Tuesday, August 24, 2010

Thoughts on pricing

I recently had to fly into Oakland airport and needed to get to the South Bay as soon as possible after I landed. As I started exploring my transportation options, I was reminded of a service I signed up for recently called "TaskRabbit". I logged on to TaskRabbit and happily enough, one of the errands I was allowed to request was a ride from one place to another. I therefore decided to put out a request for a ride, mentioned that I need to get to the South Bay ASAP, and requested errand runners to bid on my task.

The responses I got left me puzzled. I got quotes ranging from $65 to $90 for a one way ride of about 45 miles. A taxi ride would have cost me $60. If I had picked up a rental car (one way), I got a quote of $50 and if I were willing to make a round trip to return the rental car, the cost of my transport was approximately $30. This made me think as to how the errand runners might have priced their services. It seems they each based it on their costs (time + gas + mileage).

It occurred to me that they perhaps missed a fundamental point about pricing - they were actively competing against other transportation alternatives available to me, in order to earn my business. While I was willing to pay a small premium for the convenience of having someone wait for me as I walked out the door and not having to pick-up/return a rental car, I was not willing to pay a 100% premium. Instead of pricing competitively from the customer's perspective, they priced it based upon their costs.

This seemed like a great example to share with my blog readers about how to think about pricing, and the importance of examining business decisions from the shoes of customers!

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