Pricing models for PickUsUp
Concerning the revenue streams for our service, we had to determine the customers’ willingness to pay as well the ideal pricing model (based on zones or distance & time). However, even after determining ways of soliciting our customers’ preferences for the two characteristics mentioned above, we were still lacking an exact model of price calculation.
We decided that pricing based on different tariffs would be most appropriate for the PickUsUp service. We will assume a basic fee of 5€ for our service plus a variable fee based on the model preferred by our customers.
Following an approach with different tariffs is due to the following reasons:
Since our drivers will demand a higher wage during late working hours, we have to adjust our prices at these hours.
Demand will vary considerably depending on the time of the day as well as the day of the week. We aim to maximize our revenue by applying a higher tariff to the hours and days with an expected increase in demand (mainly relevant for the weekend).
Our tariffs are then built by using different coefficients based on the aspects mentioned above for calculating our final price. We established four different tariffs with corresponding coefficients:
T1 is the discount tariff – coefficient of 0.9
T2 is the basic tariff – coefficient of 1
T3 is the intermediate tariff – coefficient of 1.1
T4 is the premium tariff – coefficient of 1.2
These tariffs can be applied both to the zone model and the distance & time model depending on customer preferences.
Distance & Time Model
In order to determine exact prices, we ran simulations for taxi services between several main neighborhood/leisure places in Lisbon. We used the simulator with the best feedback in terms of customer reviews from taxi customers: Taximeter
(values in euros for one way ride during day period, from 6am to 9pm)
From the analysis above, we can conclude that taxi fares in Lisbon vary approximately between 1,5 euros per kilometer (for short distances, around 2-3 kilometers) to slightly more than 1 euro per kilometer (for long distances, around 11-13 kilometers).
This example takes into consideration normal traffic in Lisbon, thereby the time variable is indirectly consider for the price calculation. Therefore, some adjustments should probably be made in the final price in case of unexpected traffic conditions.
Given the results of our analyses, we would suggested the usage of the following values for the PickUsUp service:
basic fee of 5€
for distance up to 5 km: 2€ per kilometer (note that even if the calculation gives a price under 5, customer will always pay the basic fee of 5 euros)
from 5-10km: 1.75€ per kilometer
more than 10 km: 1.5€ per kilometer
Let’s exemplify: We assume a service from Santos to Saldanha (8.5 km) on Saturday 11pm.
Solution: A 8,5 km service is charged 1.75€ per kilometer. As a result we will have 8,5*1,75€=14.88€. Since Saturday 11 pm is charged by tariff 3 (T3), 14.88€ needs to be multiplied by the respective coefficient, 1.1.
In the end, the final price of the service will be 14.88€*1.1=16.37€.
Instead of the normal 9.55€ of the taxi, a customer will pay 16.37€ to be taken home with his/her car.
Zone Model
In the case of the zone model, the basic fee corresponds to the price paid in case the service is inside the same zone/ 1-zone service. Afterwards, for the 1st, 2nd or 3rd transition of zones, there is a corresponding fee. The fares are the following: (again the fares were estimated based on the values found for the normal taxi services)
Basic fee: 7 euros
1st transition of zone: 5 euros
2nd transition of zone: 4 euros
3rd transition of zone: 3 euros
Again let’s exemplify using the same trip, a service from Santos to Saldanha (zone 2 to zone 6) on Saturday 11pm.
Solution: The path of the driver will be through zones 2-5-6. The price will include the basic fee (7€) + 1st transition (from zone 2 to 5, 5€) + 2nd transition (from zone 5 to 6, 4 euros) =7+5+4= 16€. Again, this value needs to be multiplied by 1.1 due to the intermediate tariff (T3) of Saturday 11pm. Final price = 16*1,1= 17,6€.
In this case (Santos to Saldanha), the customer would pay slightly less using the zone model than the traditional distance & time model.
