Commentary: Could S$1 ride-hailing fee hike hurt Grab more than it realises?
Grab has a fine balancing act to consider yet in this instance, both customers and drivers were not happy, says NUS Business School's Nitin Pangarkar.
SINGAPORE: Grab recently announced a S$1 increase in its base fare effective from Jun 1.
The fare increase is aimed at increasing the earnings of its drivers, albeit marginally.
The hike will apply to Grab’s transport offerings except for Standard Taxi, GrabHitch and GrabCoach.
Grab had earlier offered benefits to eligible drivers before new restrictions under Phase 2 (Heightened Alert) were announced, including rental rebates of up to S$45 a week for GrabRentals, delivery opportunities on the Grab platform, and training and career support initiatives via Grab Academy.
The fare increase has attracted negative reactions from some customers concerned with the timing of the fare increase – in the middle of Singapore’s battle with a second wave of infections.
Grab’s S$1-a-ride assistance to drivers also pales in comparison with enhanced rental rebates supported by the S$27 million top-up to the COVID-19 Driver Relief Fund from May 16 to end-June.
Interestingly, ComfortDelGro, Grab’s closest competitor, seized the opportunity to assure its customers that it was not increasing its price.
In fact, Comfort tried to score points by emphasising it was giving as much as 50 per cent rental rebates until Jun 13,, the possible end date of Phase 2 (Heightened Alert).
(How have taxi drivers coped since COVID-19 hit our shores? Two gentlemen give their honest take on how it's been going in CNA's Heart of the Matter.)
GRAB’S INTEREST: TO ARREST DECLINE IN DRIVER NUMBERS
Grab faces a difficult balancing act. Grab has four key stakeholders – customers, drivers, regulators and investors.
Among the four, regulators and investors are less salient in this particular instance because the implications of the decision are probably not sufficiently significant for them.
Meanwhile, its drivers have experienced almost half the rider numbers since authorities began to tighten rules in May, according to the Land Transport Authority (LTA).
Some of the decline in numbers could be permanent because of the work-from-home trend when LTA also reported that ridership numbers hovered at 80 per cent of pre-COVID in April.
In fact, because of reduced earnings, some drivers have already moved away from driving for Grab full-time.
This is something Grab must arrest. The number of drivers is an important metric because it directly affects the availability of rides for customers. If the number of drivers declines significantly, it could turn away some customers because of longer wait times or because fewer rides are available.
But the price increase doesn’t go far enough for drivers because the incremental income generated is not substantial. Grab would have been better off giving deeper rental rebates to keep drivers on their platform.
Additionally, come July, Grab drivers have to pay the usual commission (at 20 per cent) to Grab on the price increase.
If the intent was to aid drivers in tiding over the next few months where there could be fewer customers, Grab could have easily waived the commission on the fare increase for the foreseeable future.
USER PERCEPTIONS OF GRAB MAY BE IMPACTED ADVERSELY
At the same time, customers may be unhappy because the effect of a seemingly small price increase gets multiplied when they take multiple rides a day. Their perception of Grab is negatively affected.
Grab says its typical customer is young, technology-savvy and an intensive user of ride-hailing services. Surveys also show Singapore Grab users can be price sensitive. Even a seemingly small price increase will rankle these customers.
Perhaps its intent was to raise ride-hailing prices permanently, which it has not since 2017, in order to place its mobility arm on a stronger profitability footing and right-size the number of drivers on its platforms. That could please investors.
While competitors may seize the opportunity to snatch market share from Grab given the negative sentiment surrounding the price increase, Grab has probably calculated that it is not overly concerned about any such impact on its financial results.
For one, the ride-hailing market is far less attractive today than a couple of years ago because of lower demand.
This decline in demand may continue in the future beyond the pandemic, with the progressively wider penetration of the MRT network.
The salience of the ride-hailing business, the only profitable arm of Grab as of end-2020, is also less for Grab because other businesses such as food delivery have experienced strong growth, and the firm has ambitious plans for the FinTech and payments business.
For Grab, deliveries have also overtaken mobility in terms of gross merchandise value and has grown at an estimated compound annual growth rate of 208 per cent over the last three years.
LITTLE GAIN FOR GRAB
From my perspective, Grab gained little by implementing the S$1 increase in base fare other than in making a very small impact on its profits.
Any company would do well to avoid strategic changes that don’t create value for as many of its stakeholders as possible.
Grab could simply have rolled out other benefits to its driver partners without the fare increase and earned some goodwill.
Grab’s balancing act is basically a tussle between keeping drivers happy and satisfying customers yet achieved none in this instance. If the S$1 increase in fare price was supposed to make the drivers happy, it did not have this effect.
Reversing the S$1 policy may help to regain some of the goodwill with customers. While there may be a slight damage to reputation for reversing policies, the impact is likely to be small. People might forget about it in a few days.
An alternative would be, in proposing a fare increase, to offer higher value-add to customers too.
GoJek’s new campaign giving vouchers to Singapore users for vaccination trips sent a positive message encouraging people to get vaccinated.
For now, though, Grab’s permanent S$1 hike is the bitter truth that both drivers and customers may simply have to live with the new changes.
Nitin Pangarkar is Associate Professor in the Department of Strategy and Policy at the National University of Singapore Business School. The opinions expressed are those of the writer and do not represent the views and opinions of NUS.