Ola, Uber 'surge price' in Kolkata to keep up with demand

It is time to mend the account books for the cab companies in Kolkata. Over the past few months, taxi aggregators like Ola and Uber indulged in furious price war, in which rates were cut leading to fares dropping to single digits. This had paid off leading to a change in dynamics of the taxi market in the city and the companies claimed that customers were shifting from the traditional yellow cabs to them. But now the aggregator firms are increasingly adopting surge pricing to manage sharp demand spikes during rush hours.

The practice that sees fares rise almost four-fold for consumers while ensuring availability of the service and leaves drivers pleased at the prospect of making some extra cash. Commuters booking cabs on their smartphones have in recent days had to contend with the apps on their phones throw up the surge pricing option during peak travel times, making a journey that can cost as low as Rs 7.5 per kilometre during non-peak times surge to as much as Rs 40 per kilometre during rush hours.

The cab companies after entry in to the Kolkata market chased customers by reducing their rate. Uber's Rs  9-a-km fare was introduced on February 27. Uber's cheapest offering in Calcutta, UberGO with a base fare of Rs 20, plus Rs 9 a km, plus Re1 per minute with a minimum fare of Rs 40 became so popular that Neeraj Singhal, head of operations, Uber India said that Kolkata was the fastest growing market for the company outside US. Ola had also last month launched its low cost service Ola Mini, which offered rides at Rs 9/km with a minimum fare of Rs 99.

But, the meteoric rise of the nascent sector came with its own share of problems like bleeding of their accounts. The constant quest to undercut competitors was taking a heavy toll on the profitability of the companies.  

But while the cab companies concentrates on profitability, the issue has left customers sulking. “Even on a Sunday evening, the Uber app showed a surge in pricing by 1.7 times, I opted out and instead took a yellow cab,” said a frequent user of the app.  “Uber on perpetual price surge, Rs 9/km a myth, back to good old yellow cabs,” read a tweet.

The companies though defended the practice as a normal demand-supply phenomenon. “Dynamic pricing is a powerful model that allows users to get a ride when they need it most, it also  helps in incentivizing more drivers to come onto the platform. When demand and supply are in line, prices quickly return to normal,” Uber said in a response to a query from Business Standard. While Ola din’t response to queries, a blogpost by the company read- “The peak hour surcharge will now be proportional to the demand at the hour and will help connecting the maximum number of people to this service. “

Jaspal Singh, cofounder of market research and consulting firm Valoriser Consultants, says that India will take little more time to accept surge pricing. "There is a need to educate the policy makers about the same. Policy makers would need to make proper guidelines for this system."