Inflation, Fuel Prices, New VAT Charges: How Taxi & Ride-Hail Operators Can Retain Customers amid Price Increases

Share on facebook
Share on twitter
Share on linkedin
Share on email
Juraj Atlas

April 28, 2022

6 min read

Share on facebook
Share on twitter
Share on linkedin
Share on email
petrol pump price

F

uel and electricity costs, supply chains, inflation – it hasn’t been and it won’t be an easy year with these factors driving up prices. Just as these factors impact costs for suppliers, who will likely have to raise end prices for consumers, consumers are jointly being hit by these price increases and are likely to be more shy with their spendings.

Ride-hail and taxi operators are by no means exempt from these challenges and they will have to get creative to keep customers using their services. They do not hold pricing power, the ability to raise prices and retain customers, like say commodity or scarce goods and services do. Taxi travel is not essential, and there are cheaper travel alternatives like personal cars and public transport.  

Beyond the factors increasing prices for the economy at large, ride-hail and taxi operators are being further hit by a few of their own industry specific factors pushing up their costs of operation

In the UK, several operators are now subject to the new VAT requirement as mandated based on last December’s High Court ruling. To absorb the price, Uber is increasing their service prices by 20%.  Bolt is hiking up their prices in London by 10%, and regulated licensed taxis in the UK are expected to raise their rates between 3% and 15%.

ride-hail driver inside car

 

Congestion charges and the pressure to electrify their vehicle fleets because of CO2 regulations and low emission zoning further spur up prices for operators (although the long term pay off for this is positive). And then we also have driver shortages which also drive up costs for customers. 

[ read more: tackling driver shortages with intermodality ]

These are multipronged challenges, and they won’t be disappearing anytime soon. Rather than just passively falling victim to the tough economic environment, the entrepreneur in me does think that this time presents a time to spur innovation and shakeup how we do things. In the words of Plato – necessity is the mother of invention. 

Necessity is the mother of invention

So, to cope in this new economic climate, PHV operators need to look for ways to minimise customer churn and keep customers using their service. But, of course, the million dollar question is ‘how’.  

Here are my three ideas operators can harness to not just retain customers, but also, just maybe, attract more customers. 

 

1) Boost service value and brand loyalty. 

If prices increase, people naturally will accept paying more if the service value is also increased so that they feel they’re getting enough bang for their buck. Sadly, customers of course don’t feel that added bang for their buck when they’re paying for inflation and hiked up fuel prices.  

Increased service value costs do not need to bring explicit financial costs to operators. It is possible to improve service without adding explicit financial costs. Guarantees for arrival times or car class upgrades are some examples. 

It is possible to improve service without adding explicit financial costs

Nurturing your company to become a love brand is a way increase customer stickiness. Being a love brand means that customers want to support that brand, even if they may not need it. Such a goal is largely driven by reputation, something money can’t buy. 

Developing love brand status can be helped in a few ways: how a company positions itself compared to other competitors or peers on the market in terms of their value and story, how the business supports local communities, and how they may engage with customers in new ways. Of course, developing such a brand and reputation does not happen overnight and takes a lot of nurturing and creativity. 

 

2)  Think out of the box with promotional deals.

This is a fun one – diversify how, and maybe with whom, you offer your services. Here are some examples of what PHV companies on the market are currently doing.

  • Specific market segment offers: In Madrid, Cabify offers students who study at one of the cities largest universities a special deal, helping the PHV company engage with a specific market that they would have not otherwise.  
  • Monthly bundle subscriptions: Uber, Lyft, and Ola are some of the big names who have been offering subscription deals to customers; they pay a monthly “membership” fee and in return they get discounted rides and/ or added service perks.
  • Loyalty programs: FREE NOW rewards customers with special points for every ride they take, which can be used towards special ride-discounts or prizes from partners. 
  • Symbiotic partnerships: Cabify has tagged up with British Airway, Iberian Airways, and Vueling Airline’s loyalty programs. This gives both parties more value for one another’s business offerings, making their respective businesses more attractive to customers. 

These are by no means copy-and-paste templates – every company’s business model and market landscape is different. But perhaps these models can trigger some ideas of how services can be offered in a new way to better connect customers with your company. 

person riding in cab

 

3) Drop the average order value. 

At a first thought, decreasing average order value (AOV) may seem counterintuitive when you’re trying to increase overall revenue. However, 101 economics shows us that lower prices can increase demand, market reach, and order frequency. 

