Uber Switching Costs Could be A Lyft

Lately, I’ve been relying heavily on Uber for rides to and from business meetings and started noticing that almost every car I’ve hopped into in recent weeks has a Lyft decal in the window, sometimes right alongside the Uber decal.  After introducing myself to my driver (verifying it is I (s)he is intending to drive) and buckling in for my ride, I will sometimes ask my driver, “I see you drive for both Uber and Lyft.  Which do you prefer?”  Responses seem to vary depending on city, but the majority of drivers I’ve ridden with lately reply “Uber.”  (“Well, that’s relieving given I’m in an Uber and we’re rolling” I think to myself.)  The driver will often continue “I receive more ride requests from Uber than Lyft.”  Drivers typically explain, “Both companies charge the same fees” for use of their platform.  And both Uber and Lyft provide the “flexibility of schedule” and “alternative source of income” the driver wants or needs.

The Challenge of the Continuous Counter Offer

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Uber and Lyft both share the “real estate” of a driver’s window and the driver’s phone.  While the driver’s window is a moving billboard for both companies, switching costs are super low for the driver, and more importantly, the rider.  Indeed, rider loyalty is considerably dependent of the quality of the last trip they took. 

To be sure, from the business perspective of either Brand, having the competitor’s brand also on the same window; indeed, having the driver offer services under both Brands is good because it tends to suggest that the driver is, after all, a contractor rather than an employee (a business benefit to the Brand that is beyond the scope of this article).  But with that business strategy (i.e., construing contractors vs. employees) comes the constant reminder to the rider that they are only an App-switch away from an alternative experience.

It is fundamental CRM 101 that when switching costs are low, the value of strong CRM is high (for the Brand).  Therefore, it is imperative for the company to win the heart and mind (thus wallet share) of the rider by delighting that customer whenever and wherever possible.  In the case of Uber and Lyft this means ensuring riders are happy (and actually ensuring drivers are happy as well – a topic for another time).

Very few, if any other industries face the same challenge as Uber and Lyft.  While airlines are highly competitive, pilots and flight attendants tend to work for only one airline at a time; and you won’t find a “billboard” for Delta on a United airplane.  Nevertheless, in both cases, switching costs for passengers and riders are low—very low early on in the customer lifecycle.  And in the case of ride sharing, switching costs are near zero.  And as the rider loyalty programs are currently structured, they remain near zero.  So, how does one galvanize rider loyalty when the competitive alternative is staring at them continuously in the face?  Well, currently, Uber and Lyft have leveraged similar strategies to “buy” rider loyalty since the start. 

The Experiential Relationship—Good For the First Ride or Three

Uber went after early adopter technocrats by sponsoring events, giving first-time riders a free trial, and adopting a hyper-local strategy that changed shape with each new city the company entered.  Early adopters of Uber have since been able to take advantage of Uber’s referral marketing program.  This give-to-get strategy provides first timers a concrete reason to try the service – a discount code sent from someone the recipient trusts, and rewards of free rides for the early adopter.  

While many are unaware of “Uber VIP”, a program that rewards those that are actually very loyal, the program has been around since 2014.  The only tangible benefit of the program is that VIPs have special access to the highest-rated drivers.  A no cost benefit for Uber; a “boy do I feel special” perk for those who qualified for Uber VIP. 

Uber has also implemented a number of partnerships to entice both first-time and loyal customers to ride with Uber.  Certain Capital One credit card holders can get discounted rides, Starwood Hotels Preferred Guest members can earn hotel points for every Uber trip they take, and Spotify users can link their profile to their Uber account to play their music while they ride. 

And, let’s not overlook the surprise and delight activities of ice-cream delivery, rides with musicians and motivational speakers, and discounts on chowder for Bostonians, or deep-dish pizza for those in Chicago.  When Uber makes a new special offer, loyal customers love the moment, and often share their moment via social media. 

As the competition continues to heat-up in the world of on-demand ride services the Brand who deepens its relationship with both riders and drivers will be king of the map. 

Vesting the Rider Relationship

Its not clear that purely “surprise and delight” or affiliate marketing alone will do the trick to galvanize my loyalty.  Those elements certainly hooked me, but now with that neon pink sign constantly calling to me, what is going to keep me?  Well, the idea of CRM is to actually raise switching costs by personalizing the experience and vesting the rider with the Brand.  The enticements to hook me are not necessarily (I argue unlikely) the ones that are going to keep me.

As of this moment, I don’t yet feel that personalized connection with the Uber brand, (let alone a vested relationship) but I am still riding with them a lot since January 2012.  And that cute pink Lyft sign is always beckoning an alternative.  So, I look forward to more personal messages that recognize who I am, where I am, and how much I’ve ridden with Uber (and how that vests my relationship). 

As a customer engagement strategist myself, I think there is much learning to be had from the United Airlines MileagePlus® program (disclosure: I am a 1K member).  I see a great parallel in terms of how that program works to keep me in the friendly skies (at a time when airline travel seems less friendlier than ever).  Uber needs to keep me in their vehicles (or at least under the service of their App).  And that means vesting me.  United gets it. We’ll see. 

It’s been rumored that Uber may launch a points based loyalty program in the near future.  If so, then I argue that will be a good sign that they understand “vesting the customer relationship” and then the little neon pink sign or decal will be just that, another sign. Time will tell.

I’m sure we’ll revisit how Uber evolves their customer relationship, engagement, and loyalty strategies again—Uber and ride-sharing is a powerful example of so many things: the gig economy; the integration of transportation services as an App into my daily life; and the value of CRM when the same vehicle has competitive offerings hailing me from its windows.

-PJS