Uber and Lyft: How Driver Incentives Drive Retention

Until the day that autonomous cars are feasible, Uber and Lyft need drivers. And while drivers are the biggest cost center for these companies, they are not necessarily loyal to any single company. Most drivers work for the company who pays the most at any given time. To that end, Uber and Lyft should carefully consider driver incentives that can build driver loyalty over time.

Healthy and Unhealthy Incentives
Here’s an example of a healthy incentive. Let’s say that Uber’s data shows that there’s an extremely high-volume event coming up. The Big Game is letting out and there’s going to be 80,000 people coming out of a stadium, a large percentage of whom are going to call an Uber. The company knows that Uber drivers near the stadium are going to do a lot of business. So, Uber issues a guarantee. They tell drivers ahead of time, “Hey, if you come to the stadium at this specific time frame, we will guarantee that during that time frame you’ll make $30, $40, $50 an hour.” Drivers will make more money and Uber doesn’t have to pay anything out of pocket. Everyone wins.

An unhealthy incentive is the sort that happened at the very height of ride sharing companies’ competitive dynamics. Uber tried to edge out competitors – in China with DiDi, in India with Ola Cabs, and somewhat in the U.S. with Lyft – by offering drivers a small bonus for every Uber trip. Deeply unhealthy. Often, trips could be super-short, and the bonus they were giving drivers would represent Uber’s entire margin.

The Right Incentives for the Right Drivers
Depending on their market, who they are, and who they’re driving for, drivers will fall into different “buckets,” each with their own preferences.

Most of Uber’s drivers in the United States, for example, are part-time. Approximately 90% of the people who worked as Uber drivers in the last month are people who have done between one and 10 trips as a driver. By contrast, a smaller percentage of drivers are full-time – driving anywhere from 40-60 hours a week. The dynamics of each of these cohorts and what motivates them are fundamentally different.

The people who drive full-time are motivated by the bottom line. Will the incentive increase the amount of money going into their bank account this week? The part-time drivers often care more about what time of day such incentives are happening and what the overall driver experience is, and are generally less concerned with the bank account implications of a given incentive.

Designing incentives to drive retention is based on being able to accurately identify (based on fairly small amounts of data) what motivates a given driver, an ongoing challenge for basically every ride-sharing company. Drivers are often tracking the incentives of multiple platforms at the same time and companies do not want to fall behind their competitors. No ride-sharing company has yet cracked the incentive challenge to date.

This post is excerpted from the GLG teleconference, Uber/Lyft: Impact of Gig Economy on Profitability. If you’d like to access the full transcript or talk to Neehar (or any of our more than 700,000 subject matter experts), please submit the form below.

Neehar Garg, Former Product Manager and Product Operations at Uber

Neehar Garg is the former Product Manager at Uber Technologies, Inc. In the three years he was at Uber (2014-2017), he held a variety of roles both in driver operations (in Chicago and across India) and product management where he was responsible for new driver supply, onboarding new drivers who lacked cars across 45+ countries, and building sustainable and productive driver ecosystems in markets. His experience also included nascent and experimental ventures such as large-scale vehicle partnerships, hourly rentals and bikesharing, among others. Neehar is currently the Head of Product at Mapper.ai, a repository of up-to-date 3D Machine Readable base maps, particularly useful for autonomous and semi-autonomous vehicle use cases.