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Summary:

What Uber calls “surge pricing” makes a lot of sense from a rational, economic point of view — but when it is used during disasters like the floods in Toronto, it still leaves the company with a black eye.

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.

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

  1. This is what happens when engineers have too much sway in a company when otherwise common sense logic would tell you:

    * Surge pricing on New Year’s Eve, Super Bowl Sunday = OK, people expect crowds
    * Surge pricing during a storm surge = NOT OK, looks like price gouging

    The same thing happened with hotels adjacent to SFO after the Asiana crash. Hotel reservations systems automatically jacked up prices. Shortly after, people started screaming.

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  2. Uber’s surge pricing is a decent idea with terrible execution. The whole idea of using supply and demand to set prices is PRICE TRANSPARENCY. However, with Uber, there is no way to see the price of your ride before to take it. The surge pricing would be fine if it were transparent, but its not – you only know how much your ride was after its over. From Uber’s and the drivers perspective, this is great – but from a customer perspective, terrible!

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    1. Yes, so maybe the thing to do when surge pricing is in place is to present those higher prices in advance, trusting that the super high price will cover the costs.

      Frankly, I don’t see why actual travel time can’t be predicted accurately enough to begin with. Add some amount of time for safety. Then REFUND the difference, if the ride goes faster than the oversized estimate.

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  3. Please … is this a joke? Uber is a luxury service. Are people really going to stop using Uber because they couldn’t get a car at a “reasonable” price during a storm?! No.

    These people are whining and that is it. Charging 10x the price for plywood or generators before a hurricane or worse charging 10x for food or shelter during a disaster, that is gouging. These are services that people absolutely need and I can understand being pissed that they are more expensive during crises.

    Service costs too much? Get on your bike or walk you lazy bums!

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  4. It makes it all the worse that they had almost the exact same PR disaster in NYC last year and don’t seem to have learned a thing from it.

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  5. Reblogged this on The Many (Mis-)Adventures of Kittu Pannu and commented:
    Definitely agree with this. Follow the “Don’t be an A*****e” Rule!

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  6. The irrational thing is to expect a corporation — whose only goal is to make a profit, and which has a track record of doing everything it can to avoid regulatory oversight of any kind — to suddenly turn around and, in opposition to its own interests, “care” about your “community.” Uber’s deregulated model is inherently untrustworthy. Those of us who are familiar with economic history didn’t have to wait for a “storm surge” to figure that out!

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  7. Now this is funny. If this is the rationale, then I’m presuming during the times when there are drivers not moving and picking up rides the price drops?

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