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The Hidden Fees of the Convenience Economy

How the on-demand economy hides its real price tags

Ringer illustration
Ringer illustration

There’s a certain guilt that overcomes me when I’m locked in a surge-pricing battle with Uber. When I boot up the ride-hailing app, I foolishly balk at the initial offer, every time. 1.4x the normal rate for a ride? Ha! I can outsmart this algorithm. Fifteen minutes later, after I’ve watched that big blue number ping-pong between 1.5x and 3x, I’m at the point of groveling. Please, Uber gods, forgive my insolence. I didn’t mean to offend thee. I slink into a summoned car and pay a 1.7x surge, furious with myself for not just taking the first option.

This cat-and-mouse game, a fundamental and frustrating tenet of the Uber experience, is coming to an end. First, the good news: Uber is implementing upfront pricing in its flagship ride service UberX (UberPool already has the feature). When you boot up the app, you’ll enter your destination, and Uber will provide a finalized fare for your trip before you book, taking into account factors such as the distance of the trip, traffic, and the number of Uber drivers available.

The bad news: Surge pricing is still part of the equation, but you’re no longer privy to the math. Instead of ringing alarm bells in users’ heads with a giant surge warning and a multiplier indicating the additional cost of the ride, Uber will meekly inform users that there is “increased demand” in small font below the fare price, according to The Verge. Whether that demand has caused prices to double, triple, or quadruple, users won’t be able to say for sure.

“The change to the way the pricing is disclosed in an app that lots of people use every day has the potential to rub some people the wrong way,” says Ben Edelman, a Harvard Business School professor who studies online markets. “You’re trusting Uber to give you the fair price for the distance.”

And that blind trust is what the convenience economy thrives on. A growing number of apps that fulfill an ohhhh, I really want rather than a basic I guess I need are masking their pricing structure in hopes that users will mash “I accept higher fare” on their phones ever faster, regardless of the price tag’s details. Postmates, for example, connects consumers to couriers who will hand-deliver everything from a panini to an Xbox. You just have to pay tax, a 9 percent service fee that goes to the company, and a delivery fee that varies based on distance to pay the courier (who is a contract worker, not an employee). And you’re supposed to tip. And, sometimes, there’s Uber-style surge pricing. Add it all up and you get a nightmare known as a $26 Chipotle burrito.

Instacart, another app that caters to the times when being an adult is just too hard (a hired shopper delivers groceries to your house), didn’t disclose that it was charging more for some goods than they cost in store until last year. And even now, the app doesn’t reveal the base in-store prices for groceries, so it’s not clear just how much extra you’re paying for all the convenience.

But that convenience, of course, is worth something — the question is, is there a dollar amount you can assign to it, or a certain price at which we all give up and delete these apps? These apps are profiting off our increasing desire to have whatever we want, whenever we want it. Convenience has long been a potent force in driving consumer habit. In a Harvard Business Review article published in 1992, business consultants Michael Treacy and Fred Wiersema studied why companies like Dell, Home Depot, and Nike, titans in their fields at the time, were finding so much success.

“In the past, customers judged the value of a product or service on the basis of some combination of quality and price,” the pair wrote. “Today’s customers, by contrast, have an expanded concept of value that includes convenience of purchase, after-sale service, dependability, and so on.” With apps that can now summon practically any object (even a hot-air balloon!) at the press of a button, convenience becomes harder to resist, even when there’s an absurd upcharge.

Uber likens its new pricing structure to airlines, which offer tickets at highly variable rates but never explain their pricing formulas. But Vicki Morwitz, a marketing professor at the New York University Stern School of Business, says the comparison isn’t quite accurate. “You can go onto an airline’s website and you can see what the fare is right now for the day you want to travel, and you can also see the fare for surrounding days to find out if there’s a cheaper price,” she says. “If [Uber] tells you what the fare is right now, but they don’t tell you what it regularly is, then you can’t really make that same kind of informed decision that you can with the airline.”

Morwitz suggests that it would be easy for Uber to include the base price for a given ride when it presents an upfront price that includes a surge. It’s a feature some users would clearly appreciate. Ultimately, though, Uber may be betting that simplicity and convenience will trump potential cost savings in consumers’ minds. As the company says, “There’s no complicated math and no surprises: Passengers can just sit back and enjoy the ride.” Hopefully we don’t go broke doing just that.

But what if some of us like doing the math? We enjoy being able to make careful price comparisons rather than letting a slick app drain our wallets in the most user-friendly way possible. The sharing economy is supposed to give us more data to make informed purchasing decisions, right? If these startups are the business titans of the future, it’s crucial they show more transparency — while Comcast might have earned our collective wrath, even it has been more upfront with pricing than many on-demand app businesses.

“There’s a possibility of consumers turning negative toward these apps. Whether that will actually happen, it’s basically Uber’s decision how they want to play it,” says Edelman. “Do they want to keep their goodwill with consumers or squander it?”