Uber Pricing Strategies and Marketing Communications Case Solution

2. Introduction

Uber claims to be away from a conventional taxi and limo service as it acts as an intermediary for cab drivers and riders. However, there have been rising issues and complications for Uber as it has now become a truly global company with a presence in various continents and facing regulations in different parts of the world. The most urgent concern for the company is rising criticism of its surge pricing strategy. Due to the advent and extensive use of social media platforms, it is easy to make and break reputations of business organizations (Kleiser & Bright, 2015). Hence, the primary concern for Uber is whether to continue with its existing business model of surge pricing or change ways.

3. Theory

The existing theory on the issue relates to various pricing strategies followed by business organizations. These strategies primarily include price skimming, penetration, and complementary pricing (Pantelous, 2015). However, for effective evaluation of the pricing strategies, Michael Porter’s five competitive forces model also has to be considered. Hence, the existing pricing strategies and Porter’s five forces model will be applied to identify a suitable course of action for Uber in order to deal with its existing problems as identified in the introductory part above.

Considering the current surge pricing strategy, it is similar to the price skimming strategy proposed by theorists. However, price skimming is usually for high-tech, innovative, and breakthrough products that can capitalize until the competition catches up. It may be argued that Uber may never opt for penetration pricing and charge very low prices to attract customers. Rather, it has taken advantage of seasonal demand on occasions such as Valentine’s Day and the holiday season. Moreover, complementary pricing is for products and services that are offered in twins and can have similar pricing (Dulčić, 2012). However, this may not be applicable to Uber’s transportation service. Hence, it needs to be seen how such theory may apply in the case of Uber, as discussed below.

4. Application of Theory

If we consider Porter’s model of competitive forces, the most significant factors out of the available five are ‘industry rivalry’ and ‘the threat of substitutes’ (Kim & Lee, 2012). On the other hand, the applicability of price skimming is relevant in Uber’s current scenario where the owners of the company have stuck firmly to and defended the surge pricing strategy. As an analysis, since the industry rivalry is intense and growing, Uber may have to re-think its strategy of surge pricing. According to Michael Porter, intense industry rivalry encourages a firm to be price competitive and try to gain a bigger slice of the pie by lowering their prices (Zhang & Wang, 2015).

Moreover, the rivalry is also getting intense in the form of stricter regulations in some cities of the United States, as well as in other parts of the world. Stricter regulation in Las Vegas, for example, prevented Uber from operating in the area. The threat of substitutes in the industry is also rising as riders now have more options and modes of transportation other than plain taxi and limo services. The improved rail and bus network is a strong substitute for Uber’s offer. Hence, in such intense times, surge pricing may not be the top priority for Uber in the near future.

5. Results

The results for Uber to successfully apply the above-discussed theories can be tremendously positive. What it feels like is that the owners’ ego, more than anything else, is preventing them from considering price reduction options. The owners wish to differentiate themselves from the competition by following surge pricing. However, Uber owners can help reduce criticism and negative publicity by changing their ways. Firstly, social media has dented the reputation and image of Uber severely. This is because dissatisfied customers, who believe they have been ripped off by Uber’s pricing model, are very vocal about their bad experience through social media platforms.