PRICE INCREASES: Three strategies PHV may use to retain customers

Fuel and electricity costs increasing, supply chain issues causing driver shortages – these factors are driving up operational costs for many PHV operators. Now the new VAT requirement for UK PHV operators moves the pricing for the end consumer even further up. And the inflationary pressures don’t look as if they’ll be dissipating anytime soon. Congestion charges and the pressure to electrify their vehicle fleets because of CO2 regulations or low emission zoning further spur these prices up. Already in the last quarter of 2021, PHV companies were under mounting pressure to increase the price of their service. As we creep towards the end of Q1 2022, this only seems to be getting more true every day.

In the UK, Uber is increasing their service prices by 20% to cover VAT charging requirements as mandated based on last December’s High Court ruling and it is expected to further increase to cover energy prices. Bolt is hiking up their prices in London by 10%. Regulated licensed taxis in the UK are expected to raise their rates between 3% and 15%.

Inflationary pressures are broad and impact many aspects of everyday lives. Customers will cut purchasing premium services where cheaper alternatives exist. Or cut the consumption of unnecessary services. In the case of PHVs – cheaper alternatives being either public transport, car clubs or micromobility. And, of course, our own private car is perceived as a cheaper alternative to taxis for most.

Unlike utilities or Netflix service, PHV operators do not hold strong pricing power – meaning as PHV operators raise their prices their consumers will simultaneously stop or at least reduce their use of the service. On the contrary, when the price of a service with pricing power goes up, most people will keep paying to keep using the service. With the case of electricity, people will keep buying it due to necessity (i.e. no cheaper alternative). With Netflix, it is a low enough expense to still survive within a family’s monthly budget considering the value drawn from such service.

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’ – especially given the fact that this economic climate is jointly impacting consumers’ choices across the board.

As PHV operators are raising their prices, there are three key strategies they should embrace to retain customers and their engagement levels. And maybe, just maybe, they

may even attract more customers.

Increase service value

Naturally, people are more willing to pay more if they feel they’re getting more 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.

It is possible to improve service without stressing explicit financial costs. Guarantees for arrival times or carclassupgradesaresomeexamples.

Becoming a love brand is also a strategy that can also increase stickiness. Being a love brand means that customers want to support that brand, even if they may not need it. It’s about how the 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.

Offer 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 city’s 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 prizesfrompartners.

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.

Every PHV company’s business model and market landscape is different, so these are by no means copy-and-paste templates. But they are perhaps launchpads for creative thinking of how services can be offered in a dynamic new way that will make customers want to choose your company.

Drop the average order value (AOV)

Striving to decrease AOV may seem counterintuitive at first glance if a company is trying to improve their overall revenue. But 101 economics shows us that lower prices increase demand through increased order frequency and market expansion.

Let’s do some basic calculations here. Inflationary pressures might have already pushed prices up about 30%. The new VAT rules add another 20% on top of this for several operators. So now we are already 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 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 routes with intermodal technology.

Incorporating public transportation into the typical journey reduces the PHV’s AOV by 45%. That new ‘savings buffer’ (or what would be savings before operators were hit by all these price increases) can now comfortably absorb the increased prices. Plus, it can even save them a little more money, which can help attract them as they are also more price sensitive in the economic climate.

Customers can even enjoy the perks that public transit - PHV intermodal journeys bring. Public transport, particularly rapid transit like subways or urban trains, rarely are within a comfortable walking distance the further away from urban centre one is or one needs to be. PHV services can extend the serviceability of public transportation and help connect this first and last mile of a customers’ transportation need – i.e. offering an intermodal journey.

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. Plus, intermodality is often faster than a journey that is completely done by a private car or PHV because public transit in city centres beats congestion, while still getting the customer comfortably to their destination’s doorstep with PHV on the first or last mile of their journey.

Furthermore, intermodal journeys help drivers optimise every kilometre driven. It makes ride- stacking easier for drivers and reduces those dreaded passenger-less dead-miles – 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 PHV 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.