Last week in our blog I mentioned a fun podcast called Hidden Brain and I wanted to elaborate further on one particular podcast.
In this particular episode, their guest Keith Chen is the head of economic research at Uber.
Keith talked about Uber’s controversial “Surge pricing” model.
This is where Uber fare rates automatically increase, when the taxi demand is higher than drivers around you.*
Basically, if it starts raining heavily, many people will decide to hail an Uber instead of walking.
This is when Surge pricing kicks in and people will see that they will be charged a multiplier due to the increased demand.
Keith made an interesting point about the data they collect from their users during these “surges.”
He said, “more people will take a ride at a surge multiplier of 2.1 than would take a ride at 2.0”
This means people are more willing to purchase a ride when it is 2.1 times more expensive compared to when Surge pricing is at an even multiplier of 2.0.
This doesn’t make logical sense but he explained that 2.0 pricing is round and feels “made up.”
Even more telling is that he said the demand from 1.8x to 1.9x pricing is six times larger than the demand from 1.9x to 2.0x pricing.
Uber is not only a service that revolutionized the taxi industry, it is also a massive data company.
That’s why their findings are extremely credible and revealing.
Sometimes the pricing of products and services seems comical because everything seems to be just below a larger round price.
Pricing such as $197 or $99.99 is pretty common.
One advantage to that pricing model is the customer may naturally contrast a price such as $197 to the closest clean number which is $200.
This may lead a customer to think, “It’s less than $200.”
Language is important, especially in those internal dialogues.
If the product was $203 then the customer may think, “It’s more than $200.”
Just hearing the word “less” instead of “more” can swing more sales.
Now we’re hearing further proof from Uber that you want the number to not be a clean round number.
That way it appears to be a calculated price that was intentional and not something made up on a whim.
So be thoughtful of your pricing.
If you choose to go with a clean round number make sure the customer understands where that number came from.
Credit – *Uber Surge Pricing