Chat with us, powered by LiveChat Uber is notoriously aggressive in its business tacticsIt frequently operates without getting regulatory approval and it often ignores legal concerns; consequently, the company has become a | EssayAbode

Uber is notoriously aggressive in its business tacticsIt frequently operates without getting regulatory approval and it often ignores legal concerns; consequently, the company has become a

Please Answer these 2 Questions from the attached Case Study-Uber.

1)  Uber is notoriously aggressive in its business tactics. It frequently operates without getting regulatory approval and it often ignores legal concerns; consequently, the company has become a lightning rod for criticism. Should Uber be taking more of a “tiptoe” approach when it enters new markets?(1 page is enough)

2)  In its relative short life span, Uber has attracted a lot of media attention. Why is this? What is it about the Uber business model that is both compelling and polarizing? In addition, why has Uber managed to achieve such a high valuation? What are the pros and cons of a high valuation? ( 1 page is enough)

Notes: Please Create one word doc for both questions and highlight these 2 question-answers in PPT also(Main Points highlight in PPT)

UV6878 Rev. May 2, 2016

This case was prepared by Virginia Weiler, Marketing Instructor, University of Southern Indiana; Paul Farris, Landmark Communications Professor of Business Administration, Darden School of Business; Gerry Yemen, Senior Researcher, Darden School of Business; and Kusum Ailawadi, Professor of Marketing, Tuck School of Business, Dartmouth College. Copyright  2014 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved. To order copies, send an e-mail to [email protected] No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden School Foundation.

Uber Pricing Strategies and Marketing Communications

By late March 2016, Uber Technologies, Inc., an e-hail ride-sharing company, was on a roll, rapidly expanding service to untapped markets worldwide and gaining new, enthusiastic customers, as well as a few vocal and visible detractors. Some of its critics were focused on Uber’s practice of “surge pricing,” a tactic that increased rates sharply in times of higher demand for car service. Other groups that disliked the company included competing taxi and limo services, which argued that inadequate driver screening and training endangered consumers and made for unfair competition in the highly regulated industry. In addition, some city governments enacted regulations to limit the number of cars on the road that ride-sharing companies could offer, and others completely banned the service.

Aside from monetizing private cars into ride-sharing services offered around the globe, Uber slowly added a delivery service (UberRUSH) and eventually created an application program interface (API) enabling an Uber button to be added to other organizations’ apps (e.g., Facebook, retailers, florists) for delivery options through UberRUSH and UberEATS for food products.

While Uber explored growth in new markets, competitors in its core space were working hard to take market share. Lyft, Uber’s major U.S. ride-share rival, had raised $1 billion in capital and was investing some of it toward discounts and increased marketing efforts while expanding in major cities across the country.

As Uber’s dominance grew, would striking a balance between becoming ever more present internationally, positioning itself in new service markets, and turning a profit in its home market and competency be the firm’s next major business challenge?

Taxi and Limousine Industry

In 2014, the American taxicab and limousine market was enormous, employing close to 233,700 drivers nationally who earned an average annual salary of $23,210.1 The Bureau of Labor Statistics estimated that there would be a 13% increase in the number of drivers between 2014 and 2024 (more than twice the average total of all occupations). Major cities such as Chicago, Illinois, and New York City, New York, controlled the industry through the use of medallions. New York City alone had 13,437 yellow cabs licensed through the medallion system, as well as 32,000 limousine and livery (call-ahead) vehicles. The number of taxi medallions was fixed, and those sold on the open market could fetch more than $1 million. The New York City Taxi & Limousine

1 United States Department of Labor, Bureau of Labor Statistics, ‘Taxi Drivers and Chauffeurs,” http://www.bls.gov/ooh/transportation-and-

material-moving/taxi-drivers-and-chauffeurs.htm (accessed Mar. 31, 2016).

