How to ride out Ola-Uber drivers dissent: By changing pricing strategy

Ola, Uber say initiatives in place to satisfy interests of driver partners, but changing pricing to create a self-sustaining model may be the way forward

An ongoing strike by drivers of Uber and Ola has once again highlighted growing dissatisfaction over dipping earnings. While this week’s strike has mainly hit Mumbai, sporadic protests in the last couple of years in multiple cities indicate that the companies need to pull up their socks to prevent loss of confidence in a workforce that may in turn lead to deterioration in services.

According to reports, drivers claim earnings have fallen from a high of Rs 80-90,000 to less than half of it. One of the key demands of drivers is ensuring business of Rs 0.1 million monthly as was promised in the initial days of the online ride-hailing sector in India. Given this scenario, how do the companies tackle the crisis and ensure a sustainable business model that can satisfy drivers without alienating customers?

The companies have called the strike in Mumbai politically motivated, one that hasn’t seen wide participation and instead involves drivers who had been blacklisted. 

“Since ours is a two-sided market, we need to balance the needs of riders and drivers in terms of ensuring faster pick-ups, better service experience for riders and ensuring drivers are fairly compensated for their time and effort,” an Uber spokesperson says. The company makes weekly payments to drivers. According to Uber, which is present in 31 Indian cities, driver earnings across India have largely remained sustainable and consistent and over 80 per cent of those who are online for eight hours a day make Rs 1,500-2,500 after deducting the firm’s 20 per cent service fee.

“We take business decisions that are aligned with the interests of driver partners and do not give preferential dispatches to any car, including the ones that driver partners lease from Xchange Leasing India (Uber’s leasing subsidiary in India),” says the spokesperson, stressing that its driver partners can choose to top up their earnings by an additional multiplier by completing a certain number of trips (such as 10 trips in four days) or accepting trips from specific areas (underserved areas).

Consistent high demand from riders and drivers has allowed the company to start reducing higher levels of incentives for drivers and discounts for riders, to operate more efficiently. This has also helped Uber to invest in “driver forward initiatives” such as insurance, better support experience and scholarships, and “rider forward initiatives” that includes a robust product mix, better pick-up and payment experience, etc., says the spokesperson.

Ola, which serves over two million rides a day with over 900,000 vehicles and a million driver partners across categories, claims that demand still exceeds supply in metro cities. It adds that categories such as Ola Share, Ola Outstation and Ola Rentals are designed to provide drivers an opportunity to maximise business potential.

“Our prime focus is on ensuring our driver partners’ growth isn’t solely dependent on ride fares and daily incentives. The recently launched comprehensive customised in-trip insurance programme is a unique initiative that provides driver partners and their families with various benefits including financial support for children’s education,” says a spokesperson. 

Besides other initiatives to create a strong driver partner community and using technology to enhance driving experience, Ola is also leveraging data to understand the behaviour of drivers and vehicles for greater productivity.

According to former Meru Cabs chief executive officer and industry expert, Siddhartha Pahwa, evolving a self-sustaining model is at the heart of resolving problems of driver earnings.

He reasons that a driver has to be able to take home around Rs 25,000 to remain in the job, and for that he has to clock a minimum business of Rs 2,750 and ply 150-170km daily. As a result, the right price for the service has to be around Rs 15-17 per km, says Pahwa, calling for subsidising drivers for lower fares as splitting it with the ride-sharing option need not work at all times.

While Ola and Uber disrupted the taxi market in India with their app technology and pricing that attracted a lot of customers, without a self-sustaining model they will continue to burn cash and report losses. “The mistake that both made was initially when they wanted to get more drivers and promised earnings of Rs 50-90,000 a month. Once you have set that benchmark, if it keeps coming down it becomes difficult to manage,” says Pahwa.

He also sees a shift toward differentiation in favour of business for company-owned cabs as opposed to those owned by the drivers, which is antithetical to the e-commerce model of providing a platform for all. “Holding on to customers is important, but you can’t do that by low fares alone, as the quality of vehicles and services also has to be kept up.”

Pahwa agrees that the supply of cabs in the top 10 cities, where the companies do a bulk of their business, is more than demand which can lead to drivers not maintaining their turnover. “So the companies shouldn’t take their margin of 20-25 per cent until the driver has made enough money. The company’s right over the money earned comes second, after the driver,” he says, adding they have to discover ways to reduce capital costs and ensure greater asset utilisation to bring down overall costs.