Uber Surge Pricing Explained
Price dynamism has become the norm in the ridesharing industry. Ridesharing companies are fast to adopt this method to manage the relationship between demand and supply. The system helps to match rider demand to driver supply. This is a basic principle premised on the economic theory of equilibrium price. This states that if demand increases, the price should go up. And if supply becomes more than the demand, the price should come down. The case of Uber Surge Pricing is one of demand surpassing supply.
Surge pricing can elicit skepticism in riders. They may feel cheated. This is more likely because most people do not understand how ridesharing companies arrive at surge prices. Riders develop a feeling of mistrust towards their popular ridesharing companies during a surge. Most riders do not understand the rationale behind the system and why they have to pay more for the same distance.
What is Uber Surge Pricing?
An Uber surge refers to a period when too many people are requesting for a ride. But, there aren’t enough cars or uber drivers available to fulfill all the requests. It is a period when there are more riders than drivers. This means that demand has surpassed supply. Because there aren’t enough drivers on the road, customer wait time increases.
A surge is usually location specific. Uber increases its fare during such times. The prices go up more than the normal fare. This means that riders have to pay more to get a ride, and drivers make more money.
Why Do Prices Change During a Surge?
Many people have attributed Uber price change during a surge to opportunist tendencies. Riders believe Uber and other companies like Lyft are exploiting rider’s vulnerability during a surge to make more money. This may not be entirely true. According to Uber, the company put this mechanism in place to ensure that those who need a ride get it. The policy is used to get more drivers on the road. It is an incentive to make drivers want to work or move to the area where the surge pricing is taking place. This usually works. Since the drivers are going to be making more money during a surge, they are more interested in being on the road at that time.
The surge pricing is also used to moderate riders’ demand. It is a way of screening ride requests and eventually reducing demand at that particular time. Some riders may decide to wait and try later if the pricing is more than what they are willing to pay. Others may move to another area where there isn’t surge pricing.
According to an Uber Official, at a particular time they were able to increase the on-the-road supply of drivers by 70% by offering more money to drivers. They eventually eliminated two-thirds of the unfulfilled requests. This dynamic pricing method is used by many ridesharing companies.
Price differences during Uber Surge Pricing
Uber Surge Pricing is achieved through a simple multiplier that is triggered by scarcity of drivers. During a price surge a multiplier to the standard rate will appear on the map. For instance when you open your app to order a ride you might see 1.5x or 2.3x. This indicates how much you will pay extra. If the base fare is $5 you would be paying $7.50 when the surge is at 1.5x. If the surge is at 2.3x you will be paying $11.50. Surge pricing does not affect uber’s fee percentage. This means that the company’s commission on that ride does not increase. The increment you are paying goes to the driver.
Surge pricing can change at any time. At times, the price may keep going up as long as demand keeps increasing at a rate that’s faster than increase in supply. That is, if people keep ordering rides and drivers are still not available. The price will continue to increase to entice drivers to get on the road. Remember that surge prices apply to users in a specific area in a city. So surge pricing may be occurring at a neighborhood while another area nearby is not experiencing a surge. The price surge is determined by the rider’s location, not the driver’s location.
How to Know There is Surge Pricing
The easiest way to know when there is a surge in your area is through the app. This is easy to detect for a driver. When there is an increase in demand in a particular neighborhood that area will change color. When you zoom in, you will see the applicable surge pricing in the area. The thickness of the color varies. The colors range from light orange to dark red. The colors get thicker base on the level of surge going on in a particular neighborhood. Where you have light orange the price difference is small. The price multiplier in dark red areas is greater.
As a rider you will see the multiplier indicated on your app when you are about to request a ride. It applies as explained earlier. A driver can turn on surge notification on the Uber app. This can be done through the settings.
To do this:
Press setting and select a list of options will pop up. Select “surge pricing.” You can indicate the minimum surge price you want to receive notifications for. Then turn on push notification.
4 Major Causes of Uber Surge Pricing
There are many factors that cause a surge. Four of them are discussed below.
Rush hours are the hours of the day when many people request for rides. This is typically between 7am and 10am in the morning, and 2pm to 8pm at night. This is a time when people are either going to work, attending meetings, or classes. In the evening, most people are returning to their homes. There is a likelihood of a surge occurring at these hours. This is especially the case in business districts and highly populated urban areas. Friday and Saturday evenings and nights are also notorious for surge pricing.
When it is raining, a higher number of people want to order a ride. This is to save them from the rain. They want to get to where they are going despite the rainfall. Unfortunately, this is a time drivers do not want to work. Surge pricing is likely to occur under such circumstances.
Surge prices also occur during special public events. More people order rides during New Years eve. Many families want to visit restaurants. Some want to stay out late. Other special events like Christmas and Thanksgiving also attract a price surge. The main reason for this price surge is that drivers are also celebrating during this period. So, only a few drivers are on the road working. Special events happening in a neighborhood can also cause price surge in that area.
When there is heavy traffic in an area drivers get stuck in the gridlock. This will result in a drastic reduction in the number of available drivers. This means other people looking for a ride may find it difficult to get one. This situation is peculiar. Drivers who have noticed a price surge in the area and are trying to move there to make more money will find it difficult to access the area at that time.