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Commission calculated a medallion’s annual return on investment as close to 20%. Many cities used the medallion system as a way to ensure income for the medallion owner.2

Taxis were either hailed on the street or sent out after a passenger called a central dispatcher. Livery car service was prearranged; the cars generally could not be hailed on the street, protecting taxis from competition. There was usually a waiting period between the call for a car and passenger pickup, in some cases up to an hour.3

By and large, taxis were regulated at the municipal level and livery services were regulated by state agencies. One method employed by regulatory agencies to ensure that vehicles hailed on the street were licensed was to standardize their appearance. Taxis had a distinctive look (e.g., mustard yellow in New York City) and were required to indicate clearly whether or not they were in service. Other taxi and livery regulations included a set number of vehicle inspections per year, requirements for the location of a taxi service’s dispatch station/business operations, and whether or not customers could be solicited and cars assigned to customers for pickup.4

Taxicabs charged passengers based on time and distance, which were calculated by a taximeter prominently displayed inside the vehicle. Taximeters calculated fares based on a highly regulated and standardized fare schedule (e.g., $3.50 per mile for the first five miles and $5.00 per mile thereafter). Livery vehicles had no taximeters, and fares were usually based on time, or rough distance with a predetermined minimum price that was agreed on in advance. In general, livery vehicles were not allowed to charge based on time plus distance.

When an alternative ride-share option started to develop in the mid-2000s, the International Association of Transportation Regulators, a trade group representing taxicab and livery drivers, took notice. In July 2013, they called for the prohibition of what it called “bogus” and “rogue” ride-sharing services in the name of public safety. In a press release, the association claimed it was protecting the public from unlicensed drivers who could be drug users or criminals. In effect, the trade group called for a ban on mobile applications (apps) that would allow people to make ride arrangements via smartphone.

Taxi and rental-car usage started to dip—but it was unclear whether ride sharing was responsible (see Exhibit 1 for business traveler data). And unrestricted New York City taxi medallions dropped in price from $1 million in 2014 to as low as $400,000 in 20165— only 19 independent unrestricted medallions had been sold in New York City during 2015.6 Yet it seemed that when regulatory agencies failed to protect the industry in New York City, the response was “if you can’t beat ’em…join ’em.” In the fall of 2015, the New York City Taxi and Limousine Commission (TLC) launched a pilot called Alternative Technology, which was a partnership between the organization and tech companies to test products in New York City cabs. One system was GPS-based taximeters and the other an alternative technology system (ATS) that provided driver payments through credit-, debit-, and prepaid-card payment systems (through an e-hail app); driver authentication and text messaging; trip data collection; passenger notifications that included visual accessibility features; automatic vehicle location systems; and driver, medallion owner, and agent reporting.7

2 Steve Chapman, “Ride-Sharing vs. the Taxi Industry,” Chicago Tribune, February 20, 2014. 3 David Hoyt and Steven Callander, “Uber: 21st Century Technology Confronts 20th Century Regulation,” Stanford Graduate School of Business

case study no. P81 (Stanford, CA: Stanford Graduate School of Business, 2012): 2. 4 Hoyt and Callander, 2–3, 5. 5 NYCITYCAB.com, http://nycitycab.com/business/taximedallionlist.aspx (accessed Apr. 27, 2016). 6 Author calculations based on data from the New York City Taxi & Limousine Commission,

http://www.nyc.gov/html/tlc/html/archive/archive_med_transfer_2015.shtml (accessed Apr. 27, 2016). 7 New York City Taxi and Limousine Commission, “Memorandum of Understanding: Terms and Conditions for Taxi and Limousine Commission

Authorization,” http://www.nyc.gov/html/tlc/downloads/pdf/mou_tech_project.pdf (accessed Mar. 22, 2016).

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Uber Background

Uber Technologies, Inc., originally called UberCabs, was founded in 2009 by tech start-up veterans Garrett Camp and Travis Kalanick and headquartered in San Francisco. Uber began as a private luxury car service catering to Silicon Valley’s top executives. In those days, someone in need of a ride had to e-mail Kalanick for a code that would give them access to the app. Kalanick had recognized the potential profit in empty limousine seats and idling taxis. In 2010, watching cars traverse San Francisco, Kalanick was convinced that the concept of technology bringing drivers and passengers together efficiently could scale globally. By 2010, Kalanick had executed an aggressive growth strategy.

