There’s an app for that, if you’ve got the disposable income. (Photo by Phae)

Photo by Phae

After the fog cleared and the hangovers wore off yesterday morning, some New Year’s revelers who used Uber, the smartphone app that hails a high-end livery sedan, woke up to some staggeringly high receipts for the upscale cab service.

The sharp uptick on Saturday night and Sunday morning were the result of Uber’s “surge pricing” strategy, in which the company elevates its prices in accordance with a spike in demand, hardly surprising given the date. But charges about five to six times as much as normal caused a flurry of customer complaints from customers in cities around the country where Uber operates.

Dynamic pricing, as the practice is called, is nothing new. If anything, as Techcrunch notes, it’s a fast-growing business model:

Over the past few years, dynamic pricing provided value to consumers, for example, through daily deals. Companies providing these deals help vendors manage inventory and excess supply, using the power of discounting to gin up demand. Starting now, consumers should also prepare to experience the underbelly of this phenomenon, a world where prices for goods and services that are in demand, either in quantity or at a certain time, aren’t the same price for each of us.

Online, dynamic pricing is gaining momentum. eBay auctions and Priceline hidden bids are the overt expression of this. More subtly, items in my Amazon shopping cart went up a bit each day as the holidays approached.

Still, Uber’s “surge pricing” caught some customers off-guard. Normally, the company sets its base rate at $7, then adds $3.25 for each mile traveled plus 75 cents for each minute a car is hired. On New Year’s, those numbers went way up. Mark Krieger, a Rockville resident, reported being charged quite a bit for a ride home from Glover Park.

Krieger, a bar manager at Chef Geoff’s on New Mexico Avenue NW, wrote in an email that the total was closer to $185 for the 12-mile ride home. Usually, he said, a hailed taxicab would charge about $25 for the trip.

This was Krieger’s first time using Uber, though he said he’s been hearing about it from his friends and recommending it to Chef Geoff’s customers since the car service app made its D.C. launch in December.

“I will likely never use the service again or recommend it,” Krieger wrote. “By raising the prices that high to ensure availability I believe it only set users up to guarantee they could get gouged.”

In an interview with All Things D, Uber CEO Travis Kalanick said the company had a successful New Year’s Eve and that the increased prices were applied to offset the crush of people looking for rides to and from their festivities. It also wasn’t the first time the company raised its rates to accomodate holiday revelers; it did the same thing last Halloween.

“If you look at a club that charges a $20 cover on a normal night and then charges $100 on New Year’s Eve—that’s just what happens,” Kalanick told All Things D. “But with Uber, we understand there are some people who feel the pain of that transition and we take some responsibility for making it as smooth a transition as possible.”

Alex Priest, a spokesman for Uber’s D.C. operation, said the company forewarned its local customers with mass emails and in-app alerts to users that surge pricing was in effect.

“We did our best to be transparent and that everyone knew,” Priest said in an interview. Prices hit their highest in the early hours of Sunday when customers were ready to head home.

“Mostly it’s just the sticker shock,” Priest said. “We want to avoid as much as we could, but it was the only way we could accommodate everyone.”

Rachel Holt, Uber’s general manager for Washington, said the company had three to four times as many cars on the road than normal on New Year’s Eve.

Filed Under: new year's eve, surge pricing, taxis, uber,