Can Ride-Hailers Increase Ride Frequency without Cutting the Profits? Here’s How

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Juraj

June 4, 2020

5 min read

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part from the very actual and burning question of how to ramp up the ride-hailing and taxi business back amidst and post the COVID-19 pandemic, there is one other, not the least difficult, long-term challenge ride-hailing and taxi operators are facing. How do you increase ride frequency profitably?

Legislative regulation dawns upon the industry, with the economic factors not looking bright.

Ride-hailers and taxi operators are seeing their costs going up, not negligibly due to the fact that they are being forced to classify drivers as employees or to provide some degree of employee-based benefits to the drivers. This is in stark contrast to working with independent drivers as part of the freelance-based “gig economy”.

On the one hand, this could necessitate a raise in prices. On the other hand, customers, being highly price-sensitive, are not willing to pay more. (Talk about commoditization.)

What would follow is a further exacerbation of the ride frequency issue. With higher prices, ride-hailers would see ride frequency decrease for a significant amount of customers.

How do we find a (profitable) way out of this juxtaposition of factors?

How to enable ride-hailing growth without stealing passengers from public transport?

Increasing ride frequency through incentivization (and why it doesn’t work all that well).

Increasing ride frequency — or, if I may, generating demand — in the ride-hailing industry is quite limited. Passenger incentivization is quite popular, but even if ride-hailers make the most of incentives, the effectiveness is hard to reach.

The reason is simple: residents’ transportation needs are time-bound. You will travel only when you need to.

You will travel only when you need to.

No matter how much of a discount or other benefit you are offered, you won’t use it if you don’t need to get anywhere. Or if you can, you’ll use it later, when you really have the need — but (and that’s the tricky part) when you would maybe take the ride even without the incentive.

For incentives to really work, they need to come at the right time and be attractive enough. For which you need to see more of the users’ transportation intent than is the case currently. About that, a bit later in this article.

And evaluating the effectiveness of the incentives — i.e. whether it really was the incentive that brought the ride or whether it was used on a ride that would have taken place anyway — is tough, if possible at all.

 

 

Decreasing average order value (AOV) to bring more revenue.

Sounds quite sensible, right? Economy 101. Lower price will lead to a greater demand.

How to decrease average order value (AOV) without decreasing the price, though?

How to decrease average order value (AOV) without decreasing the price, though? Of course, decreasing the unit price by decreasing margins is not desirable. 

What matters to customers, however, is the total price they pay per ride, not the price per kilometer or other unit. The human mind is blissfully simple in this regard. So what’s needed really is to decrease the order value.

Our intermodal transportation technology at Mileus is designed to achieve this, with a roughly 50% AOV decrease — and with a few other benefits (read on for those). 

The technology enables a deep, seamless, automated integration between public transport and ride-hailing or taxi services. It plans your customer’s journey, using public transit in the city centers with high congestion levels and a ride-hail or taxi outside the gridlocked areas.

A person taking a taxi after getting off a metro

 

This 50% decrease in average order value (AOV) can bring as much as 3 x higher ride frequency, leading to a 15+% increase in average revenue per user (ARPU)

And although the taxi or ride-hail trip is shorter, it enables ride-hailing and taxi operators to enhance their vehicle utilisation due to lower amount of deadheading trips.

The driver doesn’t need to go back to the city center with an empty car and then work their way through the congestion out of the center. They will have their next customer in the congestion-free areas outside the center and will be able to make more rides, also utilising their time better.

This 50% decrease in average order value (AOV) can bring as much as 3 x higher ride frequency, leading to a 15+% increase in average revenue per user (ARPU).

It’s not rocket science when you think about it, right? Although from our experience, developing such intermodal technology to achieve this isn’t that far from rocket science 😉

 

Why should transportation intent still be a mystery?

As a result, our technology also tackles another problem — ride-hailing and taxi operators only cover around 5% of residents’ transportation demand. This is equal to an average of 3 trips per month per user.

It’s fair to say you can’t predict transportation intent based on such limited data. Just as you can’t evaluate whether an incentive was applied on a ride that would have taken place even without the incentive. Simply put, when you don’t see much of your users’ transportation intent, it’s a black box.

When you don’t see much of your users’ transportation intent, it’s a black box.

Offering the intermodal transportation service to your customers with our technology will entice them to check your app more frequently for potential great combined transport offers. Even in cases when they’re set to use public transport, they’ll open the app, just in case. Making your app the go-to platform for residents searching for ways to move around the city.

