Joseph Jayanth

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Uber’s smart pricing strategy

May 31st, 2016

Categories: Product

In Chennai Uber costs Rs.6/km*. The general perception seems to be, “Uber is so cheap, it’s only 6 a km”. So even when there is a surge of 1.5x which is pretty normal nowadays, we do a simple math and come to a conclusion that it is Rs.9/km, still much cheaper than an autorikshaw, right? Wrong! the real cost is much higher than that.

What are the various cost components involved?

1. Per km cost – Rs.6

2. Base fare – Rs.30

3. Per minute – Rs.1

Let’s assume you take Uber to work – 10 kms from home.

1. Cost for 10 Kms – Rs. 60 = Rs. 6/km

2. Base fare per Km – Rs. 30/10 = Rs. 3/km

3. Avg speed is 20km/hr (fact! much slower in more congested cities) = Rs.3/km (more costly in congested metros)

That comes to a total of Rs.12/km (WITHOUT SURGE!), but let’s be practical, when was the last time you wanted to go to office and there was not a surge of at least 1.5x.

So let’s factor that in. REAL COST IS Rs.18/KM @ a nominal surge of 1.5x

The shorter distance your trip, more you pay per KM

BTW, if the distance you travel is lesser, then you end up paying more per km. For ex. if your office is 5 Kms from your home. You will pay more Rs./Km on basefare – Rs.30/5 = Rs.6/km. So the total cost  is   Rs. 22.5/km @ 1.5x surge for a 5 km ride.

So next time you hail an Uber, just know that it is Rs.12/km without surge.

You can reach me @joejayanth

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