Uber has made an impressive start in South Africa since launching in October, especially in Cape Town. I have been using the service regularly, and everything works brilliantly as advertised. According to some of the drivers, Cape Town is doing a bit better than they are in Johannesburg because of Cape Townâ€™s topology. The smaller city lends itself to faster, shorter trips with lower fares and customers are using the service because of those properties.
Now, letâ€™s get to surge pricing, and as I said â€“ letâ€™s hope it never becomes business practice for Uber in South Africa as well. When the snow started falling in New York City this past weekend, the prices for a ride in an Uber car began rising. It is part of the company’s long-standing policy: using an algorithm that raises prices to adjust for demand. Uber says the higher prices motivate more drivers to hit the road, ensuring that there are always enough cars available for customers, at least those who can afford much steeper fares.
The adjusted prices, which got as high as $35 a mile, were roughly eight times the regular fare. The minimum of $175 a ride took many customers by surprise and they reacted with anger. Surge pricing happens regularly in Uberâ€™s busiest markets, and has drawn customer outrage and media scrutiny before, including in New York during the snowstorm on New Year’s Eve, 2011, and during Hurricane Sandy.
Uber CEO Travis Kalanick has always defended the practice, saying that it tends to add to the serviceâ€™s reliability and availability. “Surge pricing only kicks in in order to maximize the number of trips that happen and therefore reduce the number of people that are stranded,” he said in a recent interview. If Uber couldn’t meet demand, says Kalanick, customers would come to think of the service as unreliable, and choose to avoid it in the future. “I call it dark energy. If you are unreliable, customers just disappear.”
If surge pricing were to be applied to the local market, I would suspect that their fares would drop to a grand total of zero. Our market isnâ€™t mature enough to handle this kind of surge in prices. Though the idea is sound, it needs to be handled better in practice. When supply is tight, the thinking goes, raising prices will encourage more players to get creative about finding ways to fill that demand.