The Surge Pricing Blockbuster

An often quoted case study in most MBA programs as well as management books to explain the concept of disruptive technologies is “Netflix-Blockbuster”. For those of you who are either blissfully unaware of this one or have forgotten you can read up here. However to sum up the key issue which opened the door for Netflix as a competitor to disrupt Blockbuster was “late payment fees”. These were the key reason for Blockbuster’s profits & at the same time for customers’ wrath. They were perceived as unfair, but Blockbuster continued to push them and in fact device ways to deceive customers into paying these late fees for DVD’s via schemes like buy 3 DVD’s for rate of 1 on weekdays, etc. Long story short. amongst other reasons not acknowledging customers pain point regarding a service feature was a prime aspect in the downfall of Blockbuster & emergence of a market disruptor.

If we move from this flashback of 2000’s to today, a similar story seems to be playing out with the protagonist changed to cab aggregators like Uber/Ola & the penalty being reflected in “Surge Pricing”. Anyone who has ever tried to book a cab in peak hours or busy traffic understands the pain when you see 1.8x or 2.4x surge on your screen. There are various theories and analytics on whether surge pricing actually leads to increased traffic or people simply prefer other modes/wait for the price to drop. However, one thing is for certain that no customer likes surge pricing. Most customers do not believe the story of “it’s to get more cabs on the road” since during peak traffic anyways, more cabs should be on the road to cash in on the opportunity. Also the biggest bone of contention is always complete lack of transparency on exact mechanics of its computation along with lack of credibility in tracking those metrics. The similarities continue into government interventions and litigations trying to prevent these charges, however the protagonists continue to figure out ways to exploit grey areas in this regards. The arrogance in lack of an alternate service provider with a better model continued to drive Blockbuster and seems to continue with the cab aggregators.

The only difference is current lack of a disruptor on the horizon with an alternate service model.  I don’t want to get into the debate of for or against but in my view, customer opinion always needs to be respected and for that one reason alone, surge pricing needs to adapt and therein lies the question how long before one of the existing or a new player spots the opportunity to convert surge pricing into a competitive advantage?

The field is wide open for several players, while incumbent black & yellow cabs may not rise up to the challenge, I wonder how long will the Merus & Tab cabs of the world take to pounce on this one. The traditional radio cab owners seem to be suffering a drop in market share due to the prevalence of cab aggregators and their model of cab ownership seems a bit jaded now in front of the disruptor. However, could the disrupted now become the disruptor?

I wonder what prevents the Merus, Tabs, Easycabs, etc. of the world from evolving to a hybrid model where they leverage the freelance drivers however under similar fare structure with no surge pricing to substantially increase their presence and earn quick customer goodwill. A timely marketing campaign focusing on the customer pain point of surge pricing (a la Netflix late fee campaign) could turn the tables with a high degree of customer trust built up. Of course, the other cab aggregators would follow and something else shall need to be innovated, however there is a window of opportunity to get the foot in to widen the gap.

There could be offers of monthly subscription which entitles a person to XX rides per month for a flat fee that could be explored as “regular travellers” and corporates would appreciate such plans and help the cab aggregator better forecast demands, not to mention ease cash flows with lump sum payments (enabled by wallets). In today’s world where the S-curve of disruption is getting shorter, the cab aggregators seem to have exhausted the current curve and its time for someone to introduce a new one. I am pretty sure that in days to come, MBA graduates shall learn from case studies of cab aggregators as this generation hardly relates to Blockbuster & Southwest Airlines.

Let the innovation in cab aggregation pricing models begin!!!

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