Practical session- Market intelligence & pricing strategy
Master in Strategic and digital marketing
Professor: Imane Ezzaouia
Dynamic Pricing Strategy for a Ridesharing company
How Uber’s dynamic pricing model works?
(This article is from Uber’s official website)
“We’ve put together a quick and easy guide on how the Uber dynamic pricing model works,
so you can know why Uber prices change and what the usual peak hours are for an increased
Uber fare”.
How does Uber’s pricing work?
When you go to request a ride on a Saturday night, you might find that the price is different
than the cost of the same trip a few days earlier. That’s because of our dynamic pricing
algorithm, which adjusts rates based on a number of variables, such as time and distance of
your route, traffic and the current rider-to-driver demand. Sometimes, this can mean a
temporary increase in price during particularly busy periods.
Why do Uber rates change?
When demand increases, Uber uses variable costs to encourage more drivers to get on the
road and help deal with number of rider requests. When we notify you of an Uber fare
increase, we notify drivers as well. If you decide to go ahead and request your ride, you’ll get
an alert on the app to make sure you know that the rates have changed.
Price normalization
Once more drivers get on the road and ride requests are taken, the demand will become more
manageable and fares should revert to normal.
Uber peak hours
If you’re a regular rider, you’re probably already aware of Uber’s peak timings, where
increased demand and prices are more likely. These include:
Friday and Saturday nights
After-work rush hour
Big events and festivals
Dynamic pricing helps us to make sure there are always enough drivers to handle all our ride
requests, so you can get a ride quickly and easily – whether you and friends take the trip or sit
out the surge is up to you.
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Case study
“SpeedRide”, a ridesharing service operating in major cities, offering standard, premium, and
shared ride options. The company is known for its responsiveness to market demand and
competitive pricing during high-demand events.
SpeedRide uses a dynamic pricing model (also known as surge pricing) to adjust fares in real
time based on supply and demand. During times of high demand, such as rush hours, concerts,
or weather events, prices automatically increase to incentivize more drivers to operate in these
areas and manage rider demand.
SpeedRide’s fare calculation is based on:
Time and location demand: Fare increases during peak hours or in high-demand
areas to attract more drivers.
Driver availability: When the number of drivers in an area is low compared to rider
demand, prices surge to ensure availability.
Weather conditions: Prices may increase during adverse weather to encourage driver
availability and cover operational risks.
Special events: Events like concerts or sports games see higher demand, triggering
dynamic fare adjustments to capitalize on the increased need for rides.
SpeedRide is preparing for a major city-wide event: a popular music festival lasting three
days. In the past, the festival has attracted high ride demand, leading to long wait times and
high surge pricing, which caused some negative customer feedback. This year, SpeedRide
aims to manage demand more effectively while maintaining customer satisfaction and driver
availability.
Demand is expected to increase by 200% during the festival’s peak hours (6 pm to midnight),
and SpeedRide aims to balance this demand with driver supply by adjusting prices
dynamically.
Regular rate: SpeedRide’s base fare for a standard ride in this city is $5 plus $0.75 per mile.
Instructions
1. Analyze dynamic factors: Identify which factors (e.g., event location, weather) will
have the most significant impact on pricing during the festival.
2. Set dynamic parameters: Design a pricing strategy that adjusts fares based on
expected demand, set pricing multipliers for low, moderate, and high-demand times
within the festival’s peak hours.
3. Create a dynamic pricing table: Design a table showing how the 5-mile ride fare
changes under different multipliers (e.g., 1.5x, 2x, 2.5x, 3x).
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4. Customer communication strategy: Develop a plan for transparent communication
to riders, explaining the reasons for dynamic pricing and providing estimated fare
ranges to manage customer expectations.
5. Alternative options: Propose alternative strategies, such as offering a pre-booking
option at a fixed price or implementing a loyalty discount to reward frequent users
during the event.
6. Optimize driver supply: Suggest additional strategies the company can use to
increase driver availability during peak hours.