10 Ways to Avoid Uber Surge Pricing
A surge pricing means paying extra money. As a rider this can be very annoying. An extra $20 may mean a lot at times. There are several ways you can avoid getting trapped in this mechanism. The methods discussed below can help you avoid paying extra during an Uber surge.
Try another Ridesharing Company
You can always compare prices during a surge. Try other ridesharing companies that are less popular than Uber. They usually have a lower price because their drivers are less in demand. These alternatives usually offer a much lower pricing. Many riders have reported that they were able to get a ride at a cheaper rate through Lyft during an Uber surge pricing.
Take a Taxi
You can also try regular taxes. After all, that’s what was in vogue before Uber and Lyft. This may save you from the extra cost of surge pricing. Taxis don’t apply surge pricing. So you don’t have to worry yourself about the price dynamism. Many people simply opt for a taxi during an Uber pricing surge.
Schedule a Lyft in Advance
If you know you will be needing a ride during rush hour, it’s better to order a Lyft ride in advance. Uber and Lyft allow users to order rides in advance in some cities. But Lyft offers a price advantage in this regard. Lyft advance scheduling locks in a price for you while Uber does not. With Lyft you may end up paying less than the actual surge pricing rate. If this feature is available in your city, use it to save yourself some money.
Use Surge Tracking Apps
Surge tracking apps are available on Google Play and Apple Store. These apps will show you the locations were surge pricing is taking place, and where the prices are lower. Although these apps are not always accurate, they can be very helpful. With a Surge tracking app, you can know where to find lower prices around you. Once you discover this, you can move to that particular location. Search Uber Surge Tracker on your Google play store or Apple Store. You will find different surge trackers there.
Wait a Little Longer
Surge pricing is susceptible to constant change. This pricing system is so dynamic that an area can experience a price surge this minute. In the next 5 minutes, the fares have gone down to normal. If an event is happening nearby and people are leaving, there may be a surge at that time. In 20 minutes’ time, fares go back to normal. So you may choose to wait a bit for prices to go down sometimes if you are not in a hurry.
Get a Free Ride
Uber and Lyft offer referral programs. This referral program may give you a free ride. Use this if you are going out with a friend who hasn’t downloaded Uber or Lyft apps on their phone. You can refer them with your personalized offer code. That way both of you will get a free ride to where you are going. This is an interesting way to avoid paying extra when you find the opportunity. In this case you may not even pay at all.
Download the Uber Driver App
Many people use this method to avoid paying extra during a pricing surge. Signing up as an Uber driver will grant you access to surge pricing information available to drivers. Drivers receive surge information through the map. As explained earlier, you will get notifications about surge pricing happening around you. You can easily discover where a surge is building up and where you can access normal fare.
Car Pooling May be a Good Option
Uber and Lyft offer carpooling services called Uberpool and Lyft Line respectively. This means you will have to ride with strangers. It may also take a little longer to get to your destination. But it’s a good option if you don’t mind. Surge pricing for carpooling is not as high as other services Uber and Lyft offer. You will see exactly what you will be paying before making the ride request.
Walk a Short Distance
As mentioned earlier, surge pricing is location-specific. Sometimes it may be concentrated in a very small area. In this case, if you walk a few blocks away from your present location you might get a lower price. You can also walk around your pickup location to see if you can get a lower price near you. If it works move away from where you are and order the ride.
How Does Uber Surge Pricing Affect Drivers?
Surge pricing has a lot of benefits for drivers. It allows them to make more money during a surge. This is the incentive to get them to work and attend to riders’ demands. This is why uber drivers “chase the surge.” In fact, there are insinuations that drivers create surges through driver clubs. This is how profitable surge pricing can be.
Drivers often drive to specific surge locations to receive orders. But, the downside of this practice is that sometimes by the time you get to the surge location, the surge pricing is over. This amounts to a waste of effort and gas.
Another downside of a surge period for drivers is that they are likely to get more negative reviews during surge pricing. Many riders are not happy that they have to pay more. They manifest their aggression on drivers who they believe will be receiving more pay. So a driver may get negative reviews because the rider feels cheated.
Some riders don’t even take note of the multiplier. If the route is a regular one, they are surprised when the app shows they have to pay more outside what they were used to. They become skeptical of the driver. In fact, some riders accuse drivers of manipulation.
Surge pricing is two-way traffic for a driver. It will help you make more money. But you also risk getting negative reviews.
Dynamic pricing by tech companies has come to stay. This is one of the opportunities technology affords businesses. Rideshare companies are exploring this opportunity in a way they believe help them meet customer demands. Surge pricing is seen as a viable way of providing rides to those that need it most at a prime time. It also ensures supply does not fall short of demand. It serves as a good incentive to push drivers on the road and ensure riders get cars.
If you are a rider, you don’t necessarily have to pay more if you don’t wish to. You can walk your way around the situation using the different tips discussed in this article.
Table Of Contents
Chapter 1 – Uber Surge Pricing Explained
Chapter 2 – What Is Uber Surge Pricing?
Chapter 3 – Why Do Prices Change During A Surge?
Chapter 4 – Price Differences During Uber Surge Pricing
Chapter 5 – How to Know There is Surge Pricing
Chapter 6 – 4 Major Causes of Uber Surge Pricing
Chapter 7 – 10 Ways to Avoid Uber Surge Pricing
Chapter 8 – Conclusion