Consumer Behaviour: of Uber - Case Study Example

Uber Literature Review Table of Contents 1.0 Literature Review 3 1.1 Research Approach 3 1.2 Uber 3 1.3 4Ps of Marketing 4 1.4 Consumer Behaviour 9 1.5 Uber driver benefits and attitudes 12 References 14 Tables Table 1 - UberX Prices 6 Table 2 - Uber Fares compared to Taxi Service 7 Table 3 - Uber Driver Hourly Income Comparison with Taxi Drivers and Chauffeurs 13 1.0 Literature Review 1.1 Research Approach The connectivity of today’s electronic mediums and devices has resulted in consumers expecting innovations regarding convenience, utility, and accessibility to serve them (Leimeister et al, 2014). The smartphone is an example of convenience and utility as it has transformed the accessibility of the Internet by providing consumers the ability to use its resources at any time to aid them in fulfilling their varied needs wants or desires (Lariviere et al, 2013). This is also true for Uber that is the subject of this study. The above aspects concerning utility, convenience, and accessibility are described by Chinn (2011) as services we pay for when we purchase a service. The medium (the Internet) is a prime example of user utility, convenience, and accessibility that satisfies a broad array of uses and services based on consumer behaviour (Hawkins and Mothersbaugh, 2009). The above introduction was conducted to provide a basis for understanding some of the considerations concerning the approach to this literature review. It will also explore the 4P’s of marketing as these apply to Uber. Marketing is an important area for the company in terms of expanding the reach, and awareness of the business, which in many cases entails the use of promotions to induce trial (Naylor et al, 2006). This literature review will also look at driver attitudes and varied opinions concerning the company and its approach. Consumer behavioural factors will also be looked at as the convenience aspect represents an important part of the reason that resulted in the formation of the service (Swartz, 2014). 1.2 Uber Launched in 2009 in San Francisco as a mobile app for smartphones, Uber was formed to fill an urban need for carpooling in that city where parking is limited as well as expensive (Feeney, 2015). Uber’s foundation grew from casual carpooling that emerged in San Francisco and Washington D.C. in the early 1970s where there were at least two passengers and one driver required in a vehicle for it to use the special carpool lanes into and out of these cities to reduce vehicle congestion and save commuting time (SF Casual Carpool, 2015). The Uber app permits users to enter a request for a destination that is then routed to a fleet of company sourced independent drivers that have been screened and hired by the company (Bilton, 2012). The charges are handled through the Uber system based on time or distance (Bilton, 2012). In those cases where the speed exceeds 11 mph or 18 km/h, the charge is computed based on distance as opposed to time (Bilton, 2012). The charges are billed to the customer’s credit card when the trip is completed, and the need to tip is optional, as the company advertises that this is not necessary (Bilton, 2012). The drivers are paid through the Uber system (Rassman, 2014). From a business model standpoint, the company does not have the liability of insurance for the vehicles which is borne by the drivers and does not have to pay for vehicle costs in terms of upkeep or maintaining a rolling stock (Rassman, 2014). Varied members of the taxi industry in differing cities have submitted complaints that the service uses unlicensed taxi drivers that are stealing away customers, despite this, Uber is operational internationally in over 200 cities in 53 countries (Uber, 2015a). The entire concept is built on consumer convenience, ease and accessibility through the use of one’s smartphone, iPad or computer (Rempel, 2014). This is an important consumer marketing point concerning the end use potentials that helped to launch the company that included considerations such as the advantages and benefits for drivers in the system, consumer exposure, and trip pricing. 1.3 4Ps of Marketing Uber uses the 4Ps of the marketing mix to build the company, expose the service and expand its use (Schenker, 2013). In terms of understanding this usage mode, a look at the traditional components of the 4Ps provide insights concerning how Uber uses this to benefit its business. The marketing mix as a concept was introduced by Neil Borden in the early part of the 1950s (Dominci, 2009). His twelve point policies were refined by Jerome McCarthy in 1964 into the 4Ps of marketing that consisted of “product, price, place and promotion” (Dominci, 2009, p. 1). In terms of understanding the application of the 4Ps as they apply to Uber, the following explores each of these areas and their subcategory points: A. Product This consists of the following areas that are applicable to Uber. 1. Product variety This applies to Uber (2015a) as the company offers a number of service options at varied price points that change the vehicle types which people can request. The company offers different car selections ranging from its traditional black Cadillac and Lincoln limousine options to SUVs (Uber, 2015b). Uber also has a ‘Lux’ service for higher priced luxury vehicles (Rainone, 2014). The company uses commercially licensed drivers under its black car service and non-commercially licensed driver service under UberX that has lower prices (Rogowsky, 2014). 