Introducing a radical new pricing model to an existing business is not for the faint-hearted. Just ask veteran German taxi app startup, mytaxi (founded back in 2009), which last January was preparing to shift into a new gear by switching from a fixed fee to marketplace model pricing in its home market of Germany.
Instead of mytaxi taking a set 79 euro cents fee per booked trip, drivers would be asked to choose the percentage revenue share per journey to give to mytaxi — via a slider that initially allowed them to select a proportion of between 3 and 30 percent of the final fare to hand over to mytaxi.
The road to this brave new marketplace model did not run smooth, however. Quite the opposite; mytaxi co-founders Sven Kuelper and Nic Mewes found themselves spending “hours and hours” on the phone in the mytaxi call centre trying to reassure sceptical cab drivers who thought the new pricing was a dastardly trick to force them to pour a third of their revenue into the company coffers.
There was even a demonstration of around 150 drivers outside mytaxi’s Berlin office against the new pricing model.
The company responded to the driver mistrust by reducing the maximum revenue share in the new pricing model to 15% (instead of 30%). And, well, by spending a lot of time trying to reassure drivers about why they were shifting to a marketplace model and asking them to give it a go.
Ultimately a union-style agreement was struck among cabbies to universally select the lowest possible revenue share (3%) — which was at least an agreement that drivers would start testing the waters of the new order.
“The taxi drivers were demonstrating against the new pricing model. That was incredible,” Kuelper tells TechCrunch. “And that was because the pricing model was new, it was something the taxi industry hasn’t experienced before, there were plenty of misunderstandings in the market because it was so new.
“But then at the end of the day most of our taxi drivers said ok we will give it a try — after convincing them via call centre, via thousands of emails. Nic my partner and I spent hours and hours in the call centre trying to explain this new pricing model and what is behind it.
“They were very very sceptical… They were afraid that they couldn’t get any tours if they don’t put 30% inside of the driver app.”
The result of the outreach to sceptical drivers was that most agreed to give the new system a try (some 17,000 of mytaxi’s 18,000 Germany drivers agree — so mytaxi did lose a portion of drivers as a result of the new pricing model).
“In Germany there’s no real alternative to mytaxi except the old traditional dispatch centres. We had 18,000 registered taxis in Germany, and at the end of the day it was 17,000 who said already I’ll give it a try with the new pricing… so we lost around 5% of our taxis,” says Kuelper.
Six weeks on from kicking off its experimental new pricing project, mytaxi has released the first tranche of data on how the model is working — and it shows a small increase in the average commission paid by drivers per journey: 87 euro cents, up from the 79 cent fixed fee of the old model.
This is despite around 50% of the journeys (in February) being assigned to drivers at a revenue share of below 5%. “We have a price increase, but a pretty low price increase,” notes Kuelper.
But he adds that the new pricing model has been worth the turmoil for another reason: an increase in the job acceptance rate — up from 85% to 91%.
“Our problem was is we had plenty of bookings — plenty of people who wanted to get a taxi — but we couldn’t assign all these tours because the price was fixed at 79 euro cents. And there were special hours during the day where the taxi driver said ‘no I’m not going to spend 79 cents on a tour because there are plenty of street hails’. And that was our problem — our problem was our success rate,” he says.
“That has shifted really tremendously. We have a huge impact on our total bookings because suddenly most of our bookings really take place — they work.”
mytaxi’s marketplace model is an alternative to the surge pricing system of taxi startups like Uber, which require the customer to accept a price hike if they want to get a cab during periods of high demand.
mytaxi’s system means the price for the customer does not change, but the revenue share for the driver varies based on factors such as whether it’s a weekend or a week day.
“When we have a lot of demand out there in the street, especially during the weekend then the cab price really decreases — then it’s always around between 3% and 5% [revenue share]. And then during the days it increases up to 8%, 9%,” notes Kuelper.
mytaxi average revenue share under the new pricing model has so far been 7%, it said today.
mytaxi is still clearly in the experimental stage with the new pricing, so has not yet rolled the system out to its other operational markets (Austria, Switzerland, Poland and Spain). That isn’t likely to happen til the end of the year, according to Kuelper.
And, after all the trouble it has had to go to to win over cab drivers to the new pricing system, he stresses that mytaxi has no short-term plans to increase the upper limit on revenue share — not for the next three years at least, he tells TechCrunch.
“I think we leave it as it is for now because otherwise we risk the trust that we so desperately tried to get back,” he says. “Because we’ve experienced such huge debate here… if we would put it back to 30% then I think we would risk losing a huge stack of our fleet.”
mytaxi has also tweaked the algorithm that assigns jobs to drivers to prioritize distance to the customer and quality of the driver, over and above price. Again, with the aim of reassuring drivers they are not being manipulated into handing over more revenue than standard market variables demands.
What has mytaxi learnt from the experiment so far? “We learnt a lot in regards to our communication. We learnt that trust is very very important — that you always have to have a good level of trust to your customers,” says Kuelper.
Having the courage of your convictions when trying something new is also key, he adds. “Everyone was so sceptical when we launched the new pricing model but we launched it and now it works out and everything’s fine and we are really really glad about the results.
“You always take a huge risk when you are implementing something so special and when you are the first.”