Uber’s cofounders had very different roles within the company. Camp, a serial entrepreneur who cofounded StumbleUpon in 2002, acted mostly as a silent partner. From Uber, he went on to another start-up, Expa, which developed new consumer products, systems, and services. The public face and voice of Uber clearly belonged to its other cofounder. Kalanick grew up in Northridge, California. He attended UCLA, but dropped out to develop his first start-up, Scour, a file-sharing program. In 2000, Scour was sued for a quarter of a trillion dollars by the Motion Picture Association of America, for copyright infringement.8 Subsequently, Scour filed for Chapter 11 bankruptcy protection. Kalanick’s next venture, Red Swoosh, a peer-to-peer networking site, was bought by Akamai Technologies in 2007 for $15 million.9

Kalanick was personally involved in efforts to overcome regulatory agencies’ resistance to Uber’s expansion in a number of cities. Indeed, he was described as a “brawler” who relished a good fight, whether it be on Twitter with a competitor’s CEO or with the entrenched taxi and limousine governmental bodies he viewed as a threat to Uber’s growth.10 Uber had encountered significant political headwinds in a number of markets; fierce resistance came from Portland, Oregon; Paris, France; Miami, Florida; Denver, Colorado; and Washington, DC. Some states such as California fined the company for regulatory violations. Uber has had legal clashes in Germany (where it was banned), and in Spain, Colombia, France, Australia, Italy, Denmark, China, and England.11

The company expanded rapidly, and by March 2016, it was operating in 400 cities12 in 65 countries, with more than 162,000 active driver partners.13 Examples of cities served were Abu Dhabi, the United Arab Emirates; Amsterdam, the Netherlands; Bangalore, India; Bogotá, Columbia; Doha, Qatar; London, England; Moscow, Russia; New York City; Rome, Italy; Shanghai, China; Tokyo, Japan; and Zürich, Switzerland (see Exhibit 2 for locations). Kalanick was able to attract influential and high-profile investors whose funding helped fuel Uber’s rapid expansion. Among those financiers were Ashton Kutcher, Jeff Bezos, and Google’s investment division, which in August 2013 gave Uber $258 million in capital.14 The company was valued at $62.5 billion just shy of three years later.15

8 John Borland, “Movie Studios Target Scour with Copyright Lawsuit,” CNET, July 20, 2000, http://news.cnet.com/2100-1023-243432.html

(accessed Apr. 1, 2016). 9 “Akamai Acquires Red Swoosh,” Akamai Technologies, Inc., press release, April 12, 2007,

https://www.akamai.com/us/en/about/news/press/2007-press/akamai-acquires-red-swoosh.jsp (accessed Apr. 1, 2016). 10 Marcus Wohlsen, “What Uber Will Do with All That Money from Google,” Wired, January 3, 2014. 11 B. R., “Taxi Services: Unsafe in The Knowledge,” Economist, July 16, 2015, http://www.economist.com/blogs/gulliver/2015/07/taxi-services

(accessed Apr. 1, 2016). 12 “Uber Now Available in Abuja, Nigeria,” Premium Herald, March 24, 2016, (accessed Mar. 31, 2016). 13 Emily Badger, “Now We Know How Many Drivers Uber Has—and Have a Better Idea of What They Are Making,” Washington Post, January 22,

2015. 14 Wohlsen. 15 Matt Levine, “Uber is Raising More Money from Rich People,” BloombergView, January 15, 2016, http://www.bloombergview.com/articles/2016-

01-15/uber-is-raising-more-money-from-rich-people (accessed Mar. 31, 2016).

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The Uber Product

Uber’s product was a smartphone app that allowed urban dwellers to hail vehicles virtually (see Figure 1). Fares fluctuated, and the company employed no drivers itself. Instead, Uber served as an electronic dispatcher as passengers and drivers connected digitally through its proprietary software. The app matched “willing” drivers and “needy” consumers thusly: a potential passenger, who had downloaded the Uber app onto his or her smartphone, put in a request for a car to take him or her to a specified location. When the passenger requested a ride, he or she got access to a driver’s name, car model, and rating. Based on that information, the passenger could accept or decline the ride.