Not surprisingly, this will reveal much more of the users’ transportation intent. Not only will this enable you to customize the incentives to make them effective, it will unlock a new level of working with transportation intent.

 

And when transportation intent pairs up with flexibility and predictability

Knowing the users’ transportation intent better, ride-hailers and taxi operators can predict when a user will want to travel and how time-flexible that kind of trip is

Yes, I hear you — it really would be great to be able to plan an intermodal trip for the user and notify them let’s say 15 minutes before their predicted departure time that we’ve found them a great transport option. An offer customized to their preferences so well they can’t say no. 

How much would it increase your chances of getting the user to take a ride?

Now, what if I told you this can be achieved? That’s where our technology comes into play.

Having the data on a specific user’s transportation intent as well as time-flexibility and predictability of that particular kind of trip, we’ll start searching for the ideal intermodal combination for them with a sufficient lead time before the predicted departure time.

And thanks to knowing their preferences, we can make the offer so attractive we’ll instigate their transportation need.

Or if they search for a ride and there’s no suitable option in terms of price (or any other factor), you can offer them to finish one more task or get one more beer and catch a combined service in, say, 15 minutes — instead of letting them leave your app.

Match enough of those deferred rides and you can start guaranteeing an interesting price point for your customers to be willing to wait for the perfect commute experience.

 

 

After all, there is a profitable way to increase ride frequency. Intermodality is the way not only to decrease average order value, increase engagement and ride frequency, and grow ARPU, but also to bring a comfortable commuting option for your customers and decrease congestion in city centers. Isn’t that a win-win-win?

.

 

Are you now wondering how often your customers could receive an intermodal transportation offer from you? How much your AOV could decrease without sacrificing your margins? And how much your ARPU could grow?

We’ll get your questions answered. With a deep dive into your ride data, we’ll prepare a complex analysis and ride insights to answer these business questions — and, ultimately, help you understand if adding this intermodal service to your offer can boost your bottom line.

Would you like to discuss this opportunity? Get in touch with me at juraj@mileus.com or on my LinkedIn profile and let’s get talking.

.

 

For more blog posts and urban mobility updates, follow Mileus on LinkedIn:

Share on facebook
Share on twitter
Share on linkedin
Share on email

A

part from the very actual and burning question of how to ramp up the ride-hailing and taxi business back amidst and post the COVID-19 pandemic, there is one other, not the least difficult, long-term challenge ride-hailing and taxi operators are facing. How do you increase ride frequency profitably?

Legislative regulation dawns upon the industry, with the economic factors not looking bright.

Ride-hailers and taxi operators are seeing their costs going up, not negligibly due to the fact that they are being forced to classify drivers as employees or to provide some degree of employee-based benefits to the drivers. This is in stark contrast to working with independent drivers as part of the freelance-based “gig economy”.

On the one hand, this could necessitate a raise in prices. On the other hand, customers, being highly price-sensitive, are not willing to pay more. (Talk about commoditization.)

What would follow is a further exacerbation of the ride frequency issue. With higher prices, ride-hailers would see ride frequency decrease for a significant amount of customers.

How do we find a (profitable) way out of this juxtaposition of factors?

How to enable ride-hailing growth without stealing passengers from public transport?

Increasing ride frequency through incentivization (and why it doesn’t work all that well).

Increasing ride frequency — or, if I may, generating demand — in the ride-hailing industry is quite limited. Passenger incentivization is quite popular, but even if ride-hailers make the most of incentives, the effectiveness is hard to reach.

The reason is simple: residents’ transportation needs are time-bound. You will travel only when you need to.

You will travel only when you need to.

No matter how much of a discount or other benefit you are offered, you won’t use it if you don’t need to get anywhere. Or if you can, you’ll use it later, when you really have the need — but (and that’s the tricky part) when you would maybe take the ride even without the incentive.

For incentives to really work, they need to come at the right time and be attractive enough. For which you need to see more of the users’ transportation intent than is the case currently. About that, a bit later in this article.

And evaluating the effectiveness of the incentives — i.e. whether it really was the incentive that brought the ride or whether it was used on a ride that would have taken place anyway — is tough, if possible at all.

 

 

Decreasing average order value (AOV) to bring more revenue.

Sounds quite sensible, right? Economy 101. Lower price will lead to a greater demand.

