Pricing trends within the urban mobility market

Previously, we published an article about current pricing strategies applied by scooter sharing operators. We saw that all of them work with a price-per-minute model. In this article, we would like to elaborate on other pricing mechanisms, not only present within scooter sharing, but within the whole urban mobility market. For that, we look at two main pricing mechanisms; subscriptions and surge pricing.

Rethinking the value of urban mobility in terms of freedom and not milage

A calculation published by the Internal Revenue Service (IRS), states that going one mile (1,6 km) with a private car in the US costs on average 0,53 $. This number includes financing, depreciation, insurance, inspections, fuel and all other cost parameters coming along with owning a car. Horace Dediu, co-founder of micromobility industries, commented on this calculation: “Some miles are more expensive than others, and the average hides the sharp costs of short urban trips by blending them with cheap ‘long tail’ highway miles.” (Micromobility Industries, 2019).

He illustrates that it is not meaningful to express the value of transportation on a per km or even on a per minute basis, both in cases of vehicle ownership and on-demand micromobility services. He draws the comparison with the telecommunication market, and its development away from per minute prices for calls to bundled pricing for unlimited access to a phone network (known as a flatrate). He states that due to the relative immaturity of the micromobility market, pricing strategies are somewhat arbitrary and do mostly not reflect the true value delivered. He challenges micromobility operators to change the way of thinking about the value of transportation. Instead of charging for kilometers or minutes, both parameters should be bundled into sophisticated subscription models, addressing what the user is really interested in:

“To be closer to someone else or to be where one might want to be without knowing where that is” (Horace Dediu)

Within the market of shared urban mobility, subscription models are not a standard pricing strategy yet. However, we looked at some important players within the urban mobility market and found that this pricing scheme is gaining more and more attention. Let us now look at some current examples, before diving into the second part of this article dedicated to surge pricing.

Subscription models can be found with most vehicle types

Ubeeqo

The Europcar-owned car sharing operator — active in several European cities — combines the subscription approach with hourly rates. In Paris, you are paying an amount of 27 € every three months and then you are able to book cars for an hourly rate, starting at 4,00 € (Ubeqoo, 2020). The daily fee is capped at 29,00 €. You are also able to use the service without a quarterly subscription, however this results in a higher hourly rate of 6,00 €. A distance up to 30 km, fuel and insurance are included in both pricing models. The catch is that you have to return the car within the same geofenced location (a defined drop-off zone) where you started the ride. That way the operator can control the fleet distribution better. For the user, it is an attractive opportunity to take a vehicle for running errands such as grocery shopping.

JUMP

The Uber-owned bike- and kickscooter sharing company JUMP pursues a new twist to its pricing model for their electric vehicles in Paris. It works as follows: A user pays a monthly rate of 5 € and is then able to ride 10 minutes per day without further costs. After the initial 10 minutes, every additional riding minute is charged with 0,15 €. Moreover, subscribers do not have to pay the unlock fee of 1 €.

However, this subscription is only available to those who benefit from the “Tarification Solidarité Transport Ile de France Mobilités”, a subsidy program from the French public transport authorities offered to people with low income or who are currently facing unemployment. JUMP’s offer is valid until May 2020 and only available to the first 5.000 applicants (JUMP, 2020).

Circ

Circ, recently acquired by Bird, was the first kickscooter sharing company to introduce a fully unrestricted subscription model. The new pricing model will be first offered in Portugal, offering the rider three different options (Trendy, 2020).

• Option 1 costs 9,99 € per month and allows the user to start their ride without paying an unlocking fee. The price per minute of 0,15 € remains the same.
• Option 2 costs 24,99 € per month and includes free unlocking and thirty minutes of travel per day.
• Option 3 costs 49,90 € per month and includes free unlocking and one hour of travel per day.

These examples show that big players within the (micro-)mobility market are rethinking the minute-based pricing and experiment with new pricing mechanisms such as subscription models.

Further challenging the fixed price-per-minute approach, we would like to elaborate further on a concept that has struggled with image problems in the past.

Surge pricing aims to allocate vehicles to those who value them most

Surge pricing is a mechanism e.g. applied by the ride hailing company Uber. It works as follows: When the demand for rides go up e.g. during rush hour, the amount of ride requests exceeds the amount of available drivers. Prices will go up accordingly in order to find the equilibrium between price and demand. The idea is to incentivize drivers to shift to busy areas and to incentivize riders to either pay more or to wait until prices lower again (Uber, 2020).

Surge pricing as an instrument to increase fleet utilization?

In order to increase fleet utilization, this flexible pricing mechanism could also be a solution for micromobility sharing operators, both from a supply and a demand perspective. On the one hand, they could decrease minute prices in between rush hour times in order to make it more attractive for users and to consequently increase demand. Moreover, they could increase prices during rush hour times in order to match price and demand. This would enable them to maintain reliability, restore balance and allocate scooters to users who value them most. On the other hand, micromobility sharing operators could decrease minute prices for vehicles that are currently located outside of high demand zones. This could eventually incentivize users to drive a vehicle back towards the hot spots, where it is needed the most.

Operating with flexible prices is a very sensitive topic

However, sharing operators need to be very careful, as shown by the Uber example. The surge pricing may make sense from an economist’s perspective, yet it has an image problem. This has mainly psychological reasons. Price increases occur at the worst possible time for users, namely when they really want to ride a scooter. Moreover, the mechanism may be perceived as unfair if it is unclear how the surge price multiplier is calculated (Govtech, 2019). In order to prevent brand damage, Utpal M. Dholakia (2015), author and marketing professor, suggests four major actions.

He specifically addresses Uber, however we believe his suggestions would also be applicable for sharing operations.

1. Cap the surge multiplier at a reasonable number and communicate the cap clearly. This will help to increase transparency and trust.
2. Reduce the volatility of price fluctuations. Fixed times for price increases ( e.g. defined rush hour times) will make the experience for users more predictable and comforting.
3. Market the beneficial consequences of surge pricing to riders. Clearly communicate the benefits for the rider, such a reduced waiting/searching for a vehicle.
4. Rebrand the surge pricing concept. The term “surge” originates from economic thinking and is not really perceived positively by users. An alternative phrasing could be “priority pricing”.

It becomes clear that surge pricing is a complex mechanism, requiring careful adjustments of various parameters such as economic dynamics and brand marketing.

What can we take away from this article?

We do not claim to know the best pricing model, however we believe that innovation within urban mobility should not stop at hardware and software. Sharing operators have the opportunity to offer city dwellers more convenient and more entertaining ways to commute and are thus impacting their daily behavior. Understanding their needs also means understanding their perception of value and their willingness to pay. And as urban citizens themselves may have yet to discover which price is right for them, operators need to experiment with different models and engage in mutual learning. Thereby transparency and excellent communication with their customer base is key. We believe that all the mentioned trends offer potential for this mutual journey to rethink the value of mobility.

As always, we’re happy to keep the discussion going through any critiques or additions you may have, so please do not hesitate to get in touch. We believe our insights should be like the future of mobility: shared!

This article is published by unu. Find out more about what we offer by visiting share.unumotors.com