If accepted, the driver usually arrived within a few minutes. Uber’s short wait times, facilitated by proprietary algorithms that directed drivers to locations where customers were most likely to call, were seen as one of its significant operational advantages. As one customer stated, “I found Uber remarkably convenient, considering chasing down a cab on a New York City weekend evening can be quite the task.”16

Uber’s fares were calculated according to its algorithms—developed by a data-science team of nuclear physics, computational biology, and astrophysics PhDs—which helped match supply with demand. The price for a ride was higher during times of peak usage. Some customers were critical of Uber’s policy of dramatically increasing fares during periods of peak demand (e.g., rush hour, New Year’s Eve, Halloween, and inclement weather), a practice Uber referred to as surge pricing (see Figure 2). Fares were continually adjusted according to a mathematical formula and could be as much as

16 Author interview with Uber user A, January 12, 2014.

Figure 1. Uber app showing Black Car option and UberX option.

Source: Author screenshot from Uber mobile app.

Figure 2. Uber surge pricing notice.

Source: Author screenshot from Uber mobile app.

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seven or eight times the normal Uber rate.17 Kalanick defended the surge pricing policy as one that benefited passengers, since it incentivized drivers to make more pickups. Indeed, scholars had looked at cab driver behavior and found that many (particularly new drivers) did not finish their entire 12-hour shift if they had hit their target income before the shift ended.18

One group of passengers, however, launched a class-action lawsuit against Kalanick and was successful in being granted standing in April 2016. A federal judge agreed with the plaintiffs that Kalanick may have violated antitrust laws against price fixing by organizing “independent contract” drivers to charge higher prices through surges—a claim Kalanick said was “unwarranted” and against which he planned to defend himself and win.

Despite Kalanick’s aggressive defense of surge pricing, Uber lowered some of its rates in January 2014, although no plans were made to eliminate surge pricing. While dynamic pricing had been around for some time in other industries, by 2016, even the storied, service- oriented Disney Company announced that it would implement demand pricing during peak hours at its theme parks.19

Uber charged the customer’s credit card (which was kept in his or her Uber profile) after a trip was completed and e-mailed a receipt to the passenger (see Figure 3). Uber kept 20% of the fare and paid the driver the remaining 80% via direct deposit; the passenger and driver never exchanged money directly. In the first half of 2015, Uber’s gross revenue was estimated to be $3.63 billion ($2.93 billion the previous year).20 Uber’s share of that revenue would be approximately $726 million annually. In a single month during March 2016, Uber made 169 million trips worldwide and 50 million trips in the United States, earning on average $0.19 per ride.21

Uber Business Model

The ride-sharing platform Uber established meant keeping consumers and drivers connected and satisfied. In an article on the costs and benefits of the sharing economy, one author said that the sharing economy “matches people who want to share assets online,” and that “such efficiency gains may come at cost for

17 David Goldstein, “Uber ‘Surge Pricing’ Controversy Is a Cautionary Tale Against Taxi Deregulation,” Stranger, December 20, 2013,

http://slog.thestranger.com/slog/archives/2013/12/20/uber-surge-pricing-controversy-is-a-cautionary-tale-against-taxi- deregulation?oid=18528505&show=comments&sort=desc&display= (accessed Mar. 18, 2014).

18 Colin F. Camerer, “Taxi Drivers and Beauty Contests,” Engineering and Science no. 1 (1997): 11. 19 S. K., “Disney Discovers Peak Pricing,” Economist, February 29, 2016, http://www.economist.com/blogs/freeexchange/2016/02/price-

discrimination-land (accessed Apr. 1, 2016). 20 Amir Efrati, “Uber’s Losses Grow, But So Do Its Profit Projections,” The Information, January 11, 2016, https://www.theinformation.com/ubers-

losses-grow-but-so-do-its-profit-projections?unlock=aabcb5&token=4c278112edde93bcecd8d27043114b45bb862981 (accessed April 1, 2016). 21 Eric Newcomer, “Lyft is Gaining on Uber as It Spends Big for Growth,” Bloomberg Technology, April 14, 2016,

http://www.bloomberg.com/news/articles/2016-04-14/lyft-is-gaining-on-uber-as-it-spends-big-for-growth?cmpid= BBD041416_BIZ&utm_medium=email&utm_source=newsletter&utm_campaign (accessed Apr. 1, 2016).

Figure 3. Uber receipt.

Source: Author screenshot from Uber mobile app.

