Lyft is strategically tweaking its fare structure to increase its rider base. Notably, it aims to phase out surge pricing, also known by the company as “primetime” pricing.
Recently disclosed Q2 2023 earnings show a rise in Lyft riders. The numbers reveal an ascent in active riders, reaching 21,487 from 19,552 in the previous quarter. However, this came at the expense of a drop in revenue per rider by nearly 5% QoQ, a result of the company’s move to maintain competitive pricing.
The most significant takeaway from these developments is Lyft’s attempt to distance itself from the unpopular “primetime” or surge pricing mechanism. This strategy is used to hike fares during peak demand times to lure more drivers onto the platform. But according to Lyft CEO, David Risher, while this might tempt more drivers, it ends up deterring riders who find these inflated rates unpalatable.
Describing surge pricing as an unfavorable method of raising prices, Risher emphasized the strong disapproval it garners from riders. He elaborated on the company’s earnest efforts to minimize it. This is facilitated by an impressive supply of Lyft drivers, which is at its peak in three years, having surged by over 20% YoY. This robust driver availability has precipitated a decrease in rides affected by surge pricing, plunging by 35% from Q1.
Although this strategy diminishes the revenue per ride, Risher perceives it as beneficial for riders and favorable for Lyft’s market performance.
In the competitive landscape of ride-hailing services, where Uber holds a dominant position, Lyft’s decision to cut down surge pricing might emerge as a unique selling proposition, potentially giving it an edge.
In a market dominated by Uber, Lyft’s attempt to move away from surge pricing can be seen as a bid to distinguish itself. By prioritizing rider satisfaction and leveraging its strong driver base, the company is hoping to provide consistent, affordable fares. However, the longer-term financial sustainability of this model remains to be seen. For riders, the move is a welcome relief, but the ultimate success of this strategy will be determined by its impact on Lyft’s bottom line.