2. Quality Since Uber entered the market, a number of competitors have developed services based on its approach (Rogowsky, 2014). Companies such as Lyft, Wingz and Sidecar offer the same services, however Uber is regarded as having slightly more prestige, due to its black car commercially licensed main service (Rogowsky, 2014). The company has been involved in a number of internal management quality situations during 2014 concerning how it screens its drivers and other areas (Chayka, 2014). In 2014 the company faced a number of lawsuits concerning the conduct of its drivers in Chicago, San Francisco, London, and New Delhi regarding activities that involved female customers (Chayka, 2014). The incidents varied and were basically only a few occurrences that the company swiftly dealt with in the media (Chayka, 2014). The reach and size of the company’s business meant that these instances did not impact revenues or operations to any measurable degree (Chayka, 2014). 3. Features The smartphone app system that Uber (2014c) uses has essentially been copied by its competitors. Being the first company to offer the personal car service app as a business segment as well as the company’s offer of black limousine vehicles established Uber as the first and premier vehicle service (Rogowsky, 2014). The company has a $1 million insurance policy that supplements screened drivers to ensure coverage for this area is sufficient to meet requirements (Rasinone, 2014). The app used by Uber has been its main competitive edge, along with it being the first app for a service that provided it with a clear advantage in entering new cities that enabled Uber to capture the public’s imagination and establish its position in this new field (Jeffries, 2012). The company’s once groundbreaking app that provides users with the ability to see the position of the car they hired on a map, has since been copied by its competitors (Lyft, Wingz, and Sidecar) (Rasinone, 2014). The features that the company presently has in its favour represent pricing and vehicle selection represented by the main Uber service, UberX, Uber SUV and Uber Lux (Rasinone, 2014). B. Price The company has been charged in many cities of price gouging (Scola, 2015). The complaints came from customers based on surge pricing that Uber uses when demand based on events in cities (sports arenas, conventions) increases consumer use of taxis and Uber services (Scola, 2015). These charges started surfacing in 2013 and represented the reason for UberX as its prices are calculated to be ten percent lower than taxi fares in the cities it operates (Uber, 2014c). The introduction of UberX has softened the gouging charges, and the company has also reduced its surge pricing rates (Scola, 2015). Table 1 - UberX Prices (Uber, 2014c) In an article by Silverstein (2014) she provided a table of Uber’s rates compared to taxi service: Table 2 - Uber Fares compared to Taxi Service (Silverstein, 2014, p. 1) The lower fares charged by Uber when compared to traditional taxi service provides an indication of value in terms of Uber’s non-marked vehicles as an option. Value is represented by the fact that consumers have an on-demand vehicle that is cleaner than traditional taxi services and is also unmarked which means they are receiving a personal chauffeur. C. Place The capabilities of the Uber app means that it has the range to cover the locations the company is active in (Maselli and Giuli, 2015). The company has operations in over 200 cities and 53 countries that are made possible by its Internet to a smartphone app (Uber, 2015a). The distribution of the app is facilitated by the fact it works on all Android, iPhone, Blackberry and Microsoft’s Mobile software (Swan, 2015). This provides it with a free downloadable distribution that permits Uber to reach customers in its markets (Swan, 2015). In terms of distance, the company does not currently have any restrictions on this area, as a person can place an order to travel cross country in the United States or any country, and the app will calculate a fare (Larounis, 2015). One of the other benefits of Uber’s centralised operation that is made possible by its Internet to mobile phone app based software is that it provides consistency for all its locations (cities) (Lagorio-Chafkin, 2013). Although the operations are centralised, Uber does have administrative operations in major cities to coordinate driver screening, local legal regulations and other areas (Lagorio-Chafkin, 2013). D. Promotion The unique aspect of Uber’s service is promoted through a combination of the Internet in conjunction with heavy P.R. activity that is timed with newspaper and magazine articles (Griswold, 2014). One of the major approaches in entering a new market represented the company using a free ride offer up to $20.00 for a customer’s first (Randall, 2013). This is an in-city option the company uses to promote its service in new markets for all of the vehicle types that are offered in that market (traditional Uber, UberX the low price option, and Uber Lux for Mercedes and other high-end vehicles) (Randall, 2013). The company has also established a loyalty deal with Starwood Hotels & Resorts where the hotel chain’s global customer base can earn credits toward their next Starwood visit (Miners, 2015). The Starwood Hotels & Resorts (2015) consists of over 1,200 facilities located in 100 countries and it is positioned in the middle to upper-income range for travelers. The chain’s properties include brands such as the St. Regis, W., Westin and Le Meridian (Miners, 2015). One of the reasons for this deal is to aid Uber in boosting its global growth and to expose its services to the upper-income demographic (Miners, 2015). Uber uses some creative methods to promote its services on an ongoing basis that helps to generate P.R activity and newspaper exposure (Solsman, 2013). In promoting its SUV service to the exclusive Hamptons area on Long Island in New York, Uber used helicopter flights to the enclave, in order to expose this service (Solsman, 2013). In another promotion, the company offers customers free rides to get them to try its “mobile wallet service payment solution” (Dhamija, 2014, p. 14). This service offers convenience as it bypasses their credit cards and has an additional security layer (Dhamija, 2014). The company is creative in its promotional activities that include the integration of its service into the applications of well-known companies (Robles, 2014). Uber has forged promotional relationships with “OpenTable, Starbucks, United Airlines and TripAdvisor” along with developers that partner with the company as a basis for increasing the exposure (Robles, 2014, p. 1). 