Uber, Lyft, and Business Models
Issue 4
Hey!
The world is healing because the traffic in my neighborhood is awful and the people are running stop signs at excessive speeds…ah, DC!
Strangely, I’ve come across another car/transportation story that captured my attention this week in the form of the rising costs of catching an Uber.
Why is this interesting to me?
A few reasons:
First, I read this piece by Roger L. Martin about habits after the pandemic.
Second, I watched this video with Mark Ritson talking about “core competencies”.
Finally, since I’ve become a bit of the pricing go-to for a lot of people the pricing and the behavioral decisions that the pricing model was driving was interesting to me from my newfound perch of the Prince of Pricing! (I kid unless someone really calls me that..at which point, I’m running with it!)
Let’s run through all three quickly.
Begin with habits.
As Professor Martin talks about habits are fickle things and when I took my course at Cambridge during the pandemic, my professor, Shaz Ansari, made a point of highlighting that it really only takes about 21-28 days for a habit to really change. And that after more than a year, many habits had been reformed and were unlikely to ever change back.
The core of the Uber story is how people used to think nothing of opening the app on their phone, hailing a ride, and getting on with life.
Then the pandemic happened.
People didn’t summon cars.
Drivers moved on to other forms of employment or are laying low due to concerns about their health.
Whatever!
The habit changed.
Now, as people are getting vaccinated, there is not the same hook for driver and rider to re-establish that habit.
Roger Martin highlights two cases in the travel industry, one good and one bad.
In my own experience, my gym is trying to encourage folks to start coming back to the gym and one way they are helping re-establish the habit is with free parking on the roof of the building!
At the same time, I read an article last week about the challenges that the Australian Football League is dealing with getting people back to games with key factors keeping people away being around friction in the attendance process.
Back to Uber and Lyft, what does this habit interrupt mean for their long-term viability?
For any of our businesses, we should spend some time thinking through what habit we need to establish or interrupt to get our customers moving in the right directions as well.
Second, core competencies.
There is a great HBR piece from around 1990 that talks about core competencies.
The general idea being that every business does some things well and other things not nearly as well.
In thinking through the situation that Uber, Lyft, and other businesses are dealing with now, it pays to step back and look at what the core competencies of these businesses really are.
It seems that the core competencies of Uber and Lyft were really in building technologies that connected riders and drivers in an efficient manner that was valuable to riders as long as they were being subsidized by venture capital or weren’t bearing the full weight of the relationship with the drivers.
And, then you realize that the core competency of Uber wasn’t about the technology but about the marketing of getting people to take rides in strangers’ cars and drivers to decide to use their time and their vehicles as tools to facilitate it.
Behavior change!
Lyft, I’m still working on.
How does this core competency set up Uber for the future?
They now have to turn their marketing eye back to the problem of getting people to jump in an Uber and get them to take them to their destination, habit creation once again.
But, also, the core competency of marketing the travel experience.
As we all start looking around, do we know what our core competency is?
Is it still relevant?
What can we point it towards that is going to make a difference for folks now?
Finally, pricing.
People are balking at paying the full cost of their Uber or Lyft rides.
There are companies in the world of tickets that I’ve talked with and dealt with over the years that have talked about using artificially low prices to get people to go to games, “Penetration Pricing”.
Penetration Pricing has a few huge downsides:
You usually attract bargain hunters.
You typically train your audience to expect artificially low prices.
The folks you attract typically don’t have much brand loyalty.
Sounds familiar, yeah?
Because that is what Uber is dealing with now.
Their customers loved Uber when the price was artificially low and they were hooked on the drug that is called “Below Market Price”.
Brand Loyalty was long gone when I heard people shopping Lyft versus Uber to see which one was cheaper or faster before the pandemic.
Let’s just say that pricing is complicated.
It is incredibly easy to take a brand new MacBook Pro that retails for around $1500 and sell it for $50 on any corner in America.
The same goes for Uber.
It was easy to sell people on jumping in a stranger’s car when the pickup happened in 3 minutes and you paid $10 for a ride that might cost you $50 in a taxi. It isn’t easy when the company has gone public and can’t subsidize the rider and passenger with VC money.
We all need to keep this in mind as we move forward.
What will our pricing really look like?
Can our market sustain the real economic value we create? Or, have we been selling them on below-market rate engagements and pricing?
In my work, I recognize that there is a real danger of underpricing and discounting!
The real challenge all of us face, more often than not, is to price according to the value we create.
My crude drawing provides an illustration:
We have to understand what the real value, the True Economic Value, of what we sell is. We have to pair that understanding with the Perceived Value. And, to get the marketing magic really rocking, we need to push those two numbers as close together as we can so that we can use value-based pricing to capture more of the value we create.
It isn’t perfect, but nothing about pricing is absolutely perfect.
What I hope my drawing does is get you to think about what your pricing looks like so that you don’t end up in the situation Uber finds itself in, overpriced in the eyes of its market because they spent so much time teaching folks that prices would always be artificially low.
Action items for the week:
Think about the habits in your market. What is the same and what is different? How do you need to change the habits or jump on them now?
Take a look at what you do well. Are your core competencies shining through? And, are they enough to win you business.
Price better by taking a look at how you are pricing. My drawing should get you started.
When you get to the bottom of this thinking. Take action.
Get stuck?
Just hit reply! I’m here!
See you next week!
Dave