Have you ever tried to use Uber after a heavy downpour, during rush hour, or after a music or sporting event? Most likely, the deluge of riders waiting to catch an Uber ride will cause the fares to skyrocket by up to multiples of four; a process called surge pricing.
Why do rideshare companies use surge pricing?
Surge pricing is a response that companies have when their driver population is low, and their rider population is too high. When there is a high demand for drivers, the price rates for drivers will increase. Companies use this to make more money quickly during those heavy-traffic times.
While this may seem unfair to passengers looking for a quick ride, supply and demand are huge business tactics for any reason to increase prices and rates.
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What Exactly Is Surge Pricing And How Does It Work?
Surge pricing is used when there is a larger surplus of riders than drivers. The practice is used mainly by Uber, the biggest rideshare company.
Understandably controversial among drivers and passengers, surge pricing works on the principle of supply and demand. Classic economic theory posits that prices increase with higher demand and a drop in supply.
This is exactly what Uber applies to their pricing when the rider population is more than drivers.
How Does it Work?
Here is how surge pricing works. Say you are in a hurry to leave the Madison Square Garden after seeing an epic boxing match between Floyd Mayweather and Manny Pacquiao. You are banking on Uber to get home safely after shouting yourself hoarse and taking one or two drinks.
But thousands of other spectators have the same plan, and they also want to catch an Uber ride home. The avalanche of ride requests from the same location creates a surge. Often, the request overwhelms the drivers in the area, creating a chokepoint for rideshare operators and passengers.
To solve this problem, Uber applies surge pricing. The surge pricing uses multiple factors to increase fares. For example, a ride that should cost only $25 could be multiplied by 2, making it $50.
You will see the multiple factors on your app. It can be 1.5x, 2x, and so on. Uber displays surge areas as hot zones that turn from orange to red on the app. This alerts drivers and riders of a potential fare hike.
This might seem unfair to a passenger who desperately wants a ride. But it is an excellent way to separate those who really need a ride from people who can find an alternative means of transportation.
What Does Surge Pricing Achieve?
Surge pricing achieves two things.
One, it allows those passengers willing to pay more to get rides. This is because the app shows you the surge pricing upfront and will only match you to a driver after accepting to pay the higher fare.
Second, the surge price is an excellent opportunity for drivers to cash in on the limited-time opportunity. Uber uses the price hike to encourage drivers in other areas to reroute to the choke point.
This provides a higher earning potential and helps relieve traffic.
On critical appraisal, Uber is the major beneficiary here because it still receives its cut from the trips. But the drivers earn more in less time, and willing customers get the ride they badly need amid multitudes.
Can Drivers Choose When To Apply Surge Pricing?
No, Uber and other rideshare companies control surge prices and how much a driver can make during peak periods.
This is because the app is the only way to see where there is a surge in ride requests, except you know from experience the area will witness an increase in passenger traffic.
However, the driver is in control of whether to take the opportunity and head to the hot area or not. For most drivers, the extra cash is too good to pass by, so they quickly reroute to the place with higher passenger traffic.
Can Rideshare Drivers Create Surge Pricing?
Unfortunately, they can. Investigations show that Uber and Lyft drivers can create surges artificially to earn extra cash. Even though rideshare drivers don’t have unions, it seems they collaborate. And what they do to trigger surge pricing is simple and ingenious.
Drivers do this when there is a potential for a sudden increase in passenger traffic, such as after a big match or when people disembark from a flight. The drivers switch off their apps about ten minutes before the end of the event or the expected time riders will start requesting for trips.
This creates an artificial scarcity of drivers. Unfortunately for passengers, the rideshare app cannot detect foul play because it relies on algorithmic calculations to trigger surge prices. Some drivers leave their apps on to monitor the price hike.
When it gets to a certain level, everybody logs into their app to enjoy the increased fare. Sadly, the passengers bear the brunt of the surge even though it may be artificial.
How Does Surge Pricing Affect The Driver’s Salary?
Drivers can increase their earnings during surges if they are close enough to the hot area. The whole point of surge pricing is to incentivize drivers to pick passengers during those periods when riders outnumber rideshare providers. However, drivers need to pay attention to certain factors before using surge prices.
