What the car-hailing service Uber likes to call “surge pricing” makes a lot of sense as a way of managing the supply of cars: during periods of high demand, the company boosts the price of a ride booked through its app, as a way of encouraging more drivers to respond. When disaster strikes, however, that kind of rational explanation doesn’t fly for a lot of users — instead, they like to call it “price gouging.” It happened during Hurricane Sandy, and it happened again during the massive floods in Toronto on Monday, and the result was a great lesson in how not to do PR for your startup.
Toronto, where Uber has been operating since last year, was hit by a record-setting storm on Monday: the Canadian city of 2.6 million people got as much rain in two hours as it usually gets in an entire month — an estimated 75 millimeters, or about three inches — and the rainfall for the entire day exceeded the record amount that was dumped by Hurricane Hazel in 1954. Much of the city’s subway system was shut down for at least part of the day, and large parts of the downtown including major highways were under water.
Surge pricing in a storm looks bad
Not surprisingly, many residents went looking for alternative forms of transportation, and Uber was one of those alternatives — and just as it did during Hurricane Sandy, demand surged to the point where the company started charging as much as 2 times the normal amount for a typical fare. After criticism of the startup began to circulate on Twitter, a company spokesman responded (as the company did during Sandy) that boosting prices was the best way to get more cars on the road, but this seemed to fall on deaf ears.
The company also pointed out a number of times via its Twitter account that Uber’s regular taxi service — as opposed to the “black car” or livery service that it also offers — maintained the usual pricing levels despite the storm, but this didn’t seem to calm the waters much either.
During the flooding, Toronto-based entrepreneur Aron Solomon sent out a number of critical tweets about the company’s pricing behavior, and then followed up on Tuesday with a post on Medium about the damage that Uber was doing to its reputation, entitled “The Don’t Be An Ass**** Rule.” In it, he made what I think is a good point: namely, that while surge pricing might be a legitimate strategy for managing a scarce resource, it just looks bad during a flood or other disaster.
In other words, while it may be a completely rational approach, the downside of doing so still outweighs the upside from a marketing point of view — in the same way that raising prices for bottled water, blankets and generators after a hurricane or earthquake might make sense economically, but still isn’t a very nice thing for human beings to do to other human beings. As Om has pointed out, data without a soul is meaningless. And as Solomon put it:
“When a really bad storm hits a city, people are stranded and very upset, and you provide transportation services to the citizens of said city, you should not dramatically raise your prices at that exact moment; if you do so, you are an ass****.”
Rational, and yet not advisable
Uber tried to find a middle ground during the aftermath of Hurricane Sandy, by first subsidizing the rates it was paying its drivers (which wound up costing the company as much as $100,000 in a single day) and then eating the fees that it normally charges. But from a PR point of view, the damage was already done by the time it decided to do so — thanks in part to some highly critical coverage of the initial surge pricing, such as the piece entrepreneur Paul Carr wrote.
Please note that the price for Hailo's service has NOT been increased due to the storm. Standard pricing is, as always, in effect.—
(@HailoToronto) July 09, 2013
The undercurrent to Solomon’s post is that Uber can’t really afford to have too much bad publicity when it is fighting against several other players in markets like Toronto — including Hailo, a British startup that works with regular taxi services, and made a point of talking about how its prices remained stable throughout the flooding — as well as an existing taxi industry and regulatory environment that are less than welcoming.
For Uber, surge pricing makes rational sense. But that doesn’t make it a good marketing or PR strategy — in fact, it arguably makes things worse, because a commitment to a rational, algorithm-driven approach during a time of tremendous emotional turmoil like a natural disaster can make you seem, well… inhuman. And no one is going to remember how efficient Uber was when they think about the company’s service during the flood: all they will think of is how it was criticized for taking advantage of its customers.
Post and thumbnail images courtesy of Flickr user Stephen Brace