Lessons From The Uber Business Model

A smartphone app offers unmatched transportation service at an affordable price point.

 
 

In January, CreditUnions.com ran an article about car-sharing companies and similar ridesharing services that allow users, especially younger consumers that don’t want the burden of a car loan or upkeep, to make car usage more affordable, efficient, and — importantly — convenient. 

Uber is one such service that experienced breakout growth during 2013. The smartphone app’s original promise of a high-end sedan and private driver with no reservation required appealed to a sophisticated, upscale clientele. “Uber Black” is still a popular option, but now the transportation app has expanded to include traditional taxi service as well as access to SUVs, luxury vehicles, and “every day” cars. With all options, users in major cities around the world can request a car from their smartphone and process the payment, including tip, through the credit or debit card linked to their account. No cash? No problem.

Uber builds customer loyalty through referrals and promotions. Users refer friends by sharing a customizable code. When referred friends sign up, they get $10 off their first trip and the referring user gets $10 to use anytime. During the holidays, the company doubled the amount for both to $20, and city-specific promotions encourage clients to take more rides. For example, during Uber DC’s 12 Days of Uber, users had the chance to win a month of free rides if they took at least one ride during the promotion period. Regrettably, I didn’t win the contest, but Uber still gave me a free ride in January just for using the service during the promotion period. A small gesture like that goes a long way toward building loyalty.

For users that don’t want the high-end experience for their every day life, Uber introduced UberX in 2012. The service leverages the desires of regular people and the availability of newer, albeit not luxury, vehicles — all for an end cost that is less expensive than a traditional taxi. I’ve taken an UberX ride that offered facial tissue, chargers for Android and iPhones, and complimentary water. Not bad for a ride that’s cheaper than a taxi!

I’ve seen a lot of talk recently about differentiation, and for Uber, convenience is a major way it sets itself apart from other vehicles-for-hire companies. Storing credit card information makes getting a ride much easier, plus users can store business cards and personal cards separately. The app emails receipts, which makes submitting corporate expense returns easier than blank cab receipts. And users can split the cost of a ride among multiple friends right through the app.

Uber’s rapid rise offers many lessons and best practices, both in terms of costumer service as well as business model management. Its continued success likely hinges on how it manages growth while continuing its customer-oriented focus. I suspect Uber’s use of promotions, introduction of new features, and focus on convenience will continue to play an important role in sustaining its success.

 
 

Feb. 12, 2014


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