One important factor is distance. If you receive a surge alert or see the hot area on your driver app, it is best to gauge the distance before heading in that direction. Surges rarely last, so it may not be worthwhile to waste your fuel and not enjoy the higher price when you get to the pickup point.
You also need to consider the traffic situation, especially if the surge resulted from a storm, an accident, a large public event, or anything that can bog you down.
Surge prices on Uber are color-coded from light Orange to deep red. Light orange shows a low multiple factor, which means you won’t be getting a high increase in fares. But deep red is a sign of higher multiple factors, sometimes up to 4.5x. If that is the case, you want to go in that direction if you are not in a surge area already, and the distance won’t eat into your profits.
Lyft applies a percentage during Prime Time, the equivalent of surge periods on Uber. The higher the percentage, the more money drivers can make.
How To Increase Your Earnings During Surge Pricing
If you drive for Uber or other rideshare companies, these strategies can help you earn more during surges:
Receive Surge Notifications
Surge notifications alert drivers when surge pricing is active, even if they are off duty.
This can significantly increase your earnings as a driver since you get an alert on your home screen even if you are not in the app.
Surge notifications can also show you a pattern of the likely periods that the price hike will be available. With that, you can plan your schedule to take full advantage of the opportunity to earn more money in less time.
Keeps Tabs On Big Events Around You
Another way to make money through surge prices is to prepare for big events in your area. But you need to know of the major events happening around you and prepare yourself for the surge.
For example, surge prices often take effect after heavy downpours or snowstorms. Many people don’t want to drive their cars during those difficult times, including rideshare drivers. But you only need a capable vehicle to exploit the situation.
Know your surroundings and be prepared to take the initiative.
What Are The Levels Of Uber Surge?
The levels of Uber surge depend on a variety of factors. Uber’s algorithm applies a multiplier factor based on the number of drivers and passengers.
When the surge is low, the surge level can have a 1.5x multiplier. This means a trip that should cost $10 will be multiplied by 1.5, making your fare $15. Surge multipliers can be up to 4.5x, which means you will pay four and a half times the regular fare.
Most passengers will wait until the price normalizes, allowing hard-pressed riders access to the few available riders.
This is exactly what surge pricing is designed to do.
How Do I Avoid Surge Pricing As A Passenger?
Most passengers dislike surge pricing and will do everything in their power to avoid paying the extra fees. If you are such a person, here are ways to avoid surge pricing:
Keep track of the times of day when surge pricing takes effect. There is usually a pattern to the surges, and you will be able to predict them fairly accurately after some time. If you can predict surges, you can use alternative means of transportation during those periods.
- Avoid busy areas:
- If you are not in a congested location with more riders than drivers, you won’t likely have to pay surge prices. But this requires the first point mentioned above.
- Find an alternative means of transportation:
- Instead of jostling with other riders for a few drivers, save your purse and body the stress and hop onto a public bus or other transport facilities. This requires planning, but it will be worth it.
- Wait for prices to normalize:
- As we said earlier, surge pricing does not last. Once the driver-rider number achieves equilibrium, the prices will fall. Remember that surge pricing is designed to encourage drivers to come and pick passengers in a hot area. You may just need to wait an extra 10 minutes to avoid paying 2x for your Uber.
- Use another rideshare app:
- If Uber is flashing red, Lyft and other rideshare services may offer more affordable rates. Before becoming dejected about the surge price, max your options.
- Schedule a ride in advance to lock in a favorable fare:
- This feature may save you cash if there is a possibility of surge pricing. For example, you can schedule a ride before going to see Beyoncé perform at the Staples Center. Uber will most likely apply surge pricing after the event, but you won’t have to worry about the higher fare.
- Share a ride:
- Another way to avoid surge prices is to share a ride with another rider. Lyft and Uber have features that allow you and another passenger to split the cost of the fare. This is an excellent way to use rideshare services during surge periods without paying through your nose.
- Leave the area:
- Reports show that passengers can avoid surge pricing by moving away from the immediate vicinity of the hot area. In fact, crossing the road or moving a few blocks in another direction may take you out of the surge area.
Does Scheduling An Uber/Lyft Avoid Surge Prices?
Yes, scheduling a ride in advance allows you to lock in the price.
That way, surge prices won’t increase your ride fare! However, the fare may still increase if the route changes or the trip takes longer than the app’s estimation.
Keep that in mind before you schedule!