Commentary: Grab’s new platform fee may have raised eyebrows but it is nothing out of the ordinary

Commentary: Grab’s new platform fee may have raised eyebrows but it is nothing out of the ordinary

While consumers might not even notice the difference, it is worth understanding the price dynamics and how Grab has changed over the years, says Li Jianggan.

A man walks past a Grab office in Singapore
A man walks past a Grab office in Singapore. (Photo: Reuters/Edgar Su)

SINGAPORE: Grab plans to introduce a S$0.30 "platform fee" on every ride in Singapore. 

For a company that is so embedded into people’s daily lives and transactions, such a move would obviously raise eyebrows, and even concerns whether Grab is abusing its power.

Grab says that it is a common practice, because GoJek did something similar when it introduced a S$0.70 platform fee earlier this year. Uber has such an arrangement too.

While consumers might not even notice the difference, it is worth understanding the dynamics that impact such pricing, and how Grab has changed over the years.

WHICH WAY DO YOU WANT TO GO?

We all remember a time where booking a taxi would incur a fee, of S$2.30 with ComfortDelgro, which takes the vast majority of taxi bookings. 

The taxi industry saw this as fair in compensating for the time drivers take to drive to the pick-up location, as well as the cost to maintain a call centre and relevant technological infrastructure.

Singapore’s taxi pricing was more complicated than that, with multiple surcharges on time and pick-up locations added to the metered fare. Payment through electronic means, such as Nets and credit cards, incurred charges ranging from a fixed S$0.30 to 10 per cent of the fare. 

This is to compensate for the costs of infrastructure and settlement.

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These all made sense economically and logically. However, the additional costs often did not go well with consumers. It became difficult to estimate how much going from point A to point B will cost - the source of many disputes.

I had a glimpse of such customer complaints when I was running Easy Taxi a few years ago - and a significant percentage was due to disagreements over taxi fare.

Some customers who took taxis regularly are also quite sensitive about how much they should pay for a particular itinerary. That’s the reason why drivers used to ask “which way do you want to go by” to minimise such misunderstanding.

UPFRONT PRICING

Ride-hailing apps seem to have turned it upside down. They had not only - for a considerable period of time - made rides cheaper, but also eliminated the need for drivers to ask about the preferred way.

ComfortDelgro taxi booking app
ComfortDelgro taxi booking app (File photo: ComfortDelgro)

Key to this was fixed, upfront pricing. You get to know how much you need to pay for the journey before you decide to take it. If it is too expensive, you can choose either to wait or commute by other means.

When Grab first introduced fixed, upfront pricing, voices in the industry said it did not make sense. On the road, multiple factors could impact the time taken and distance of the trip. Uber stuck with an in-app meter, with multiples to show the surge pricing.

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However, consumers seem to love certainty. Knowing the ride will cost S$30 rather than “2X normal fare” seem to make them feel more comfortable. Uber eventually caved; even ComfortDelGro introduced a fixed pricing option in their revamped app.

It might not be the most efficient method, but it is probably the best in building trust between commuters, drivers and the platform.

Remember, a key purpose of the taxi meter was to introduce some trust and predictability in pricing.

IS IT FAIR PRACTICE?

There is also the question of whether the introduction of such a platform fee is a fair price. Or whether the timing is right.

Ultimately, public transport pricing is always a sensitive topic because it impacts millions of ordinary people. Each fare review invites public discussions. This is the case even when it is debatable whether private rides constitute public transport.

Among the reasons why consumers take up ride hailing apps, price and convenience are probably the most important. While in most cases price and convenience are compromises to be made, in this case, consumers have been enjoying both for a while.

Private Hire Car Driver - Back view for anonymity
Among the reasons why consumers take up ride hailing apps, price and convenience are probably the most important. (Photo: Aaron Chong)

Everyone knows that eventually platforms need to be profitable, in a sustainable way. Gains from efficiency in matching compared to old taxi booking systems can only squeeze the cost to a certain extent.

The S$0.30 institutionalises the costs platforms can charge as part of their revenue, but because the pricing framework reflects supply and demand, it is quite likely that consumers will not even notice the price difference.

While Grab is definitely way ahead of GoJek in terms of market share in the ride-hailing sector, it does not have a monopoly over the rides market. ComfortDelGro still runs more than 10,000 taxis, with its own booking system. 

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This is even before considering the alternative of buses and trains.

With so much transactional data and so many in-house data scientists, it is reasonable to believe that Grab has done the full impact analysis before submitting the proposal to the competition commission.

As for the timing, the move comes at a time when commuting demand has somewhat recovered from the collapse during the circuit breaker. With demand stabilising and slowly rising, it is probably much easier to monitor the impact of such a move, without causing too much disruption.

GRAB CAN’T LOSE RIDE HAILING

Ultimately, while Grab is pursuing an ambition that is much broader, and potentially more profitable. It has a vision of delivery, payment and financial services, it needs ride- hailing as a key value proposition to acquire and retain customers, and boost transactions.

Grab did not follow GoJek in the pricing war last year in Singapore, and it did not engage in a promotion war against foodpanda during the circuit breaker.

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It has grown from a super-charged, disruptive company to a measured, disciplined one with a strong focus on its path to profitability, despite the effects of the current hardship.

As a consumer, expect less promotions, but increased demand for service levels, as one would with any mature consumer company, whether in public transport or otherwise.

Li Jianggan is founder and CEO of Momentum Works, a Singapore-based venture outfit. He was also previously MD Singapore of Foodpanda, co-founder and Regional MD of Easy Taxi.

Source: CNA/ml

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