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Uber's Sydney hostage crisis price rises - when economics meets bad taste

Stuart Lauchlan Profile picture for user slauchlan December 15, 2014
Summary:
Free market economics in action or distasteful price gouging on the back of an emergency situation? Uber's latest PR faux pas raises some tough questions.

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If I’ve learned one thing this year it’s this: never underestimate Uber’s ability to present some of the most spectacularly self-inflicted brand damage.

Last month you’ll recall the fury that erupted over an Uber exec’s cunning plan to spend $1 million on a ‘counter attack’ squad to tackle nasty journalists who chose to pick on the company, a plan revealed to the world at an event attended by…er, journalists.

The cab firm at first tried to squirm out of that one by turning to that age-old and utterly useless plea of ‘It was off-the-record’. First rule of media relations - nothing is off the record and every microphone is live!

That was followed by a bizarre Twitter stream ‘apology’ which then turned out to be an internal messaging document split into multiple chunks, with a last minute sort-of-apology stuck on the very end. Second rule of media relations - the first thing you say is sorry, not the last.

But for sheer bad taste publicity, Uber will have to go some to beat its decision to impose surge pricing in Sydney yesterday as terrified residents tried to flee the business district as news of the terrible cafe siege spread. Uber’s pricing shot up to four times the normal rates.

Now the surge pricing element of Uber’s business model is automated, but surely someone at some point should have realized that a life-and-death situation such as this would inevitably occur at some point and insisted on some kind of instant ‘off switch’ for such occasions.

It doesn’t really matter if that situation is a criminal action such as that in Sydney or a natural disaster. What happens if, for example, there’s an earthquake or an imminent flood or some such? How far will Uber’s prices bump up then?

But it only seems to have sunk in to the Uber management that they had another PR nightmare on their hands after the price rises were exposed to mass criticism on social media networks several hours into the hostage crisis.

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At that point, to some small credit, the company announced it would be offering refunds to anyone who already paid for a ride and released a statement on Uber’s blog announcing that all rides out of Sydney’s Central Business District would be free until the hostage situation was resolved:

Uber Sydney will be providing free rides out of the CBD to help Sydneysiders get home safely.

But the damage was done long before that as the first response from the company was unrepentant as it explained in a tweet:

Fares have increased to encourage more drivers to come online & pick up passengers in the area.

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What may well be particularly galling for those caught up in yesterday’s incident in Australia is that the surge pricing wouldn’t have happened if the crisis had occurred in the US.

In July the firm announced a US national policy on surge pricing for US cities that means that Uber’s pricing algorithms will be capped during disasters and relevant states of emergency. This followed mass criticism after Uber fares increased eight-fold during a December snowstorm in New York.

Travis Kalanick, Co-Founder & CEO, Uber, said at the time:

This policy intends to strike the careful balance between the goal of transportation availability with community expectations of affordability during disasters…a model for technology companies and regulators in local, state and federal government.

Will this latest PR debacle lead to that same careful balance now being extended to countries other than the US? If not, the only conclusion that many will come to is that price gouging under any circumstances is acceptable outside of US zip codes. Surely that can't be the case?

My take

My favorite question to my chums in PR this year has been: how’d you fancy picking up the Uber account? To a man and woman, the immediate response is panicked expression and a vigorous shaking of the head.

The economics theory underlying the surge pricing model is transparent enough and in a free market economy, you pays your money, you makes your choice. If people are daft enough to put up with vastly inflated prices at peak times, then that’s down to them.

But Uber’s response yesterday once again suggests a company with an arrogance and insensitivity hardwired into its very being. Being the disruptive enfant terrible is only viable for so long. That time is long past for Uber.

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