Comment: Could the $ 1 ride-sharing fee hike hurt Grab more than it thinks?

SINGAPORE: Grab recently announced a S $ 1 increase in its base rate effective June 1.

The price increase aims to increase the income of its drivers, albeit marginally.

The ride will apply to Grab’s transportation offerings except Standard Taxi, GrabHitch, and GrabCoach.

Grab previously offered benefits to qualifying drivers prior to the announcement of new restrictions under Phase 2 (Enhanced Alert), including rental discounts of up to S $ 45 per week for GrabRentals, delivery on the Grab platform and training and professional support initiatives through Grab Academy. .

The rate hike has drawn backlash from some customers concerned about the timing of the rate hike – amid Singapore’s battle against a second wave of infections.

READ: Comment: Vaccine variants become the new COVID-19 race

Grab’s per-trip assistance to drivers is also paltry compared to the enhanced rental discounts supported by the S $ 27 million top-up to the COVID-19 Driver Relief Fund from May 15 to the end of June.

Interestingly, ComfortDelGro, Grab’s closest competitor, took the opportunity to assure its customers that it was not increasing its prices.

In fact, Comfort tried to score points by insisting it was offering up to 50% off rentals until June 13., the possible end date of Phase 2 (Enhanced alert).

(How have taxi drivers coped since COVID-19 hit our shores? Two gentlemen give their honest take on how this is going in Inside the CNA Case.)

GRAB’S INTEREST: TO STOP THE DROP IN THE NUMBER OF DRIVERS

Grab faces a difficult balance. Grab has four key stakeholders: customers, drivers, regulators and investors.

Of the four, regulators and investors are less salient in this particular case because the implications of the decision are unlikely to be significant enough for them.

Meanwhile, its drivers have seen nearly half the number of passengers since authorities began tightening the rules in May, according to the Land Transport Authority (LTA).

A private hire driver in Singapore. (Photo: Aaron Chong)

Part of the decline in the number could be permanent due to the trend towards working from home when LTA also reported that the number of users hovered at 80% before COVID in April.

In fact, due to declining income, some drivers have already stopped driving for Grab full time.

This is something Grab needs to stop. The number of drivers is an important measure because it directly affects the availability of trips for customers. If the number of drivers decreases significantly, it could turn away some customers due to longer wait times or because fewer trips are available.

READ: Commentary: Can the F&B industry and food delivery platforms cope better this time around?

But the price hike does not go far enough for drivers because the additional income generated is not substantial. Grab would have done better to give bigger rental discounts to keep drivers on their platform.

In addition, in July, Grab drivers have to pay Grab the usual commission (at 20%) on the price increase.

If the intention was to help drivers fend for the next few months when there might be fewer customers, Grab could have easily forfeited the commission on the fare increase for the foreseeable future.

READ: Comment: Maybe private drivers and food delivery people don’t want full-time jobs

GRAB USERS ‘PERCEPTIONS MAY BE AFFECTED NEGOTIALLY

At the same time, customers may be unhappy because the effect of a seemingly small price increase multiplies when they make multiple trips per day. Their perception of Grab is negatively affected.

Grab says their typical customer is young, tech-savvy, and heavy user of ridesharing services. Polls also show that Singapore Grab users can be price sensitive. Even a seemingly small price increase will bother these customers.

Its intention was perhaps to permanently increase the prices of the races, which it has not done since 2017, in order to place its mobility branch on a more solid basis of profitability and to correctly size the number of drivers. on its platforms. This might appeal to investors.

While competitors may seize the opportunity to snatch market share from Grab given the negative sentiment surrounding the price increase, Grab has probably calculated that he is not too concerned about such an impact on his bottom line. .

Grab Food Delivery Man (2)

A Grab food delivery man collecting lunch orders on Monday, May 17, the second day of phase 2 (Enhanced alert) where meals in catering establishments (F&B) are not allowed. (Photo: Gaya Chandramohan)

On the one hand, the carpooling market is much less attractive today than it was a few years ago due to declining demand.

This drop in demand could continue in the future beyond the pandemic, with the progressively wider penetration of the MRT network.

The importance of the carpooling business, the only profitable branch of Grab at the end of 2020, is also less for Grab as other activities such as food delivery have seen strong growth, and the company has ambitious plans for them. FinTech and payment activities. .

For Grab, deliveries have also exceeded mobility in terms of gross value of goods and have grown at an estimated compound annual growth rate of 208% over the past three years.

READ: Comment: Why Grab is in such a rush to be listed

READ: Commentary: We got to know Grab for its haulage business. This will change soon

SMALL GAIN TO GRAB

From my perspective, Grab has gained little by implementing the S $ 1 increase in base rate, other than having a very small impact on its profits.

Any business would do well to avoid strategic changes that do not create value for as many of its stakeholders as possible.

Grab could have simply offered other advantages to its driver partners without the increase in fares and gained some goodwill.

Grab Balance is basically a struggle between keeping drivers happy and keeping customers happy, but got none in this case. While the S $ 1 fare increase was supposed to make drivers happy, it didn’t have that effect.

READ: Commentary: Food delivery apps are designed to make our lives easier, not for the worse

Reversing the S $ 1 policy can help regain some of the goodwill of customers. While there may be slight damage to the reputation of the policy reversal, the impact is likely to be small. People might forget about it in a few days.

An alternative would be, by proposing a price increase, to also offer greater added value to customers.

GoJek’s new campaign giving Singapore users vouchers for vaccination trips sent a positive message encouraging people to get vaccinated.

For now, however, Grab’s permanent S $ 1 hike is the bitter truth that drivers and customers may simply have to live with with the new changes.

Nitin Pangarkar is Associate Professor in the Department of Strategy and Policy at the National University of Singapore Business School. The opinions expressed are those of the author and do not represent the views and opinions of NUS.


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