1.4 Consumer Behaviour Convenience is the key foundation that Uber’s service is built upon. Prior to Uber, consumers had to rely on licensed taxi services that charged metered fares or private licensed cab services whose rates were similar to the metered taxis. The pricing structure differs because Uber does not have the fixed costs of rolling stock, vehicles that are not being utilised, or drivers to work into its overhead (Reisman, 2013). In addition, the company uses a formula that is based on trip distance or elapsed time that is lower than standard industry rates (Reisman, 2013). This offers consumers the convenience and utility of calling for a vehicle when they need it and booking it in advance to save them money and to provide them with the convenience of not having to seek a cab that might not be available during high utilisation ties of the day (Yeung, 2013). The other benefit is that customers pay for their rides using a credit card (Yeung, 2013). The above is the marginal utility aspect of consumer behaviour that represents an added or incremental use mode that increases the desire to use a service (Thilmany and Bond, 2008). The utility in this instance is the convenience offered by having access to a personal vehicle service that builds on the traditional taxi model, by offering consumers a choice of unmarked vehicles they can preorder. Marginal utility has been used to aid in looking into consumer behavioural models by understanding the need and utility that Uber fills. In order to understand this further, an examination of what taxis are is an important starting point. A taxi service fills a need in the personal transport sector for individuals who elect not to use public transportation, or desire point to point service convenience (Hecckroth, 2013). Taxi service in most cities in the United States, Europe, South America and Asia are licensed by the local municipality that imposes standards of operation, insurance, driver license qualifications and usually includes the look (colours) of the taxis (Schaller, 2007). The standard taxi services represent flagging a cab on the street or calling for service pickup that use metered rates (Schaller, 2007). The Uber concept builds on this from a convenience and utility standpoint as all of the vehicles are unmarked thus creating more of a limousine service than a taxi approach. The traditional limousine represents a luxury long wheelbase vehicle that usually has a partition to separate the chauffeur from the passengers (Logan, 2007). Uber’s vehicles are part limousine and part taxi and have more of the attributes of the former in terms of the unmarked vehicles. Solomon et al (2012) in discussing consumer behaviour advise that there are two main marketplace models to consider. The first represents understanding the type of consumers that represent prospects for the product or service and the market size (Solomon et al, 2012). This is where consumers consistently buy differing brands that are competing and represents a singular consumer psychology as well as collective behaviour (Solomon et al, 2012). The other model represents brand managers that shift strategies or attributes to influence consumer behaviour (Solomon et al, 2012). Uber fits in the first marketplace model. Both models include loyalty, which is where consumers will find a usage mode that they are comfortable with that offers them convenience, and utility (Solomon et al, 2012). Depending on timing, or distance, a local off the street taxi for spur of the moment transport, is a mode that fits the immediacy and convenience factors a consumer is seeking. Planned trips such as meetings, airports, and other scheduled events fit the taxi and Uber mode with the latter offering a higher comfort factor due to the cleanliness aspect of the vehicles (Dong et al, 2014). Depending on the type of trip, loyalty plays a part in the process (Dong et al, 2014). The other factor is sociology, where the buying of an individual tends to be influenced by the action or opinions of other people (Patel and Schlijper, 2005). The features, convenience and non-marked vehicles offered by Uber offer some insight concerning why people use the service (Voytek, 2012). The unlicensed commercial status might seem to be a drawback in terms of safety, but driver reliability is a shortcoming that is also true for licensed taxi services as well (Voytek, 2012). Uber offers a difference factor that plays to consumer sociology, as it provides a specialised factor where its users are getting something regular taxi service users are not (Voytek, 2012). The other consumer behaviour factor is psychological (Patel and Schlijper, 2005). It represents how other choices can influence consumers to make a change in buying or trying something that is different. Advertising is a factor that fits in the psychological category, along with word of mouth and other aspects such