Our Thinking

The future of dynamic pricing? What we can learn from paying $82 for a 1-mile Uber ride

  • By Josh Lich, Tom Mercer, and Aaron Tinjum
  • January 7, 2014

There’s been much hoopla over the surge in prices for on-demand car service Uber on New Year’s Eve. Due to spectacularly high demand for rides, Uber’s fares skyrocketed several times above the regular rate.

One Minnesota man, as shown below, took to Twitter to decry his $82 fare for a one-mile journey. He was certainly not alone in his indignation about feeling the bite of Uber’s “dynamic pricing” approach — so called because the price of its service dynamically changes to reflect current supply-and-demand conditions.

Dynamic price changes like those seen on New Year’s Eve are designed to bring supply and demand into alignment. A price bump encourages more Uber drivers to hit the road when demand is high, and correspondingly dampens demand to a level such that there are enough cars to accommodate all passengers willing to pay a given fare.

Although it’s important to note that Uber was and is extremely transparent about its pricing approach, the strong negative reaction of customers to the New Year’s Eve pricing surge raises important questions about the growing emergence of dynamic pricing systems in our lives — from car fares, to the airline industry, to sports tickets

At Opower, we’ve been hard at work for some time in shaping the way in which utilities deploy dynamic pricing to their customers. And though some people’s Uber experience on New Year’s Eve may have been discouraging, we’ve learned firsthand that dynamic pricing need not be deployed in a way that infuriates people (look no further than the reaction of Jerry Seinfeld’s wife); believe it or not, dynamic pricing can be done in a way that engages and empowers them.

Programs like Pacific Gas and Electric’s SmartRate and Baltimore Gas and Electric’s Smart Energy Rewards are at the forefront of the utility industry’s adoption of dynamic pricing mechanisms. Their focus is on using time-varying energy prices to keep a grid-friendly balance between electricity supply and electricity demand, and on designing easy-to-understand rates and rebates that help customers manage their consumption in a personalized and energy efficient way.

Why specifically are programs like these successful? Among other things, they keep price fluctuations as predictable as possible, so that customers can plan ahead; they routinely push information and reminders about price changes to customers; and they create a positive feedback loop (e.g. patting customers on the back who reduce their usage in response to price signals, and giving future-oriented encouragement and advice to those who didn’t).

These are all principles that Opower incorporates in our solutions. Opower’s Behavioral Demand Response platform utilizes dynamic price mechanisms to help customers manage their electricity consumption on peak energy days. 

Itching to learn more about how the utility industry is emerging as an innovator in dynamic pricing? And helping customers save energy in the process?

This Thursday (January 9th), join Ruth Kiselewich (Director of DSM Programs at BGE) and Tom Mercer (Group Product Manager at Opower) for an informative webinar on the importance of time-varying rate mechanisms in the power sector and innovative approaches to getting customers involved.

Building upon a four-year pilot program, BGE’s Smart Energy Rewards program is one of the first utility programs in the country to introduce a dynamic pricing approach that reaches all residential customers with Smart Meters.  The program, launched this past summer, utilizes Opower’s Behavioral Demand Response solution to send millions of personalized alerts and messages to BGE customers before and after peak electricity demand events.

The webinar will take an inside look at:

  • BGE’s comprehensive educational campaign to inform customers about the Smart Energy Rewards program

  • How BGE scaled their pilot program to a territory-wide deployment that will reach 1.1M customers by 2015

  • How customers responded to Smart Energy Rewards in 2013, and how BGE intends to expand the program through 2014 and 2015

To learn more about the future of dynamic pricing in the utility industry, sign up for Thursday’s webinar, Solving the Dynamic Pricing Puzzle! 

About Our Thinking

Our Thinking is just that: it’s the place to find out what’s going on right now in the Opower universe. We discuss current perspectives, opinions, ideas, achievements, and events in the burgeoning fields of energy information, data analytics, and utility customer engagement.