Passengers seeking rides during the usual hours of the day will invariably fall into the Uber Surge and Lyft prime Time pricing stages. These price differences are generated from similar factors, what is termed dynamic pricing, and we will review both companies approach to ascertain which is better for the passenger. We will also discuss how drivers are affected by these periods, which will explain why they prefer such times to drive.
When Uber customers request a ride they also see an estimated price of the ride. Beside the price, customers will see a multiplier, in most cases is it x1, which means the price is as it is presented. However, sometimes the multiplier is x1.3 or x 2.0 or even x3.5 which means that the final price must be multiplied by the number next to it. The higher the multiplier the higher the demand saturation is to the supply of drivers.
Drivers will invariably seek out these surges, because their income is based on the final ride price and the higher the price the higher their income. Having said this, we should add that Uber is managing a load balancer solution which is trying to equal out these surges. In some instances, it works, but in general, there will always be a higher demand for drivers during certain times of the day as well as during special occasions.
The reason Uber created the Surge pricing matrix was to get more drivers on the road to deal with the extra demand, and it would work. The incentive to earn double or triple income, which is the difference between $20 to $60 for the same ride, overcame the laziness of relaxing at home and managed to reduce the passenger waiting time during surge times.
Dynamic pricing is used by everyone, not just ride-sharing companies, even flights, busses and trains use dynamic pricing since people will pay more for reaching destinations on time, especially when there is a bottleneck of transportation options.
Uber suggest to their drivers that they maintain their surge notifications in the app on always. This will ensure that they receive an immediate update when a surge is happening. For drivers waiting in surge area's or near enough to reach them in under five minutes, this is a great option.
One of the major drawbacks of Surges are for drivers that are not close, the time it takes to reach a Surge area on the map might be all the time the closer drivers need to relieve the surge. The Uber map is color shaded, so drivers can see when surges are starting to develop, it's sort of like an earthquake predictor, and you race to the epicenter to get the full ride.
The downside of Surge pricing, or dynamic pricing is that passengers might prefer a taxi or another solution if the price is too high. Although studies have shown that customers still order ride-share companies even during surges, only because they believe that all options are priced similarly.
Dynamic pricing will stay, the algorithms might get more complex, considering many factors and reducing the cost. Another factor might be the constant rivalry and competition of companies in trying to take over territories from each other. When there is a price war, the only people that win are the customers.
Lyft Prime Time
Like Uber's Surge, Lyft has Prime Time. This is also a dynamic pricing based on supply and demand factors. Lyft's app map colors the potential Prime Time area's and drivers are always aware of the possible Prime Time conditions arising around them.
Prime time is calculated using pre-determined percentages of the base fare and adding them to the final fare. The actual percentage is based on the same factors used in Surge pricing, so rather than show a x factor, Prime time will show a % factor. The only downside with Lyft Prime Time factoring is that the customer never receives an exact estimation, only an approximate % until the ride is over, and then, as a passenger, must deal with the fare as an accomplished feat.
While Lyft prime Time Customers might not know what the final fare will be, they do get an indication that they are in a Primetime area since they see the prime time percentage next to the estimated fare.
As with Uber drivers, Lyft drivers only enjoy Prime time for its added income benefit. Drivers have what Lyft calls a "heat map" which shows where the saturations are high so that they can navigate to them. The same as with surges, the further away you are from a prime time area, the less possibility you will have of enjoying the extra income.
How Fares are Estimated
Base Fare : this is the flat fee that is charged for each ride, it varies according to the car category…
Cost per Minute : This is what is charged for every minute from the moment the ride begins. It takes into account traffic and other circumstances that can cause a ride to take longer than expected.
Cost per Mile : This is what is charged for every mile drive. Drivers usually take the fastest route, but when traffic or other instructions are foreseen, they will choose a different route.
Booking Fee : This is an extra fee that is charged to cover operational costs.
Surge/Prime Time Price : This is the additional price we discussed above.
Tipping : This is purely optional, there is in app tipping and the the passenger can give the driver cash at their own discretion.
The Fare is calculated like this:
- Base Fare + ((Cost per minute x time of the ride) + (cost per mile x ride distance) x surge boost multiplier) + booking fee = Passengers Ride Fare