as the following that make a psychological impact on consumers (Patel and Schlijper, 2005): A. Minimisation of potential regret This area represents when two products or services compare favourably to each other (convenience, and utility such as taxis and Uber). This is where the consumer can compare the varied attributes of one product or service against another using a number of areas such as the aforementioned convenience, utility, and in Uber’s case, ability to select a car type along with the chauffeur aspect. B. Attribute change A new approach to a product or service can influence the way prior versions are viewed by consumers or the established way of doing things. This psychological aspect also mentions that the view or established manner might refer to an area or areas not previously brought to light under the past way of doing things. Uber’s service model represents a departure from the established taxi service approach. C. Decision process change This refers to when there is a choice between items that are easy to ascertain based on using price and other aspects as the decision. It represents a comparison of what is being offered as the basis for making a decision. Voytek (2012) provides an understanding of how this applies to Uber by pointing out the convenience factor of ordering a vehicle to suit specific needs (luxury, SUV or regular vehicles) that have no markings and the appearance that of being chauffeured. The other convenience and utility factors represent (Voytek, 2012): 1. The organised central control that oversees the administration of vehicles and customer preferences in terms of meeting expectations. 2. The control factor also increases customer certainty regarding service delivery and reliability. 3. The Uber system places control in the hands of the consumer as they decide when the service will be used, the type of vehicle, pricing, and other aspects. 4. Uber offers users a personalised service that offers utility. It differs from hailing a taxi on the street that represents when they are available, weather conditions and other factors as the vehicles are reserved. Consumer behavioural factors represented by convenience, marginal utility, sociological and psychological factors revealed areas where Uber has used or is using certain aspects to its benefit that existed in the marketplace beforehand. 1.5 Uber driver benefits and attitudes One of the most important aspects of Uber’s service is its drivers. Their on-time schedule, condition of the vehicles in terms of exterior shine and interior cleanliness along with driver attitudes are a key part of getting customers to return. The arrangement the company has with its drivers is critical to delivering the service as promised. It has created thousands of jobs and added income for limousine companies along with independent drivers through a system that offers repeat business, an organised computer-based system and administration that they would not be able to duplicate on their own (Suslo, 2014). The company reports that its drivers can earn approximately $500 daily, which is almost as much as a traditional taxi driver earns in a week (Suslo, 2014). The company recognised that it needed to provide benefits for its drivers which was added to its driver contract after a series of inquiries by a Federal Judge in San Francisco during the early part of 2015 (Levine, 2015). The hearing aired driver dissatisfaction with the benefits offered by the company concerning payment for expenses, recent fare cuts, the ambiguous tipping policy, lack of benefits and insufficient driver safety (Titlow, 2015). These represented legal challenges to the company from its drivers that have seen the company sued over these areas along with threats of unionisation (Titlow, 2015). In terms of driver attitudes toward Uber, research indicated a mixed environment. This is stated because the above lawsuits where drivers state that since they are required to accept a certain percentage of assigned jobs and pass background checks they believe they are employees as opposed to independent contractors (Levine, 2015). The company counters that its pay rate is considerably higher than the taxi industry, citing an approximate $6.00 per hour advantage for Uber drivers (La Feria, 2015): Table 3 - Uber Driver Hourly Income Comparison with Taxi Drivers and Chauffeurs (La Feria, 2015, p. 1) The above provides a mixed outlook on Uber drivers that despite the higher pay rate, illustrates they have complaints concerning benefits, background checks, having to take on a minimum percentage of assigned jobs and other areas. Driver attitudes toward customers represented an area that had no usable feedback in terms of balanced opinions. The few comments that were found were negative experiences that were not a part of a larger survey that provided a balanced assessment. An article by Bodnick (2013) that was written for Forbes found that Uber drivers are courteous, friendly and easy to communicate with. As the article was written for a credible magazine, it tends to have more reliability as a source. References Bilton, N. (2012) Disruptions: Taxi Supply and Demand, Priced by the Mile. The New York Times. 8 January. p.17. Bodnick. M. (2013) Review Of Uber - "One Of My Favorite Two Commerce Services On The Internet". Forbes. 5 January. p.10. Chayka, K. (2014) Things Are Going Downhill Fast for Uber. (online) Available at (Accessed on 28 February 2014) Chinn, D. (2011) We’re Paying for Convenience. The New York Times. 22 September. p. 12. Dhamija, A. (2014) Uber's mobile application now offers five free rides. The Times of India. 28 November. p. 14. Dominci, G. 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