Uber is dropping the 5% discounts on eligible rides that it previously offered members of its Uber One subscription service, according to an email sent out to customers. Starting on their next billing cycle, subscribers will now earn 6% so-called “Uber Cash” on eligible rides that can be spent on Uber and Uber Eats.
It’s a risky move for Uber as the ride-hailing and delivery giant aims to boost bookings among subscribers. Since Uber launched Uber One in 2021 for $9.99 per month or $99.99 annually, discounts on rides have been a huge adoption driver. According to Uber’s full-year earnings report, Uber One memberships grew 100% in 2022 to roughly 12 million members. While Uber can increase its profit margins by switching to a cash back offer, it also faces the possibility of losing customers who are in it for the discounts.
“I only subscribed for the discounted rides, so I’ll go ahead and cancel now,” Harri Weber, a colleague and erstwhile Uber One subscriber, told TechCrunch.
Ditching the 5% discount might also send Uber users into the arms of Lyft, whose Lyft Pink membership still offers 5% off on rides.
Moving away from ride discounts also runs counter to CEO Dara Khosrowshahi’s statement during the company’s first-quarter earnings call that “the goal of Uber One is really we are giving a discount to our best customers in order to drive frequency.”
Uber said in the email that other member benefits like the $0 delivery fee and up to 10% off eligible Uber Eats orders aren’t going anywhere, so those who signed up for the membership mainly for takeout deals can breathe a sigh of relief.
The shift comes almost a year after Uber shut down its free loyalty program, Uber Rewards, which allowed riders to earn points for every dollar spent on rides or deliveries. The points would then be used to get discounts on future services, access to highly rated drivers, free upgrades and other perks.
Pursuing quality customers over quantity
Uber didn’t comment on why it decided to make this change now, but a spokesperson’s PR-sanitized statement does indeed provide us with some clues.
“As Uber One is the best way to save across Uber and Uber Eats, we’re making it even easier to use your benefits on Uber’s full suite of products,” Becky Katz Davis, consumer communications lead at Uber, told TechCrunch.
Uber even suggests that members use their newfound Uber bucks to splurge on flashier, roomier vehicles or put them towards their next Uber Eats order. This desire for cross-pollination is in line with Uber’s recent spate of new products and features that are designed to create stickiness between ride-hail and delivery within the app, rather than just acquire new users.
Uber has garnered a reputation for scaling rapidly with an almost cutthroat acquisition style. But as the company matures and shifts its attention from growth to profits, perhaps bringing on new customers is now a secondary goal. What if this cash back strategy signals that Uber is now pursuing customer quality over quantity?
Generally speaking, discounts lead to higher acquisitions because they provide customers with instant gratification, rather than the delayed gratification of cash back. However, those acquisitions come with a price. Khosrowshahi has said bringing on Uber One subscribers has been initially loss-making because the discounts exceeded the value of their frequency. Over time, though, that membership “creates a significant moat and a significant growth opportunity,” said Khosrowshahi during Uber’s full-year earnings call.
Uber One members end up spending four times as much as non-members, and retention is 15% higher among members, according to Khosrowshahi. The subscription service also makes up a higher percentage of overall bookings. As of March 31, Uber One members made up 27% of total bookings, and Uber hopes to increase that number to 50% or more in the U.S. Khosrowshahi said Uber One penetration is already higher than 50% in other markets.
If losing the discounts doesn’t scare too many people away, the cash back deal has the potential to offer better margins for the business, stronger customer retention by tying users to future services, and guaranteed future sales.
“Uber One members are profitable,” said Khosrowshahi during the company’s first-quarter earnings call. “And what we find is it’s a very, very effective way, essentially, to draw frequency and higher engagement with our customer base.”
A brief history of Uber subscriptions
Uber One officially launched in 2021, but Uber had originally started a subscription service called Ride Pass back in 2018. The $15-per-month service allowed riders in a handful of cities to lock in a set price for any ride they took. In 2020, Ride Pass turned into Uber Pass, a U.S.-wide subscription service that gave customers 10% off UberX, XL and Comfort rides and 15% off Black, SUV and Premier rides for $25 per month. Under Uber Pass, customers also got 5% off Uber Eats orders over $15 and free delivery, as well as free delivery on grocery orders of over $40.
When Uber One launched in late 2021, the deal was $9.99 per month or $99.99 per year for 5% off eligible rides and 5% off eligible deliveries, as well as free delivery on food orders over $15 and grocery orders over $30.
Uber drops ride discounts for subscribers, switches to cash back by Rebecca Bellan originally published on TechCrunch
Originally published at techcrunch.com