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traditional economy.”22 Uber did not directly employ drivers; rather, it claimed that it simply facilitated the connection between passengers and drivers, similar to how a website such as Expedia connected passengers and airlines. Uber did not own a fleet of vehicles, although it had guidelines as to what vehicle types its drivers could use for each service. For example, UberX vehicles had to be 2000 models or newer (and 2005 models or newer in some cities), have four doors, seat four passengers with seat belts, and have no cosmetic damage.

Services Uber offered varied worldwide. In most of the markets Uber served, customers could select from one of five services: UberX, UberXL, UberBlack, UberSUV, and UberTaxi. UberX was the least expensive option and dispatched drivers in smaller vehicles than those used for the other services. On its website, Uber claimed that its UberX service (which seated four) was “18% lower than taxi prices.”23 UberXL, the larger cousin to UberX, was for bigger groups: the vehicles seated six passengers and could be a van. And unlike the other services, UberX and UberXL utilized both professional and nonprofessional drivers. UberBlack, the original Uber service, used black town cars; fares for these vehicles were roughly 35% more than for UberX. Still, it was described as the “poor man’s town car”—it targeted those customers who could not afford a full- time driver but who wanted more luxurious transportation than a yellow cab or public transit. UberSUV worked well for large parties and was priced higher than the UberBlack service (see Table 1). UberTaxi allowed passengers to use the Uber app to hail a regular taxi. Unlike users of the other Uber services, customers using UberTaxi paid standard taxi rates, plus a booking fee of a dollar or two, and a 29% tip in some cities.24 (See Exhibit 3 for more Uber services offered in certain geographic areas.)

Table 1. Sample Uber rates in Denver, Colorado, April 2016.

UberX UberXL UberSUV UberBlack Base fare (start with this fare) $0.75 $3.00 $14.00 $ 7.00 Per mile (under 11 miles) $1.00 $1.85 $ 3.75 $ 3.00 Per minutes (under 11 miles) $0.13 $0.00 $ 0.00 $ 0.35 Minimum fare $4.95 $7.95 $25.00 $15.00 Cancelation fee $5.00 $5.00 $10.00 $10.00 Service fee $1.95 $1.95 $ 0.00 $ 0.00 Data source: “Denver Uber Prices,” Uberestimate.com, http://uberestimate.com/prices/Denver/ (accessed Apr. 25, 2016).

After a ride was completed, the passenger and driver could rate each other on a scale of one to five stars. Uber drivers had the right to refuse to pick up a passenger whose rating was three stars or lower. One Uber driver defended this practice by stating that low-rated passengers were “not worth the headache and hassel [sic].”25 In some cases, passengers whose drivers reported them as particularly poorly behaved had their accounts suspended.

There were other advantages for Uber drivers—for example, they did not have to provide kickbacks to human dispatchers to increase the likelihood that the dispatcher would steer fares their way. Drivers were guaranteed to be paid, because Uber had passengers’ credit card information on file. One Uber driver in San Francisco noted that when he drove a taxi, he would make about $300 for a 10-hour shift, whereas with Uber, on a good day, he could make $700. “I hope the new idea will work,” Mohamed Mandour said. “Because then we will be taking over the whole Bay Area.”26 (See Table 2 for wage comparison.)

22 Georgious Petropoulos, “Uber and the Economic Impact of the Sharing Economy Platform,” Bruegel, February 22, 2016. 23 “Getting More for Less on UberX: UberX—Better, Faster, and Cheaper than a Taxi,” Uber Newsroom, November 20, 2013,

https://newsroom.uber.com/us-dc/getting-more-for-less-on-uberx/ (accessed Apr. 1, 2016). 24 “UberX vs. UberSelect vs. UberTaxi vs. UberBlack,” Techboomers, https://techboomers.com/t/uberx-uberselect-ubertaxi-uberblack (accessed Apr.

1, 2016). 25 “While You’re Rating Uber, Uber Is Rating You (and It Could Cost You a Ride),” June 10, 2013, http://sarahsfav.es/2013/06/10/while-youre-

rating-uber-uber-is-rating-you-and-it-could-cost-you-a-ride (accessed Mar. 18, 2014). 26 Brian X. Chen, “Uber, an App That Summons a Car, Plans a Cheaper Service Using Hybrids,” New York Times, July 1, 2012.

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Table 2. Earnings per hour, Uber and taxi/limo drivers, 2014.

