Why does Uber charge me more than my friend? AI and Dynamic Pricing

What is Algorithmic pricing

A pricing algorithm is a mathematical formula, where a given price is calculated based on several variables. A simplified example of a pricing algorithm could be this: the price of an apple in an online grocery store could be a function of the price of a banana in the same store (a substitute), the price of an apple in a competing store, and whether there is a lot of demand for apples (by looking at the number of clicks this product has received, relative to other products). The formulas usually attempt to maximize or minimize an outcome: the revenue of the company, the number of unsold products, etc.

Source

How does it work?

Ted Gaubert, Co-Founder & CTO at Noodle Analytics, helps us understand how data is constantly being collected about your customer behavior such as:
(The following words are extracted from this
article)

  • How long did you spend on each web page?
  • What items did you purchase?
  • What items did you put in your basket??
  • Where are you from?

Prices can vary daily or even every few minutes.

The case of Uber

Ivan Didur ,CTO & Co-Founder at DataRoot Labs, said “A ride-hailing service like Uber for instance, might decide to charge you more for a trip between one wealthy part of the city and another. Or, you might be expected to pay more for a journey to a poorer neighborhood, where the company’s drivers might be reluctant to go. Uber relies extensively on machine learning to establish a robust and reliable dynamic pricing system. With the help of Machine Learning, Uber is able to create a future-aware forecast of multiple conditions of the market combined with a system that is very sensitive to external elements, such as the global news events, weather, historical data, holidays, local events, time, traffic, etc.”

Source

Gone are the day where one will need to sit in front of a screen for hours, determining prices based on the info from a market research.

Ability to Adjust to Competition Pricing & Costs

An article published by Crealytics said that “According to a survey by Ask Your Target Market, 79% of consumers stated that they consider themselves to be bargain shoppers. 78% said that they compare prices from multiple sources before making their purchase. Adjusting your prices to stay competitive is crucial in the online environment, where competition research takes the customer only a few seconds/clicks.

For more information:

- https://www.forbes.com/sites/forbestechcouncil/2018/07/09/ai-enabled-personalization-the-new-frontier-in-dynamic-pricing/#2ff251ce6c1b
- https://searchcrm.techtarget.com/podcast/How-enterprises-use-dynamic-pricing-algorithms-with-AI-CRM
- https://www.kantify.com/article/3
- https://competitoor.com/dynamic-pricing-how-works/
- https://datarootlabs.com/uber-lift-gett-surge-pricing-algorithms/
- https://crealytics.com/blog/dynamic-pricing-important/
- https://www.theguardian.com/commentisfree/2018/apr/13/uber-lyft-prices-personalized-data

Thanks for reading. If you enjoyed this article, feel free to hit that clap button 👏 to help others find it.

This story is published in The Startup, Medium’s largest entrepreneurship publication followed by +388,456 people.

Subscribe to receive our top stories here.

The Startup

Medium's largest active publication, followed by +481K people. Follow to join our community.

Alexandre Gonfalonieri

Written by

I write about AI | https://www.linkedin.com/in/agonfalonieri9/

The Startup

Medium's largest active publication, followed by +481K people. Follow to join our community.