategy? It is designed to benefit its stakeholders– drivers & guests, not itself. Because Uber protects the interest of its stakeholder they in turn protect Uber’s interest by staying loyal to it & giving it more business respectively.

Business lessons for us:
1. Design a system, which will benefit your stakeholders. They in turn will protect your interest. This will put into motion a self-perpetuating cycle.
2. The benefit should be visible to the stakeholder.
3. While rewarding the stakeholders follow the ‘Gamification’ theory – give variable reward & give it consistently & make sure it is unpredictable.
4. The business model should be self-correcting – it should require least intervention from you to correct it.
5. Be transparent.
6. Embed principle of Behavioral sciences into your business model.
7. Learn to be mindful –pay attention to the present / surrounding without judging them as good or bad.

Follow this proverb all your life – When the student is ready the teacher arrives. For me, that Friday morning, my teacher was the humble Uber driver. In a mere 20 minute drive he enriched me so much.

If you wish to gain a deeper understanding on the strategies being followed by these freshly minted brands, like Uber, AirBnB, then I would invite you to read my article published earlier, ‘How to get customers to own your brands’. This article will give you cogent insight into what goes into making a successful 21st century brand.

Disclosure: My post is based on my limited experience with an Uber driver. I am also aware that Uber may have different model in different cities. I would request all of us to share their rich experience & contribute to this conversation.

Comments

2 comments

Gulsaba

As usual, informative post with profound analysis Rajesh sir. Talking about cab services, companies reward drivers according to the number of rides taken. For example they incentivize the drivers if 13 rides are completed in a day. As a result, sometimes the drivers avoid long distance services. I booked Uber early morning today, and the driver inquired about my drop location. He was reluctant to confirm my ride as the drive involved long distance. That was the only cab displayed in my area. Consequently I switched to another cab service.

Rajesh Srivastava

Gulsaba, thanks for your feedback …. it means a lot to me.
Yes I empathize with you that the strategy of giving incentive to drivers makes them eschew long distance fares.
But I would also like to share with you that there no ‘foolproof’ strategy ever designed by a company. Any strategy – no matter how robust will always be missed used by a section of people. How does a company decided which strategy to green light? The one where the misuse is likely t be the least. Empirical data suggest that at least 5% of users (customers) will always misuse a strategy – the best companies design strategy for 95% & not for 5%
I would urge you to view my video – in which I have touched upon this issue -https://www.youtube.com/watch?v=0dxILWT0tLk