Cities Uber Taxi/Limo Boston $20.29 $12.92 Chicago $16.20 $11.87 Washington $17.79 $13.10 Los Angeles $17.11 $13.12 New York City $30.35 $15.17 San Francisco $25.77 $13.72 Average for all Uber markets $19.19 $12.90

Data source: Jonathan Hall and Alan Krueger, “An Analysis of the Labor Market for Uber’s Driver- Partners in the United States,” Princeton University working paper, January 22, 2015, https://timedotcom.files.wordpress.com/2015/01/uber_driver-partners_hall_kreuger_2015.pdf (accessed Apr. 25, 2016).

Uber had market-specific criteria for its drivers. On its website, an individual interested in driving for Uber would select the appropriate city, and the requirements for drivers in that market would appear. For example, in March 2014, if someone interested in driving for Uber in New York City went to the company’s website, he or she would be presented with two sets of criteria: one for UberBlack (town car) and one for UberTaxi (yellow cab).27 For UberBlack, the prospective driver had to have “commercial car insurance, a [Transportation Charter Permit], and an airport permit.” His or her vehicle had to be a black “sedan, crossover SUV, or full-size SUV” that “comfortably seats 4+ passengers.”28 If an individual was interested in becoming an UberX driver, he or she had to be “21 years of age or older,” with “an in-state Drivers License (depending on your state),” and “in- state car insurance” who drove a four-door sedan.29 By the end of 2015, Uber had 162,037 driver partners who had made more than three passenger trips.30

Conflict and Regulators

Generally, Uber conflicts centered on the municipal taxi and/or state limousine regulatory agency insisting that Uber was subject to agency authority since Uber was, in effect, operating as a transportation service. These agencies had strict guidelines about how passengers should contact the service provider, the fare structure, and the labeling and appearance of vehicles.31 The use of nonlicensed drivers and contentions that Uber’s fare platform was a high-tech metered service were the basis of many challenges.

Uber countered these regulatory efforts, insisting that it was merely a service that connected drivers and passengers and was not operating as a transportation company. Therefore, it should not be subject to the rules and regulations governing taxis and livery cars. Uber’s entry into the San Francisco market represented one of its earliest victories against regulatory agencies.32

Meanwhile, it was well known that taxi service in Washington, DC, was replete with problems, including not enough cabs in circulation, unreliable call-ahead service, and a reputation for taking advantage of passengers unfamiliar with the city.33 Passengers also complained that taxis would refuse to take them to certain parts of

27 For updated requirements, check Uber’s New York City website at http://driveubernyc.com/tlc/ (accessed Apr. 29, 2016). 28 “Uber Car Requirements,” I Drive With Uber (blog), http://www.idrivewithuber.com/uber-car-requirements/ (accessed Apr. 28, 2016). 29 http://www.idrivewithuber.com/uber-car-requirements/ (accessed Apr. 28, 2016). 30 Badger. 31 Hoyt and Callander, 2. 32 Hoyt and Callander, 5. 33 Author interview with Uber user B, February 3, 2014.

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the city.34 DC taxicabs, unlike those in New York City, did not accept credit cards. “This is my biggest qualm with them,” one passenger said. “It is 2014. I do not have cash.”35 Another practice passengers disliked was when dispatchers managing the taxi line at major destinations (e.g., Union Station) forced them to share cabs with other passengers they did not know. In this instance, both riders paid the full fare, despite the forced sharing arrangement.36 As one disgruntled passenger said, “In New York City, you would never be forced to share a cab but still pay the full fare.”37

These shortcomings made Washington, DC, an attractive location to Uber, and it attempted to enter the market during the summer of 2012. Uber’s relationship with DC regulators was immediately contentious and resulted in Uber drivers being targeted in stings by city officials and having their cars impounded.38 Uber reached out to its users on Twitter, Facebook, YouTube, and its website and asked for support. The result was 50,000 personal e-mails and 37,000 tweets with the hashtag #UberDCLove being sent to City Council member Mary Cheh, who had initially opposed Uber’s entry into the DC market.39 Cheh subsequently dropped her opposition.

Miami proved to be another market where Uber encountered strong political headwinds. In mid-2013, Uber ran afoul of Miami-Dade County commis

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