Mba 511 Operations Management Uber Case Study

UBER CASE STUDY

MBA 511 OPERATIONS MANAGEMENT

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Uber was founded by Travis Kalanick and Garrett Camp in 2010. As a direct result of not being able to get a taxi in the snow while they were in Paris and thus an easy and quick car ordering app was born. Initially Uber was a luxury car service for elites in the San Francisco area and Silicon Valley. Uber is a smartphone app that allows passengers to ‘book’/order a driver who will be able to pick them up within minutes of their order. The app has the customers credit card details, pre-loaded making the transaction cashless. Customers are able to track the drivers car, with a built-in GPS, once it has been ordered and until the end of their transaction, when they arrive to their final destination. This option is often cheaper and more convienent than the traditional taxi. Uber takes 20-30 percent of the cost of the ride and the rest of it goes to the driver. Uber is now operating in over 60 countries in the world and has over a million drivers.

Agree or disagree Surge Pricing?

The pricing structure at Uber is based on an advanced algorythem. Surge pricing takes place when there is greater demand than there is supply. During rush hour, special occasion, or even during bad weather, the price of rides would increase anywhere from 1.5x to 7x the normal amount. Although I understand the dynamic pricing Uber has adapted, that some sort of surge pricing is necessary when there is a low supply of drivers and a high demand, in order to give divers an incentive to go out and provide services which will in turn increase the supply and decrease the surge pricing.

I have to disagree with surge pricing to the extent that it has taken place. Uber has capped their surge charges to 2.8x the normal price, during national emergencies - however, this doesn’t cover special occasions and just normal increase in demand such as rush hour. Firstly, 2.8x surge price during a national emergency is outrageous, I do not think that companies should be taking advantage of their consumers during such desperate times of need. In terms of other cases of surge pricing, I don’t think it should go above 1.5x or 2x the normal pricing, and regulations are needed to protect consumers from such outrageous methods of making money.

Risks of Surge Pricing?

There are a number of risks when it comes to surge pricing, one of the more obivious ones is the loss of customers to other competitors. During New Years in New York, the price for a cap ride increased to 7x its normal price – coming to $450, by a high profile customer. This created negative publicity for the company and many other people were sharing their overpriced bills. Although, all publicity is good publicity if this takes place enough times it will be engraved into peoples brains that Uber is simply expensive and the it will deflect customers to their competitors. It causes public resentment, anger as well as ‘protests’ against Uber.

Should Uber modify its surge pricing policy?

Yes, Uber should modify its surge pricing policy. Currently its policy states that 2.8x is the cap during national emergencies. It is not clear whether or not there is or will be a cap for normal increases in demand such as peak time, or holidays. Charging 2.8x more during national emergencies is simply unethical – if there ought to be a surge charge at all the cap should be much lower, 1.5x or so.

Uber can try to meet the increased demand during peak times by sending out notifications to the divers, encouraging them to meet the demand, this can aid in decreasing the high surge charge. Another option could be decreasing the percentage

Strength/weak links in the operating model?

The operating model Uber has taken up is quite unique, it was breaking new ground which helped it become a well-recognized brand. Due to the cashless payment method, it made the process quicker and allowed for Uber to track and pick drivers that were highly rated. This also allowed for a quicker process, instead of having to pay in cash and wait for change, this also made it more convienent for many people. The prices Uber charges are lower compared to the competitors, such as taxis. Another strength of Uber is their qualified drivers, having background checks with verified cars and a high quality of service. Another perk is that Uber does not actually incur high operational costs, as the application does most of the work connecting the driver to the customer.

Uber does unfortunately have some weaknesses, one of the largest ones is that the idea can be easily copied, which is what has taken place competitors continue to present the same product in an almost identical manner. Although their business model has allowed for such great growth over the years, it is also very unpredictable. Due to the way the company is set up, the drivers and Uber don’t really have a connection, this could show up in a lack of loyalty between Uber and the drivers. This can be seen in that today, many drivers drive for more than one ridesharing company, like both Uber and Lyft. Although divers are vetted before becoming drivers, there have been some security and privacy concerns with the application itself with the customers.

Is Uber vulnerable? Yes, how?

One of the biggest ways that Uber is vulnerable is that there currently does not exist very much regulations for sideshare companies, however this can and will most likey change as ridesharing is increasing becoming common. This could mean limiting the number of vahecials Uber has within a state, or even prevent Uber from working in a certain nation altogether. In addition to this, Uber has had a number issues with public authorties, such as the cease and decest, which Uber simply ignored – this showcases the values of company which may lead to fines as well as bad PR for the company.