Let’s do some basic calculations. Inflationary pressures might have already pushed prices up about 30%. The new VAT rules add another 20% on top of this for several operators. This puts us at a 56% price AOV increase for the consumer.

To maintain the service cost customers are used to, it means dropping the AOV. I’m not suggesting reducing AOV by reducing the price per kilometre travelled. Rather, I’m suggesting to decrease AOV without decreasing margins – PHVs can decrease the length of their journeys by incorporating public transportation into their route with intermodal technology. 

Incorporating public transportation into a typical journey reduces the operator’s AOV by about 45%. That new ‘savings buffer’(or what would be savings before operators were hit by all these price increases) can now absorb that price increase. Plus, it can even save customers a little more money, which can help attract and retain more price careful customers. 

taxi prices compared mileus infographic

Beyond just giving customers a cheaper travel option than a traditional taxi ride, intermodality opens the door for more commuting perks that will attract customers in three ways. 

Firstly, intermodal journeys with ride-hail or taxi fill the last-mail sore point of public transit. Public transport, particularly rapid transit like subways or urban trains, can be very fast and convenient, but it is rarely within a comfortable walking distance. This becomes more true the further away from the urban centre one is or one needs to be. Ride-hail and taxi companies can extend the serviceability of public transportation and connect the first and last mile of a customers’ transportation need – i.e. offering an intermodal journey. 

Secondly, an intermodal journey is more comfortable and convenient than just public transport, which is the commuter’s only other option if they don’t want to pay for a PHV service that is 56% more (accounting for both inflation and VAT) than what they are used to paying or if they don’t want to or can’t take their own private car. 

Thirdly, intermodality is often faster than a journey that is done entirely by a car from their start-point to their destination. Public transit enjoys outpacing congestion, something that holds travellers back especially during peak hours, by having their own bus lanes or moving on rail at higher speeds. 

 

mileus intermodal map graphic

And finally, intermodal journeys help drivers optimise every kilometre driven. It makes ride-stacking easier for drivers and reduces those dreaded passengerless deadmiles – you can learn how here

So, while we find ourselves in yet again ‘unprecedented times’ brought on by increased prices, I think these three tactics will be the solution to enable ride-hail and taxi operators to retain customers and retain revenue. By achieving this, they will be able to emerge from this tough time stronger and ready to fuel their growth once the economical environment allows.

.

Want our regular urban mobility news, updates, and insights? Follow Mileus on LinkedIn!

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

F

uel and electricity costs, supply chains, inflation – it hasn’t been and it won’t be an easy year with these factors driving up prices. Just as these factors impact costs for suppliers, who will likely have to raise end prices for consumers, consumers are jointly being hit by these price increases and are likely to be more shy with their spendings.

Ride-hail and taxi operators are by no means exempt from these challenges and they will have to get creative to keep customers using their services. They do not hold pricing power, the ability to raise prices and retain customers, like say commodity or scarce goods and services do. Taxi travel is not essential, and there are cheaper travel alternatives like personal cars and public transport.  

Beyond the factors increasing prices for the economy at large, ride-hail and taxi operators are being further hit by a few of their own industry specific factors pushing up their costs of operation

In the UK, several operators are now subject to the new VAT requirement as mandated based on last December’s High Court ruling. To absorb the price, Uber is increasing their service prices by 20%.  Bolt is hiking up their prices in London by 10%, and regulated licensed taxis in the UK are expected to raise their rates between 3% and 15%.

ride-hail driver inside car

 

Congestion charges and the pressure to electrify their vehicle fleets because of CO2 regulations and low emission zoning further spur up prices for operators (although the long term pay off for this is positive). And then we also have driver shortages which also drive up costs for customers. 

[ read more: tackling driver shortages with intermodality ]

These are multipronged challenges, and they won’t be disappearing anytime soon. Rather than just passively falling victim to the tough economic environment, the entrepreneur in me does think that this time presents a time to spur innovation and shakeup how we do things. In the words of Plato – necessity is the mother of invention. 

Necessity is the mother of invention

So, to cope in this new economic climate, PHV operators need to look for ways to minimise customer churn and keep customers using their service. But, of course, the million dollar question is ‘how’.  

Here are my three ideas operators can harness to not just retain customers, but also, just maybe, attract more customers. 

 

1) Boost service value and brand loyalty. 

If prices increase, people naturally will accept paying more if the service value is also increased so that they feel they’re getting enough bang for their buck. Sadly, customers of course don’t feel that added bang for their buck when they’re paying for inflation and hiked up fuel prices.  

