I once heard a very interesting quote from Tony Robbins, “Give a monkey a banana, and he’s happy. Give that money two bananas, and take away one, he’s furious.”
That is how I have thought about precedence and their dangers.
Precedence in pricing are very dangerous. Subsidies must seem temporary. The need for a subsidy to be temporary is so that it would not cheapen the brand. Many multinational companies have days in which they offer free goods to get people in the door. 7–11 has free Slurpee day on July 11th, Haagen Dazs has free cone days, and Dunkin Donuts gives away free donuts on National Donut day. However, there needs to be a reason for why the business is giving away the products. This conditions customers to not expect this all the time, hence inhibiting them from purchasing at full price.
In addition, price fluctuations must follow some sort of logic. When startups launch, they still don’t know what the optimal price for their offering is. It might be very dangerous for them to launch PR announcing a lower price than what it becomes 3 months later. A prospective customer might back and feel tricked for paying a higher price than before.
That is also what happened with Groupon. If you go to a restaurant with a Groupon and pay $50 for your meal, you will expect that meal to always be $50. However, that’s not the case. Because of that pegged value that you established on the restaurant, a patron might feel uneasy paying double (the real price) for that same meal at a future time.
Uber / Lyft in Austin
Recently Uber and Lyft were kicked out of Austin over a regulatory vote. Austin did the right thing to keep their residents safe, but Uber and Lyft struck back, not with logic, but with an emotional appeal. You see, as the reaction of one former driver read,
Beyond higher pay and flexibility, Uber and Lyft created opportunities for underrepresented communities. I’ve seen Austinites who are deaf, or for whom English is not their first language, drive for Uber and Lyft successfully. Imagine an entire underrepresented community offered a new opportunity to earn a living, now part of the more than 10,000 people that have lost income.
By building out the Straw man of job creation, Uber and Lyft have flipped the script on Austin. The ridesharing companies are saying that because of this vote, Austin basically cut off an income that approximately 10,000 families depend on for their rent, mortgage, and basic needs.
Could Austin have done something not to look like the bad guy?
If Austin’s council had sat down, started thinking about all the wrong things that accepting a ride from a stranger could result in, and brought them to Uber’s attention as soon as they launched there, the two parties could have dealt with it. Now, the two ridesharing companies have built out their driver base that depends on it for income and their rider base which depends on it for transportation. Both parties are furious, even though what Austin is doing is in the best interest of their residents.
Safety comes down to increased regulation. Increased regulation results in a longer and costlier process. Look at the TSA. Airport lines are increasing slower and there is now a line item for the TSA in your flight ticket, but we can agree that we are safer when we fly.
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