If you run a business, you probably often ask one question: Are you charging the right price?
If you increase prices, will customers drop off? But if you don't increase them enough, are you leaving money on the table?
One solution that a lot of companies come up with is to split the amounts that they charge into a bold-faced price tag (so to speak), along with a bunch of hidden fees. The airline industry is famous for this.
During the first three months of this year for example, American Airlines made $317.3 million, United Airlines made $238.5 million, and Delta Air Lines made $201.4 million on baggage fees.
Now, add Uber to this game. Because a new book says Uber made $500 million simply by adding a $1 "Safe Ride Fee" that supposedly funds "an industry-leading background check process, regular motor vehicle checks, driver safety education, development of safety features in the app, and insurance."
Rather than going to fund those kinds of initiatives specifically, the "misleading" fee -- first rolled out in 2014 -- instead "was devised primarily to add $1 of pure margin to each trip," according to Mike Issac, a New York Times reporter whose book, Super Pumped: The Battle for Uber, comes out tomorrow.
As Issac summarizes:
[A]fter the money was collected, it was never earmarked specifically for improving safety. ...
At the time, "driver safety education" consisted of little more than a short video course, and in-app safety features weren't a priority until years later.
The company was facing rising costs on insurance and background checks for drivers, but an eventual class-action lawsuit alleged that its marketing -- which claimed "industry leading" checks and "the safest" rides -- was untrue. Uber settled for some $30 million, a fraction of what the fee earned the company in revenue.
Come to think of it, when the airlines add baggage fees, you do at least get to bring a bag on board the plane.
By the way, Joel Rosenblatt of Bloomberg noted the Safe Rides figure at $448.5 million in an improperly redacted court filing in 2016. And as The Verge points out, they cost more in some cities than others: $1.35 per trip in San Francisco, $1.25 in Philadelphia, and $1.65 in Los Angeles.
Drivers didn't like the fees, because they increased the effective price of an Uber ride but didn't result in a higher commission. And customers disliked it enough to file the aforementioned class-action lawsuit.
One net result: If you're an Uber customer and you're wondering why the "Safe Rides Fee" doesn't ring a bell, that might be that's because Uber is no longer allowed to call it that. It's now listed simply as a "booking fee."
Beyond the fees, Isaac clearly seems bearish on Uber's prospects as a company, citing factors like:
- the fact that it lost $5.2 billion during the latest quarter,
- the idea that it "faces well-financed competitors offering a substantially similar product,"
- its need to subsidize every order on its meal-delivery service, and
- its cost-cutting to the point of laying off marketing employees and directing employees to stop giving out helium balloons on work anniversaries, in favor of cheaper stickers.
But if you're running a business of any size, it's interesting to note that a company like Uber apparently faces the same pricing dilemma that you probably wonder about nearly every day. I'm betting you probably come to a different decision.