Increased service value costs do not need to bring explicit financial costs to operators. It is possible to improve service without adding explicit financial costs. Guarantees for arrival times or car class upgrades are some examples. 

It is possible to improve service without adding explicit financial costs

Nurturing your company to become a love brand is a way increase customer stickiness. Being a love brand means that customers want to support that brand, even if they may not need it. Such a goal is largely driven by reputation, something money can’t buy. 

Developing love brand status can be helped in a few ways: how a company positions itself compared to other competitors or peers on the market in terms of their value and story, how the business supports local communities, and how they may engage with customers in new ways. Of course, developing such a brand and reputation does not happen overnight and takes a lot of nurturing and creativity. 

 

2)  Think out of the box with promotional deals.

This is a fun one – diversify how, and maybe with whom, you offer your services. Here are some examples of what PHV companies on the market are currently doing.

  • Specific market segment offers: In Madrid, Cabify offers students who study at one of the cities largest universities a special deal, helping the PHV company engage with a specific market that they would have not otherwise.  
  • Monthly bundle subscriptions: Uber, Lyft, and Ola are some of the big names who have been offering subscription deals to customers; they pay a monthly “membership” fee and in return they get discounted rides and/ or added service perks.
  • Loyalty programs: FREE NOW rewards customers with special points for every ride they take, which can be used towards special ride-discounts or prizes from partners. 
  • Symbiotic partnerships: Cabify has tagged up with British Airway, Iberian Airways, and Vueling Airline’s loyalty programs. This gives both parties more value for one another’s business offerings, making their respective businesses more attractive to customers. 

These are by no means copy-and-paste templates – every company’s business model and market landscape is different. But perhaps these models can trigger some ideas of how services can be offered in a new way to better connect customers with your company. 

person riding in cab

 

3) Drop the average order value. 

At a first thought, decreasing average order value (AOV) may seem counterintuitive when you’re trying to increase overall revenue. However, 101 economics shows us that lower prices can increase demand, market reach, and order frequency. 

Let’s do some basic calculations. Inflationary pressures might have already pushed prices up about 30%. The new VAT rules add another 20% on top of this for several operators. This puts us at a 56% price AOV increase for the consumer.

To maintain the service cost customers are used to, it means dropping the AOV. I’m not suggesting reducing AOV by reducing the price per kilometre travelled. Rather, I’m suggesting to decrease AOV without decreasing margins – PHVs can decrease the length of their journeys by incorporating public transportation into their route with intermodal technology. 

Incorporating public transportation into a typical journey reduces the operator’s AOV by about 45%. That new ‘savings buffer’(or what would be savings before operators were hit by all these price increases) can now absorb that price increase. Plus, it can even save customers a little more money, which can help attract and retain more price careful customers. 

taxi prices compared mileus infographic

Beyond just giving customers a cheaper travel option than a traditional taxi ride, intermodality opens the door for more commuting perks that will attract customers in three ways. 

Firstly, intermodal journeys with ride-hail or taxi fill the last-mail sore point of public transit. Public transport, particularly rapid transit like subways or urban trains, can be very fast and convenient, but it is rarely within a comfortable walking distance. This becomes more true the further away from the urban centre one is or one needs to be. Ride-hail and taxi companies can extend the serviceability of public transportation and connect the first and last mile of a customers’ transportation need – i.e. offering an intermodal journey. 

Secondly, an intermodal journey is more comfortable and convenient than just public transport, which is the commuter’s only other option if they don’t want to pay for a PHV service that is 56% more (accounting for both inflation and VAT) than what they are used to paying or if they don’t want to or can’t take their own private car. 

Thirdly, intermodality is often faster than a journey that is done entirely by a car from their start-point to their destination. Public transit enjoys outpacing congestion, something that holds travellers back especially during peak hours, by having their own bus lanes or moving on rail at higher speeds. 

 

mileus intermodal map graphic

And finally, intermodal journeys help drivers optimise every kilometre driven. It makes ride-stacking easier for drivers and reduces those dreaded passengerless deadmiles – you can learn how here

So, while we find ourselves in yet again ‘unprecedented times’ brought on by increased prices, I think these three tactics will be the solution to enable ride-hail and taxi operators to retain customers and retain revenue. By achieving this, they will be able to emerge from this tough time stronger and ready to fuel their growth once the economical environment allows.

.

Want our regular urban mobility news, updates, and insights? Follow Mileus on LinkedIn!

Don’t stop here

Keep reading

Shopping Basket