How to decrease average order value (AOV) without decreasing the price, though?

How to decrease average order value (AOV) without decreasing the price, though? Of course, decreasing the unit price by decreasing margins is not desirable. 

What matters to customers, however, is the total price they pay per ride, not the price per kilometer or other unit. The human mind is blissfully simple in this regard. So what’s needed really is to decrease the order value.

Our intermodal transportation technology at Mileus is designed to achieve this, with a roughly 50% AOV decrease — and with a few other benefits (read on for those). 

The technology enables a deep, seamless, automated integration between public transport and ride-hailing or taxi services. It plans your customer’s journey, using public transit in the city centers with high congestion levels and a ride-hail or taxi outside the gridlocked areas.

A person taking a taxi after getting off a metro

 

This 50% decrease in average order value (AOV) can bring as much as 3 x higher ride frequency, leading to a 15+% increase in average revenue per user (ARPU)

And although the taxi or ride-hail trip is shorter, it enables ride-hailing and taxi operators to enhance their vehicle utilisation due to lower amount of deadheading trips.

The driver doesn’t need to go back to the city center with an empty car and then work their way through the congestion out of the center. They will have their next customer in the congestion-free areas outside the center and will be able to make more rides, also utilising their time better.

This 50% decrease in average order value (AOV) can bring as much as 3 x higher ride frequency, leading to a 15+% increase in average revenue per user (ARPU).

It’s not rocket science when you think about it, right? Although from our experience, developing such intermodal technology to achieve this isn’t that far from rocket science 😉

 

Why should transportation intent still be a mystery?

As a result, our technology also tackles another problem — ride-hailing and taxi operators only cover around 5% of residents’ transportation demand. This is equal to an average of 3 trips per month per user.

It’s fair to say you can’t predict transportation intent based on such limited data. Just as you can’t evaluate whether an incentive was applied on a ride that would have taken place even without the incentive. Simply put, when you don’t see much of your users’ transportation intent, it’s a black box.

When you don’t see much of your users’ transportation intent, it’s a black box.

Offering the intermodal transportation service to your customers with our technology will entice them to check your app more frequently for potential great combined transport offers. Even in cases when they’re set to use public transport, they’ll open the app, just in case. Making your app the go-to platform for residents searching for ways to move around the city.

Not surprisingly, this will reveal much more of the users’ transportation intent. Not only will this enable you to customize the incentives to make them effective, it will unlock a new level of working with transportation intent.

 

And when transportation intent pairs up with flexibility and predictability

Knowing the users’ transportation intent better, ride-hailers and taxi operators can predict when a user will want to travel and how time-flexible that kind of trip is

Yes, I hear you — it really would be great to be able to plan an intermodal trip for the user and notify them let’s say 15 minutes before their predicted departure time that we’ve found them a great transport option. An offer customized to their preferences so well they can’t say no. 

How much would it increase your chances of getting the user to take a ride?

Now, what if I told you this can be achieved? That’s where our technology comes into play.

Having the data on a specific user’s transportation intent as well as time-flexibility and predictability of that particular kind of trip, we’ll start searching for the ideal intermodal combination for them with a sufficient lead time before the predicted departure time.

And thanks to knowing their preferences, we can make the offer so attractive we’ll instigate their transportation need.

Or if they search for a ride and there’s no suitable option in terms of price (or any other factor), you can offer them to finish one more task or get one more beer and catch a combined service in, say, 15 minutes — instead of letting them leave your app.

Match enough of those deferred rides and you can start guaranteeing an interesting price point for your customers to be willing to wait for the perfect commute experience.

 

 

After all, there is a profitable way to increase ride frequency. Intermodality is the way not only to decrease average order value, increase engagement and ride frequency, and grow ARPU, but also to bring a comfortable commuting option for your customers and decrease congestion in city centers. Isn’t that a win-win-win?

.

 

Are you now wondering how often your customers could receive an intermodal transportation offer from you? How much your AOV could decrease without sacrificing your margins? And how much your ARPU could grow?

We’ll get your questions answered. With a deep dive into your ride data, we’ll prepare a complex analysis and ride insights to answer these business questions — and, ultimately, help you understand if adding this intermodal service to your offer can boost your bottom line.

Would you like to discuss this opportunity? Get in touch with me at juraj@mileus.com or on my LinkedIn profile and let’s get talking.

.

 

For more blog posts and urban mobility updates, follow Mileus on LinkedIn:

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